What changed
The One Big Beautiful Bill Act (OBBBA) permanently restored 100% bonus depreciation for qualifying property acquired and placed in service after January 19, 2025. Under prior law, the bonus rate was 40% in 2025, heading to 20% in 2026 and expiring entirely in 2027.
On January 14, 2026, the IRS issued Notice 2026-11 providing interim guidance on applying the restored 100% rate. The notice confirms the full first-year deduction for qualifying property and includes a transition election: taxpayers may elect the prior 40% rate (or 60% for certain long-production-period property and aircraft) for property placed in service during their first tax year ending after January 19, 2025. The official IRS guidance page is at IRS.gov.
Why it matters to investors
Bonus depreciation applies only to property with a MACRS recovery period of 20 years or less — the building structure (27.5-year residential or 39-year commercial) still does not qualify directly. The beneficiaries are the shorter-life components identified through a cost segregation study: appliances, carpeting, specialty wiring, and fixtures (5-year property), office furniture (7-year), and land improvements such as parking lots, fencing, and landscaping (15-year property).
With a 100% rate, every dollar of qualifying component cost is deductible in year one. On a property where a cost segregation study identifies $300,000 of qualifying components, the entire $300,000 is deductible immediately versus $120,000 under the prior 40% rate — a significant acceleration that improves after-tax cash flow and internal rate of return. The permanent restoration also removes the timing pressure of the phase-down schedule; investors no longer need to rush a purchase to capture a higher rate.
Passive activity loss rules still apply. Most rental investors cannot use bonus depreciation losses against wages or active income unless they qualify as a Real Estate Professional (REPS) — spending more than 750 hours per year in real property trades and more than half their total working hours in real estate — or the property qualifies as a non-passive short-term rental (average stays of 7 days or less with material participation). For passive investors, unused losses carry forward indefinitely and release in full when the property is sold.
What to do
If you placed qualifying property in service after January 19, 2025, confirm with your CPA that you are applying the full 100% bonus rate rather than the prior 40% rate, unless you elected to use the old rate for the transition year.
If you have not had a cost segregation study performed on a recently acquired property, the permanent 100% rate makes the analysis compelling: every dollar of qualifying component is deductible immediately, with no concern about a future rate cut. Estimate your potential first-year savings with the cost segregation calculator before engaging a study firm.
If your property was placed in service during the transition period (the first tax year ending after January 19, 2025), discuss the transition election with your tax advisor — the 40% rate may be preferable if you cannot currently use large passive losses.
Educational context only. Tax rules vary by situation; consult a qualified tax professional before acting. Source: IRS Notice 2026-11 and coverage by BDO Tax.
Frequently asked questions
Does the 100% bonus depreciation rate now apply to the rental building structure itself?
No. The building structure — depreciated over 27.5 years for residential rental property or 39 years for commercial — does not qualify for bonus depreciation under any rate. Only property with a MACRS recovery period of 20 years or less is eligible. A cost segregation study identifies the shorter-life components that qualify, typically 15–30% of a residential building's depreciable basis.
Can passive rental investors use the restored 100% bonus depreciation against their W-2 income?
Generally no. Passive activity loss rules still apply in full. Bonus depreciation losses from most rentals are passive and can only offset passive income unless you meet the Real Estate Professional Status test (750+ hours in real property trades, more than half your working hours) or the property qualifies as a non-passive short-term rental. Unused passive losses carry forward indefinitely and release in full in the year of a complete, taxable sale.
Sources
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.