For property acquired on or before January 19, 2025 (or, if self-constructed, begun on or before that date), bonus depreciation stays on the TCJA phase-down: 20% for property placed in service in 2026, the rate that applies to the 5-, 7- and 15-year components a cost segregation study separates from a building.
Under the One Big Beautiful Bill Act, 100% bonus depreciation is permanent for qualified property acquired after January 19, 2025; for self-constructed property, construction must have begun after that date. Which rate applies depends on the acquired date (generally the written binding contract, not the closing date) and the property's classification. IRS Notice 2026-11 gives interim guidance. Bonus depreciation covers only property with a recovery period of 20 years or less, so a cost segregation study is how you identify those components inside a building. This post is about the property still on the phase-down; bonus depreciation in 2026 for real estate owners is the overview.
Per IRS Notice 2026-11 the acquired-date test turns on the written binding contract, not the closing date: the acquired date is the latest of the date the contract was signed, the date it became enforceable under state law, the end of any cancellation period, and the date any contingency was satisfied (Treas. Reg. §1.168(k)-2(b)(5)(ii)(B)). This applies to a written binding contract, meaning one enforceable under state law that does not limit damages to a specified amount (for example through a liquidated damages clause); under a contract that is not binding in that sense, the acquired date is generally when the taxpayer has paid or incurred more than 10 percent of the total cost, excluding land and preliminary activities (Treas. Reg. §1.168(k)-2(b)(5)(iii) and (v)). Self-constructed property, including property built for the taxpayer under a written binding contract entered into before construction began, is acquired when physical work of a significant nature begins; paying or incurring more than 10 percent of the total cost (excluding land and preliminary activities) is a safe harbor. The January 19, 2025 acquired-date test walks through each case with examples. The table shows which bonus rate the 5-, 7- and 15-year components from a cost segregation study receive under each rule.
| Property | Bonus depreciation rate |
|---|---|
| Acquired after Jan. 19, 2025 (or, if self-constructed, construction begun after that date) | 100%, permanently, under the One Big Beautiful Bill Act |
| Acquired on or before Jan. 19, 2025 (or, if self-constructed, construction begun on or before that date) | TCJA phase-down by placed-in-service year: 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, 0% in 2027 and later (each rate one year later for long-production-period property and certain aircraft) |
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The Phase-Down Schedule (Property Acquired On or Before Jan. 19, 2025)
When Congress passed the Tax Cuts and Jobs Act in December 2017, it raised bonus depreciation to 100% for property acquired and placed in service after September 27, 2017, and extended it to certain used property for the first time. For cost segregation, that was transformative: short-life components identified in a study could be expensed in Year 1 rather than depreciated over 5 to 15 years.
The TCJA scheduled that 100% rate to phase down, and for property acquired on or before January 19, 2025 it still does. Under IRC §168(k)(6), the rate for that property depends on the year it is placed in service:
- Through 2022 (property acquired after Sept. 27, 2017): 100%
- 2023: 80%
- 2024: 60%
- 2025: 40%
- 2026: 20%
- 2027 and beyond: 0% (no bonus depreciation for this property, except long-production-period property and certain aircraft, which get 20% in 2027 under §168(k)(6)(B); the reclassified components are still recovered over 5, 7 or 15 years under MACRS)
"Except as provided in subparagraph (B), the term 'applicable percentage' means— ... (v) in the case of property placed in service after December 31, 2025, and before January 1, 2027, 20 percent." — IRC §168(k)(6)(A) as enacted by the Tax Cuts and Jobs Act of 2017, the schedule that governs property acquired on or before January 19, 2025; subparagraph (B) gives long-production-period property and certain aircraft one more year at each rate
The One Big Beautiful Bill Act's permanent 100% rate applies only to property acquired after January 19, 2025 (or, if self-constructed, begun after that date), so this schedule still governs earlier acquisitions placed in service in 2026 and later. For the current-year picture across both rules, see what bonus depreciation in 2026 means for real estate owners.
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Example: A Pre-2025 Acquisition Placed in Service in 2026
Consider a $10 million commercial office building whose construction began in 2024 and that is placed in service in 2026, so it is on the phase-down. Assume a cost segregation study identifies 25% of the depreciable basis — $2,500,000 — as 5-year and 15-year property (an assumed share for this illustration, not a benchmark; the share depends on the building). Here is the bonus depreciation on that $2,500,000 in Year 1 at each rate; whatever is not bonus-depreciated is recovered under MACRS over 5 to 15 years, starting in Year 1:
- 20% bonus (placed in service in 2026): $500,000 in Year 1; $2,000,000 over the MACRS schedule
- 60% bonus (had it been placed in service in 2024): $1,500,000 in Year 1; $1,000,000 over the MACRS schedule
- 0% bonus (had it been placed in service in 2027 or later): no bonus; the full $2,500,000 over the MACRS schedule
- 100% bonus, for the same $2,500,000 of short-life basis in a property acquired (or, if self-constructed, begun) after Jan. 19, 2025: the full $2,500,000 in Year 1
As illustrations at a 37% federal marginal rate, and only if the deduction is usable in Year 1: the $1,000,000 gap between the 60% and 20% rates is about $370,000 of Year 1 federal tax, and the full $2,500,000 at 100% for post-January 19, 2025 property is about $925,000. Both are timing differences, not permanent savings: the same basis is recovered over the property's life either way. Before choosing who runs the study, how cost segregation firms compare covers the field, and cost segregation for large properties covers a building this size.
Why Does Timing Matter If the Total Deduction Is the Same?
Bonus depreciation changes when a deduction is taken, not how much basis is recovered, and a dollar of tax saved this year is worth more than a dollar of tax saved years from now. At an assumed 7% discount rate (an illustration; the right rate depends on the owner's cost of capital), $1 of tax saved three years from now is worth about $0.82 today, so pushing a deduction three years out gives up roughly 18% of the present value of its tax benefit.
The deduction does not disappear for anyone in 2027. For property acquired on or before January 19, 2025 and placed in service in 2027 or later, the bonus rate is 0% (bonus depreciation in 2027, by acquired date), but a cost segregation study still moves components into 5-, 7- and 15-year MACRS schedules — including qualified improvement property, the 15-year asset hiding in a build-out — which recover that basis far faster than the 39-year (or 27.5-year residential) structure. For property acquired, or whose construction began, after January 19, 2025, the 100% rate has no scheduled end date.
The placed-in-service date still matters under both rules: it decides the tax year in which the deduction is claimed, and for property acquired on or before January 19, 2025 it also sets the phase-down rate.
"Property shall be considered as first placed in service when first placed in a condition or state of readiness and availability for a specifically assigned function, whether in a trade or business, in the production of income, in a tax-exempt activity, or in a personal activity." — Treasury Regulation §1.167(a)-11(e)(1)(i)
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Which Rule Applies to Your Property?
If you acquired or began building after January 19, 2025, the question is no longer how fast the rate is dropping. It is whether your property's short-life components have been identified so they can be deducted. If you acquired before that date, 2026 is still the 20% year for property placed in service this year, and a study can still reclassify components into 5-, 7- and 15-year property. Which rule applies to your property depends on your contract dates, property type and ownership structure, so confirm with your CPA or tax attorney. Run your property's numbers or start a study.
Frequently Asked Questions
What bonus depreciation rate do cost segregation components get in 2026 if the property was acquired before Jan. 20, 2025?
Qualified property acquired on or before January 19, 2025 (or, if self-constructed, whose construction began on or before that date) and placed in service in 2026 gets 20% bonus depreciation under the TCJA phase-down in IRC §168(k)(6)(A), or 40% if it is long-production-period property or certain aircraft, which get each rate one year later under §168(k)(6)(B); property acquired after January 19, 2025 gets 100%, permanently, under the One Big Beautiful Bill Act. Only property with a recovery period of 20 years or less qualifies for either rate, which is what a cost segregation study identifies, and the rest of the reclassified basis is still depreciated over 5, 7 or 15 years instead of 27.5 or 39.
Does the building itself qualify for bonus depreciation, or only what a cost segregation study reclassifies?
Only the shorter-life property qualifies, not the building structure: bonus depreciation under IRC §168(k) applies only to property with a MACRS recovery period of 20 years or less, so the 27.5-year (residential) or 39-year (commercial) building structure does not qualify. A cost segregation study is what identifies the 5-, 7- and 15-year components inside the building that are bonus-eligible.
Is the acquired date for the bonus depreciation test the closing date?
No, for the January 19, 2025 bonus depreciation test the acquired date is generally set by the contract, not the closing. Per IRS Notice 2026-11 the acquired-date test turns on the written binding contract, not the closing date: the acquired date is the latest of the date the contract was signed, the date it became enforceable under state law, the end of any cancellation period, and the date any contingency was satisfied (Treas. Reg. §1.168(k)-2(b)(5)(ii)(B)). This applies to a written binding contract, meaning one enforceable under state law that does not limit damages to a specified amount (for example through a liquidated damages clause); under a contract that is not binding in that sense, the acquired date is generally when the taxpayer has paid or incurred more than 10 percent of the total cost, excluding land and preliminary activities (Treas. Reg. §1.168(k)-2(b)(5)(iii) and (v)). Self-constructed property, including property built for the taxpayer under a written binding contract entered into before construction began, is acquired when physical work of a significant nature begins; paying or incurring more than 10 percent of the total cost (excluding land and preliminary activities) is a safe harbor.
Can I run a cost segregation study on a property I already own?
Yes, for a property you placed in service in an earlier tax year and still own: a cost segregation study can be applied retroactively, with the catch-up depreciation captured through a Form 3115 change in accounting method on the current return. Under the automatic change procedures of Rev. Proc. 2015-13 and section 6.01 of Rev. Proc. 2025-23, the missed depreciation is claimed on Form 3115 with no amended returns when the property has been depreciated on two or more filed returns, or on one filed return if the taxpayer placed it in service in the tax year immediately before the year of change (the year of the return the Form 3115 is filed with), and the taxpayer still owned the property at the start of the year of change and meets the other eligibility rules. Your CPA applies the bonus rate that fits each component's dates: 100% for property acquired after January 19, 2025, and for property acquired on or before that date, the phase-down rate for its placed-in-service year. A prior election out of bonus depreciation cannot be undone through this change (section 6.01(1)(c)(vi) of Rev. Proc. 2025-23).
