What Is the Bonus Depreciation Rate in 2026?
Bonus depreciation in 2026 is 100%, permanently, for qualified property acquired after January 19, 2025 (or, if self-constructed, begun after that date), and on the TCJA phase-down for property acquired on or before that date; because it covers only property with a recovery period of 20 years or less, a cost segregation study finds that property inside a building.
This is the overview of bonus depreciation and cost segregation for owners: the acquired-date test settles which rate your property gets, and the 2026 phase-down covers the rate for property still on the old schedule.
For real estate owners weighing a cost segregation study, 2026 is a turning point. After eight years of watching the Tax Cuts and Jobs Act bonus depreciation rate phase down — 100% through 2022, then 80%, 60% and 40% — the rate was on a path to expire entirely.
New legislation reversed that path and restored 100% bonus depreciation on a permanent basis for qualifying property acquired — or, for self-constructed property, begun — after Jan. 19, 2025. That means a full first-year write-off of eligible short-life assets is once again available for new acquisitions, and this time it is not scheduled to disappear. (Property acquired on or before that date stays on the old phase-down — 20% for a 2026 placed-in-service year. The dividing line is explained in detail in our acquired-date test explainer.)
This is a meaningful change in how real estate owners should think about depreciation. The "use it before it phases out" urgency of prior years — how the phase-down still applies to pre-Jan. 20, 2025 acquisitions — is gone for property acquired after that date. In its place is a stable, permanent rule — and a much larger reason to make sure your property's short-life components are actually identified so they can be expensed. That identification is exactly what a cost segregation study does.
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What Does Bonus Depreciation Actually Do?
Bonus depreciation, governed by IRC §168(k), lets you deduct a percentage of the cost of qualifying property in the year it is placed in service, instead of spreading that cost across its normal recovery period. At 100%, the entire cost of eligible property is deductible in Year 1.
Here is the catch that trips up many real estate owners: the building itself does not qualify. Bonus depreciation applies to property with a MACRS recovery period of 20 years or less — typically the 5-year personal property and 15-year land improvements inside a building, not the 27.5-year or 39-year structure. A commercial building sitting on your books as a single 39-year asset has almost nothing bonus-eligible. The short-life components are buried inside that lump basis, and until they are broken out, you cannot bonus-depreciate them.
"The term 'qualified property' means... property which has a recovery period of 20 years or less." — IRC §168(k)(2)(A)(i)
What Does Cost Segregation Reclassify for Bonus Depreciation?
A cost segregation study is a tax analysis that reclassifies portions of a building from long-lived structural property (27.5 or 39 years) into shorter-lived categories: 5-year personal property, 7-year property, and 15-year land improvements. A separate 15-year category — qualified improvement property, the 15-year asset sitting inside an interior build-out — covers interior improvements to a nonresidential building placed in service after the building itself was first placed in service. The IRS formally recognized this approach in Hospital Corporation of America v. Commissioner, 109 T.C. 21 (1997), and documents its methodology in the Cost Segregation Audit Techniques Guide.
The connection to bonus depreciation is direct: everything a study moves into the 5-, 7-, and 15-year buckets becomes bonus-eligible. With 100% bonus permanent again for property acquired after January 19, 2025, those reclassified components can be fully deducted in the year the property is placed in service rather than over the next five to fifteen years. Without a study, that basis stays trapped in the 39-year schedule, earning a sliver of deduction each year.
A cost segregation study moves part of the depreciable basis into bonus-eligible short-life categories: multifamily typically reclassifies 20–30% of the depreciable basis (a planning band, not a promise). In a hypothetical $10 million depreciable basis where the study identifies 25% — $2.5 million — as 5- and 15-year property, that is $2.5 million of additional first-year deduction under 100% bonus (for property acquired after January 19, 2025), versus a few percent if it stayed on the 27.5- or 39-year schedule.
At a 37% federal marginal rate, that is roughly $925,000 of first-year tax benefit that would otherwise be spread across decades.
You can model your own property's numbers with our cost segregation calculator before committing to a study.
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Does Placed-in-Service Timing Still Matter?
Even with a permanent 100% rate, when property is placed in service still decides the tax year in which bonus depreciation is claimed, while whether 100% can apply at all turns on the acquired date (when the written binding contract became binding, not the closing date) or, for self-constructed property, the date construction began.
"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)
For real estate owners, this means a few practical things. New acquisitions and newly completed construction become eligible in the year the property is ready and available for use. And properties you placed in service in an earlier tax year and still own are not shut out: a cost segregation study can be applied retroactively, with the catch-up depreciation captured through a Form 3115 change in accounting method in the current year. 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).
What This Means for Your Tax Plan
The permanence of 100% bonus for property acquired after January 19, 2025 changes the strategic question. It is no longer "should I rush before the rate drops?" It is "is the short-life basis in my properties actually identified so I can claim it?" For most owners, the answer is no — their buildings sit as undifferentiated 39-year assets, and the bonus-eligible value inside them is invisible to the depreciation schedule.
A cost segregation study fixes that. ClickDrag's AI-driven platform produces a documented, IRS-methodology cost segregation study for $15,000 on a property whose purchase price plus construction costs total up to $250 million — a price published up front — typically 15–20 business days after complete documents are in. A ClickDrag cost segregation workpaper costs $499* for a property whose purchase price plus construction costs total under $2.0 million, which brings the analysis within reach of smaller properties (see a sample cost segregation workpaper); at $2.0 million or more, the $15,000 study applies. *For a property whose purchase price plus construction costs total under $2.0 million.
Start your study by uploading your construction documents, or first see how cost segregation firms compare on scope and pricing.
Related reading on the same §168 mechanics: qualified production property, a 100% deduction for the factory structure itself and how QIP and QPP differ under §168. On the other end of the hold: the partial asset disposition election, which stops depreciation on a component a renovation tears out and the three layers of gain recapture splits into when a property is sold.
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Related: Placed in Service by December 31: Calendar-Year Rental Depreciation and Cost Segregation for 2026.
Related: Electing Out of Bonus Depreciation After a Cost Segregation Study.
Related: Are Demolition Costs Deductible? Section 280B, the 75% Walls Test and Cost Segregation, Removal Costs in a Renovation: Deduct or Capitalize? How Cost Segregation Decides and Before-and-After Photos for a Renovated Property: What a Cost Segregation Study Needs.
Related: Section 179 vs Bonus Depreciation for a Roof or HVAC: Where Cost Segregation Fits.
Related: Can a Landlord Depreciate Tenant Improvements It Paid For? Cost Segregation for 2026 Build-Outs.
Related: Roof Replacement Repair or Improvement? Depreciation and Cost Segregation.
Related: Bonus Depreciation in 2027: Which Rate Applies by Acquired Date, and Where Cost Segregation Fits.
Frequently Asked Questions
Is bonus depreciation 100% in 2026?
For property acquired — or, if self-constructed, begun — after Jan. 19, 2025: yes. New legislation restored 100% bonus depreciation on a permanent basis for that property, and IRS Notice 2026-11 provides interim guidance on the acquired-date determination (the written binding contract controls, not the closing date: the acquired date is the latest of the date the contract was signed, became enforceable, cleared its cancellation period and had its contingencies satisfied). Property acquired on or before Jan. 19, 2025 remains on the TCJA phase-down — 20% for a 2026 placed-in-service year.
Does bonus depreciation apply to the whole building?
No, bonus depreciation under IRC §168(k) does not apply to the whole building: it applies only to property with a MACRS recovery period of 20 years or less. 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.
How does cost segregation work with bonus depreciation?
A cost segregation study reclassifies portions of your building's basis from 39-year property into 5-, 7-, and 15-year categories. Because those shorter-life categories all have recovery periods of 20 years or less, every dollar a study moves into them becomes eligible for 100% bonus depreciation — fully deductible in the placed-in-service year.
Can I claim bonus depreciation on a property I bought in a prior year?
Often, yes. A cost segregation study can be applied retroactively. The missed accelerated depreciation is captured as a catch-up adjustment via a Form 3115 change in accounting method in the current tax year, for a property you placed in service in an earlier tax year and still own. 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.
When is property considered placed in service?
Property is placed in service when it is in a condition or state of readiness and availability for its assigned function (Treas. Reg. §1.167(a)-11(e)(1)) — generally when the building is ready and available for use, not when it was purchased or contracted. The placed-in-service year sets the tax year in which bonus depreciation is claimed, and for property acquired on or before January 19, 2025 it also sets the phase-down rate; whether 100% applies turns on the acquired date.
How much does a cost segregation study cost?
ClickDrag delivers a fully documented cost segregation study for $15,000 on a property whose purchase price plus construction costs total up to $250 million, a price published up front, typically 15–20 business days after complete documents are in. A low-cost cost segregation workpaper costs $499* for a rental property whose purchase price plus construction costs total under $2.0 million; at $2.0 million or more, the $15,000 study applies. *For a property whose purchase price plus construction costs total under $2.0 million. In our provider comparison, these had no published price for an engineered study (quote on request): Engineered Tax Services and Capstan Tax Strategies (read October 22, 2026). You can start with two to four short questions before you commit.
