Bonus Depreciation Is Back to 100% — Permanently
For real estate owners, 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 is gone. 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 Bonus Depreciation Actually Does
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)
Why Cost Segregation Multiplies the Benefit
A cost segregation study is an engineering-based 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. 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, 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.
On a typical commercial or multifamily property, a study commonly reclassifies 20% to 35% of the depreciable basis into bonus-eligible short-life categories. On a $10 million building, identifying 25% — $2.5 million — as 5- and 15-year property means $2.5 million of additional first-year deduction under 100% bonus, versus a few percent if it stayed in the 39-year bucket.
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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Placed-in-Service Timing Still Matters
Even with a permanent 100% rate, when property is placed in service remains the controlling fact. Bonus depreciation attaches to the placed-in-service year — not the year you signed a contract or closed on a purchase.
"Property is placed in service when it is 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 §1.168(k)-2(b)(5)
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 prior years 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 — no amended returns required — letting you claim missed deductions in the current year. Your CPA applies the appropriate bonus rate based on each component's placed-in-service year.
What This Means for Your Tax Plan
The permanence of 100% bonus 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 study fixes that. And the cost of getting one has fallen. Traditional engineering firms charge $40,000 to $70,000 and take months. ClickDrag's AI-driven platform produces a documented, IRS-methodology study for roughly $4,000 to $14,000 — about 80% cheaper — in days, not months. The economics now favor running a study on properties that were never large enough to justify the traditional price tag.
See exactly what a study costs for your property on our pricing page, or start your study by uploading your construction documents.
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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 date controls, not the closing date). 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) 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, claimed in the current tax year without amending prior returns. Your CPA applies the bonus rate tied to each component's 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. §1.168(k)-2(b)(5)) — generally when the building is ready and available for use, not when it was purchased or contracted. The placed-in-service year determines bonus eligibility.
How much does a cost segregation study cost?
Traditional engineering firms typically charge $40,000 to $70,000 and take several months. ClickDrag's AI-driven platform delivers a fully documented study for approximately $4,000 to $14,000 — about 80% less — in days rather than months. You can see pricing for your specific property on the pricing page.
