How the Current Bonus Depreciation Rules Affect a 2026 Rental Purchase

Published August 10, 2026

Bonus depreciation under Internal Revenue Code section 168(k) is back to 100 percent for qualifying property acquired and placed in service after January 19, 2025. It does not apply to the rental building itself, only to shorter lived components, which is why it is usually paired with a cost segregation study.

The short answer

Bonus depreciation under Internal Revenue Code section 168(k) is currently 100 percent for qualified property acquired and placed in service after January 19, 2025, restored by the One Big Beautiful Bill Act (P.L. 119-21), per IRS Publication 946. It does not apply to a residential rental building's own 27.5 year structure. It applies to components with a recovery period of 20 years or less, which is why buyers usually need a cost segregation study to actually use it.

Last verified: August 10, 2026

What section 168(k) is, in plain terms

Section 168(k) lets a taxpayer deduct a percentage of a qualifying asset's cost in the year it is placed in service, instead of spreading that cost across the asset's full depreciation schedule. IRS Publication 946 confirms the current rate is 100 percent for qualified property acquired and placed in service after January 19, 2025, following the One Big Beautiful Bill Act.

That is a real reversal. Bonus depreciation had been legislated to step down from its earlier 100 percent level in prior years, and the new law reset it back to full first-year expensing for property meeting the acquisition and placed-in-service test above.

What actually qualifies, and what does not

This is the part buyers get wrong most often. Bonus depreciation does not apply to the rental building itself.

Publication 946 defines qualified property as property with a MACRS recovery period of 20 years or less, qualified improvement property, off-the-shelf computer software, and certain fruit or nut bearing plants. A residential rental building depreciates over 27.5 years and a nonresidential building over 39 years, both outside the 20-year cutoff. The building shell and its structural components are not eligible for the 100 percent bonus rate on their own.

What does qualify, once identified and documented, includes appliances, certain flooring, specific electrical and plumbing tied to equipment, and land improvements like paving, fencing, and site landscaping, the same categories a cost segregation study is built to isolate. That is why the two topics travel together: bonus depreciation is the tax mechanism, and a cost segregation study is usually the tool that identifies which parts of your purchase price are eligible for it.

The acquisition date test, not just placed-in-service

Publication 946 ties the 100 percent rate to property "acquired and placed in service after January 19, 2025." Both conditions matter. Property placed in service in 2026 that was acquired under a binding contract before that date may fall under different, older rules rather than the current 100 percent rate. If your purchase involved a contract signed well before the closing, or improvement property tied to a project that started earlier, confirm which acquisition date applies with your CPA before assuming the 100 percent rate automatically governs.

A transition option most buyers can ignore

Publication 946 also describes an election for a taxpayer's first tax year ending after January 19, 2025: instead of 100 percent, a taxpayer can elect a reduced 40 percent allowance, or 60 percent for long production period property and certain aircraft. This exists mainly for fiscal year taxpayers whose tax year spanned the change and who have a specific reason to prefer the lower rate, for example to manage a net operating loss position. Most calendar year buyers purchasing in 2026 will not need it, but flag it to your preparer if your entity runs on a non calendar fiscal year.

What this means for a 2026 South Bay rental purchase

| Question | Where the answer comes from |

|---|---|

| Does the building qualify for 100 percent bonus depreciation? | No, on its own. It depreciates over 27.5 or 39 years. |

| What does qualify at 100 percent? | Components with a 20 year or shorter recovery period, identified by a cost segregation study |

| When must you acquire and place the property in service? | After January 19, 2025, under current law per IRS Publication 946 |

| Is there a way to take a smaller allowance instead? | Yes, a 40 percent (or 60 percent) election exists for a narrow fiscal year situation |

The practical sequence for a buyer closing on a South Bay rental in 2026 is: confirm the acquisition and placed-in-service dates both fall after January 19, 2025, get a cost segregation study or a comparable component analysis to identify what portion of the purchase price is short lived property, and apply the 100 percent rate to that identified portion, not the whole purchase price.

FAQ

Does bonus depreciation let me deduct the full purchase price of a rental property in year one?

No. It applies only to components with a MACRS recovery period of 20 years or less. The building's own structure still depreciates over 27.5 years for residential rental property or 39 years for nonresidential property.

Is 100 percent bonus depreciation permanent now?

IRS Publication 946 confirms the 100 percent rate for property acquired and placed in service after January 19, 2025, under the One Big Beautiful Bill Act. Whether the statute schedules any future change was not confirmable from the source used for this piece. Confirm current status with a CPA before relying on it for a purchase closing in a later tax year.

Do I need a cost segregation study to use bonus depreciation?

Not legally required, but practically yes for most buyers, since you need a defensible way to identify and value the components that actually qualify for the 20-year-or-less recovery period. Without that documentation there is nothing to apply the 100 percent rate to beyond obvious personal property like appliances.

What if I bought the property under a contract signed before January 19, 2025 but it closed in 2026?

The acquisition date test in Publication 946 looks at when the property was acquired, not just when it was placed in service. A binding contract predating the cutoff can change which rules apply. Confirm with your CPA.

Does bonus depreciation apply to land?

No. Land itself is never depreciable under any method. Land improvements like paving, fencing, and landscaping are a different, depreciable category and can qualify for bonus depreciation once separately identified.

Will taking 100 percent bonus depreciation now increase my tax bill when I sell?

Accelerated depreciation is generally recaptured on sale rather than permanently forgiven. It changes the timing of your deduction, not the total amount of gain you will eventually report. Discuss your expected holding period with your CPA before deciding how aggressively to accelerate.

This is general information about current federal bonus depreciation rules, not tax advice. Confirm how section 168(k) applies to your specific 2026 purchase, including the acquisition date test and any cost segregation strategy, with a CPA or tax attorney.

Topics: taxes, bonus depreciation, section 168(k), depreciation, South Bay, property management

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