100% Bonus Depreciation First-Year Deduction (2026)
Bonus depreciation went back to 100% for any property placed in service after January 19, 2025 under the One Big Beautiful Bill Act (OBBBA). That single date change turns a partial first-year deduction into a full one, and it changes the math on every cost segregation study ordered after it.
- 100 percent bonus depreciation first year deduction lets you write off all reclassified 5-year and 15-year assets in year one, not over decades.
- OBBBA restored the 100% rate for property placed in service after January 19, 2025 -- Buy the timing if you're closing soon.
- A $500,000 rental with 25% reclassified assets nets roughly $46,250 in first-year tax savings at a 37% bracket versus $27,750 under the old 60% rate.
- Cost segregation is the mechanism that identifies which assets qualify -- without a study, bonus depreciation has nothing to apply to.
- Missed depreciation from prior years can still be caught up using Form 3115, no amended return required.
Why this matters
Under the old 60% phase-down schedule, a property owner reclassifying $125,000 of assets could only deduct $75,000 in year one. The rest trickled out over 5, 7, and 15-year schedules. That's real cash sitting on the table for a year or more.
With the 100% bonus depreciation first year deduction restored, that same $125,000 comes off your taxable income immediately, in the year the property goes into service. For a short-term rental owner offsetting W-2 income through the STR loophole, that's the difference between a modest write-off and a deduction big enough to zero out a six-figure salary. The rate change didn't just help new buyers either -- it made 2026 the highest-leverage year to order a cost segregation study since bonus depreciation started phasing down in 2023.
What you'll need
- The property's placed-in-service date (closing date or date it was first available to rent)
- Purchase price and closing statement, plus any capital improvements since acquisition
- Confirmation the property is residential rental or short-term rental -- this deduction path applies to Airbnb, VRBO, and long-term residential rentals, not commercial buildings
- An engineering-based cost segregation study for Airbnb and short-term rentals to identify which assets qualify for the accelerated schedule
- Your CPA's buy-in on filing the deduction, since a cost segregation report is not itself a tax filing
- If you materially participate in an STR, your time log documentation to support offsetting W-2 income
The steps
1. Confirm your placed-in-service date
This is the single biggest variable in whether you get 100% or 60% bonus depreciation. Property placed in service after January 19, 2025 qualifies for the full 100% rate under OBBBA. Property placed in service earlier falls under the older phase-down schedule. Check your closing date or the date the unit was first ready and available for rent, whichever applies. Common mistake: using the purchase agreement date instead of the actual placed-in-service date -- they're not always the same.
2. Order an engineering-based cost segregation study
Bonus depreciation has nothing to apply to until an asset is reclassified out of the standard 27.5-year or 39-year schedule. A cost segregation study breaks the property into components: flooring, cabinetry, appliances, decking, landscaping, and land improvements that qualify for 5, 7, or 15-year lives. Look for a flat-fee, IRS-compliant report rather than a percentage-of-savings model, since fee structure affects your net return. Common mistake: skipping the study and assuming bonus depreciation applies to the entire purchase price -- it only applies to the reclassified short-life assets.
3. Identify your reclassified asset categories
The study report breaks out exactly what falls into 5-year property (appliances, certain flooring, furniture for STRs), 15-year property (land improvements like driveways and fencing), and what stays on the 27.5 or 39-year schedule (the building structure itself). Typically 20-45% of a property's value gets reclassified into shorter-life categories, depending on age, finish level, and property type. Common mistake: treating land value as depreciable -- land itself never qualifies, only improvements to it.
4. Apply the 100% bonus depreciation rate
Once assets are sorted into 5, 7, and 15-year categories, the 100 percent bonus depreciation first year deduction applies to all of them at once, assuming your placed-in-service date qualifies. Multiply the total reclassified value by 100% and that's your additional first-year write-off, on top of standard depreciation on the remaining structure. For a full side-by-side, see the 100% vs 60% bonus depreciation example.
5. Calculate your total first-year deduction
Add standard first-year depreciation on the building structure to the 100% bonus depreciation on reclassified assets. Using a $500,000 property with 25% ($125,000) reclassified: the full $125,000 is deductible in year one under the 100% rate, versus $75,000 under the old 60% rate. At a 37% marginal tax bracket, that's roughly $46,250 in tax savings versus $27,750, an $18,500 difference tied entirely to the rate restoration.
6. Confirm STR loophole eligibility if you're offsetting W-2 income
Bonus depreciation only offsets active W-2 income for short-term rental owners who meet material participation tests and average stays of seven days or fewer. Otherwise the deduction is treated as a passive loss. If this applies to you, review the STR loophole explained for W-2 earners before assuming the full deduction offsets your salary.
7. File Form 3115 if catching up missed depreciation
If you've owned the property for a year or more without a cost segregation study, you don't need an amended return. A Form 3115 accounting method change lets you catch up the missed depreciation in the current tax year, including bonus depreciation on assets you should have reclassified earlier.
8. Work with your CPA to file the deduction
A cost segregation report is a supporting document, not a tax filing. Your CPA applies the numbers from the report to your return. Common mistake: ordering a study late in December expecting same-day turnaround for a filing deadline -- build in lead time.
Order your cost segregation study
Flat-fee, engineering-based reports built for 100% bonus depreciation timing.
Troubleshooting
- Property placed in service before January 19, 2025: You're locked into the 60% bonus depreciation rate for that asset, not 100%. Confirm the exact date before assuming the higher rate applies.
- No material participation documentation: Without a time log, the IRS can recharacterize your STR losses as passive, which blocks offsetting W-2 income even if the depreciation itself is valid.
- Assuming the deduction is a guarantee: Estimates and calculators show typical averages only. Actual reclassification percentages depend on property type, age, and finish level.
- Land value confusion: Land is never depreciable. If your report doesn't separate land from improvements, ask for clarification before filing.
- Missed the current tax year deadline: A Form 3115 catch-up still works retroactively, so a missed year isn't a lost deduction, just a delayed one.
- Commercial property assumption: This deduction path and the STR loophole apply to residential rental and short-term rental property, not offices, multifamily, or self-storage assets.
Tools and resources
- Order a cost segregation study built for 100% bonus depreciation timing
- OBBBA bonus depreciation rules for rental property
- Placed-in-service date requirements for 100% bonus depreciation
- The IRS Cost Segregation Audit Technique Guide, Chapter 6 Section H, covers bonus depreciation rules under Section 168(k) directly from the source examiners use.
What to do next
If you're weighing whether the deduction offsets your W-2 salary or just your rental income, read the full breakdown on how the 100 percent bonus depreciation change plays out for cost segregation in 2026 before you order a study.
FAQ
What is the 100 percent bonus depreciation first year deduction?
It's the tax provision letting you deduct 100% of reclassified 5-year, 7-year, and 15-year assets in the same year a property is placed in service, restored under OBBBA for property placed in service after January 19, 2025. Before this, the rate was phasing down toward 60% and lower.
How is 60% bonus depreciation different from 100%?
At 60%, only 60% of reclassified asset value is deductible in year one, with the rest spread over the asset's remaining schedule. At 100%, the full reclassified value is deductible immediately, roughly doubling the first-year write-off on a typical residential rental.
Do I need a cost segregation study to claim bonus depreciation?
Yes, without reclassifying assets out of the standard 27.5 or 39-year schedule, there's nothing eligible for the accelerated bonus depreciation rate. The study is what identifies and documents the qualifying assets.
Does bonus depreciation apply to land?
No, land itself is never depreciable under any bonus depreciation rate. Land improvements like driveways, fencing, and landscaping can qualify as 15-year property, but raw land value is excluded entirely.
Can bonus depreciation offset W-2 income for short-term rental owners?
Yes, if the owner meets material participation requirements and the property averages seven days or fewer per stay under the STR loophole. Without meeting those tests, the deduction is treated as a passive loss instead.
What is the placed-in-service date requirement for 100% bonus depreciation?
Property must be placed in service after January 19, 2025 to qualify for the restored 100% rate under OBBBA. Property placed in service earlier falls under the prior phase-down schedule.
How much does a cost segregation study cost?
Flat-fee engineering-based studies run around $2,200 for residential rental properties, with reports typically delivered in 3-5 business days and no site visit required. Costs vary by provider and property complexity.
Can I catch up on missed depreciation from prior years?
Yes, a Form 3115 accounting method change lets you catch up missed depreciation, including bonus depreciation, in the current tax year without amending prior returns.
One last thing
The $18,500 gap between 60% and 100% bonus depreciation on a $125,000 reclassified asset pool isn't theoretical, it's the exact difference between deducting $75,000 and $125,000 in year one at a 37% bracket. If your property closed after January 19, 2025 and you haven't ordered a study yet, that gap is sitting unclaimed until you do.