Bonus Depreciation Phase-Out History Ends in 2026

Bonus depreciation phase-out history runs from a full 100% write-off in 2017 down toward zero by 2027, but the One Big Beautiful Bill Act (OBBBA) reset the clock. If you own a rental property placed in service after January 19, 2025, the old phase-down schedule does not apply to you anymore.

Why this matters

The phase-out schedule was written into the 2017 Tax Cuts and Jobs Act as a slow reduction: 100% through 2022, then 80%, 60%, 40%, and 20% before hitting zero in 2027. Investors who bought property in 2023 or 2024 got used to shrinking bonus depreciation percentages and planned their tax strategy around it.

OBBBA changed that plan mid-course. Property acquired and placed in service after January 19, 2025 goes back to 100% bonus depreciation, permanently under current law, not a temporary bump. That single date is now the dividing line between the old declining schedule and the restored full write-off, and getting it wrong on a tax return means either leaving money on the table or overclaiming a deduction the IRS will flag.

What you'll need

• The exact placed-in-service date for the property, not the closing date
• A record of the acquisition date, since OBBBA ties the restoration to acquisitions after January 19, 2025
• Prior-year depreciation schedules if the property has been owned for more than one tax year
• A cost segregation report that reclassifies building components into 5, 7, and 15-year property
• A CPA who files the return and, if needed, Form 3115 for a method change

The steps

1. Confirm the placed-in-service date, not the purchase date

The IRS bases bonus depreciation eligibility on when the property is placed in service, meaning ready and available for its intended use as a rental, not the day the deed transferred. A property bought in December 2024 but not rented out until February 2025 is placed in service in 2025.

This distinction decides which bonus depreciation percentage applies. Pull the actual rent-ready date from listing records, utility turn-on dates, or the first Airbnb booking confirmation.

Common mistake: using the closing date on the settlement statement as the placed-in-service date and applying the wrong year's percentage.

2. Check the acquisition date against January 19, 2025

OBBBA restores 100% bonus depreciation for property acquired and placed in service after January 19, 2025. If you signed a binding contract before that date, confirm with your CPA how the acquisition date is defined for your specific transaction, since written binding contracts can shift the acquisition date earlier than closing.

Property acquired and placed in service in 2024, even late in the year, is still governed by the older 60% bonus depreciation rate. The OBBBA bonus depreciation rules apply going forward, not backward.

Common mistake: assuming the 2026 tax year automatically means 100% for every rental regardless of when it closed.

3. Order an engineering-based cost segregation study

Bonus depreciation only applies to property with a depreciable life under 20 years, meaning the building shell itself (27.5-year residential real property) does not qualify. A cost segregation study reclassifies 20% to 45% of a typical residential rental's value into 5, 7, and 15-year buckets, which is where the 100% deduction actually applies.

Virtual Cost Segregation delivers a flat-fee $2,200 report in 3 to 5 business days with no site visit required, built to the IRS's own engineering-based methodology. Skipping this step means bonus depreciation has nothing to attach to beyond minor personal property already on a closing statement.

Common mistake: assuming bonus depreciation applies automatically without a study to identify what qualifies.

4. Apply the correct percentage to the reclassified assets

Once a study splits out the 5, 7, and 15-year property, multiply that reclassified value by the bonus depreciation percentage in effect for the placed-in-service year. On a $500,000 property with 25% reclassified, that's $125,000 in qualifying assets.

At 100% (property placed in service after January 19, 2025), the full $125,000 is deductible in year one. At the older 60% rate that applied through 2024, the same reclassification yields only $75,000 in year-one deductions, a $50,000 gap. See the 100% vs 60% bonus depreciation example for the full math side by side.

Common mistake: applying last year's percentage out of habit instead of checking the current schedule.

5. Calculate the actual tax savings at your bracket

A high-earning W-2 investor in the 37% bracket who claims $125,000 in bonus depreciation saves roughly $46,250 in the year the study is applied, assuming the short-term rental loophole allows those losses to offset active W-2 income. That is the core reason this strategy exists for Airbnb and VRBO owners with material participation.

Run the number against your own bracket and reclassification percentage rather than assuming a flat figure, since actual results vary by property and by how much of the value a study reclassifies.

Common mistake: using a generic online estimate instead of a property-specific study to size the deduction.

6. File Form 3115 if you missed depreciation in a prior year

If you owned the property before this year and never ran a cost segregation study, you can still catch up the missed depreciation through a change in accounting method rather than amending every prior return. This applies whether the property was placed in service in 2023, 2024, or earlier.

Common mistake: thinking a missed cost segregation opportunity requires amending three years of returns instead of a single Form 3115 filing.

7. Confirm the placed-in-service date is documented for audit defense

The placed-in-service date drives both the depreciation schedule and which bonus percentage applies, so it needs to be defensible if the IRS asks. Keep the rent-ready documentation with the placed in service date rules filed alongside the cost segregation report.

Common mistake: relying on memory or a verbal timeline instead of dated records when the audit letter arrives.

Troubleshooting

"My property closed in December 2024, do I get 100%?" Only if it was also placed in service after January 19, 2025. A December 2024 closing with a January 2025 rent-ready date still falls under the older schedule unless the placed-in-service date itself is after January 19, 2025.

"I read that bonus depreciation drops to 20% in 2026." That was the pre-OBBBA schedule. Under current law, property acquired and placed in service after January 19, 2025 gets 100%, not the old declining percentage.

"Do I need a new study if I already have one from 2023?" No. The existing study's reclassification stands. What changes is the bonus depreciation percentage applied to any assets placed in service after the OBBBA cutoff, which typically only affects new acquisitions.

"Can I apply 100% to a property I've owned for five years?" Only to assets placed in service after January 19, 2025, such as a major renovation or new construction addition. The original building components keep the percentage that applied when they were placed in service.

"What if my CPA still has me down for 40% in 2025?" That was the scheduled rate before OBBBA passed. Have your CPA confirm the acquisition and placed-in-service dates and refile the depreciation schedule if the property qualifies for the restored 100%.

Tools and resources

• IRS Cost Segregation Audit Technique Guide, Chapter 6 Section H, covering bonus depreciation under Section 168(k)
• A property-specific engineering-based cost segregation report, not a generic percentage estimate
• Prior-year tax returns and depreciation schedules for any property owned before 2026
• Your CPA, for applying Form 3115 and reconciling the correct year's bonus percentage
• The 100% vs 60% bonus depreciation example for a side-by-side calculation on your own numbers

What to do next

Once the placed-in-service date and acquisition date are confirmed, the next move is sizing the actual deduction. A cost segregation study is the document that turns the restored 100% rate into a real number on a tax return, since bonus depreciation has nothing to apply against without the 5, 7, and 15-year reclassification a study produces.

FAQ

One last thing

The part investors miss most often is that the restoration is tied to acquisition, not just to the tax year on the return. A property acquired in 2023 and still owned in 2026 does not retroactively jump to 100%, it stays locked to whatever rate applied when it was placed in service, unless new components are added or placed in service after the January 19, 2025 cutoff.

Related guides

• 100% bonus depreciation in 2026 with cost segregation
• How to calculate bonus depreciation recapture