Bonus Depreciation Before January 2025: 2026 Rules
If you closed on a residential rental before January 19, 2025, the 100% bonus depreciation reset in the One Big Beautiful Bill Act (OBBBA) does not automatically apply to your property. Your acquisition date, not your placed-in-service date, decides which depreciation rate you actually get.
- Bonus depreciation before January 2025 acquisitions stays on the old phase-down: 40% for 2025, 20% for 2026.
- OBBBA restores 100% bonus depreciation only for property acquired and placed in service after January 19, 2025.
- A $100,000 reclassified basis nets roughly $37,000 in year-one tax savings at 100% bonus versus $7,400 at 20%, assuming a 37% bracket.
- Check your signed purchase contract date first. A binding contract dated before the cutoff overrides a later closing date.
Why this matters
The OBBBA bonus depreciation rules reset bonus depreciation to 100% for qualifying property, reversing the phase-down schedule that started chipping away at deductions in 2023. The reset only applies going forward from a specific date though: property acquired and placed in service after January 19, 2025.
If you signed a contract, closed, or started construction before that date, your property is stuck on the old schedule. That schedule dropped from 80% in 2023, to 60% in 2024, to 40% in 2025, and lands at 20% in 2026. For a rental owner running a cost segregation study in 2026, that's the difference between writing off nearly all of the reclassified basis in year one and writing off a fifth of it.
What you'll need
- Your signed purchase contract or letter of intent, with the date
- The HUD-1 or closing disclosure showing your closing date
- The date the property was first available for rent (your placed-in-service date, not your first booking)
- Prior tax returns if the property has already been in service for a year or more
- A cost segregation study scoped to the correct bonus depreciation year
The steps
1. Pin down your acquisition date, not just your closing date
The IRS generally treats "acquired" as the date you entered a binding written contract to purchase the property, not the date you closed. If you signed a contract in November 2024 and didn't close until 2026, your acquisition date is still November 2024 for bonus depreciation purposes. Skipping this step is the single most common reason owners assume they qualify for 100% bonus depreciation in 2026 when they don't.
2. Confirm your placed-in-service date
Placed-in-service means the property was ready and available for rent, not the date of your first guest or tenant. A short-term rental listed on Airbnb in October 2026 but not yet booked is still placed in service in 2026. Get this date wrong and your whole depreciation schedule shifts by a full year.
3. Match your acquisition date to the correct bonus depreciation rate
Line up your acquisition date against the phase-down schedule below. Properties acquired before January 19, 2025 follow the old TCJA phase-down regardless of when they're placed in service. Properties acquired after that date get the full 100% reset, with no further phase-down built into current law.
4. Nail the placed-in-service date test before you order a study
Some owners assume the placed-in-service date alone controls the rate. It doesn't, not when your acquisition predates January 19, 2025. A property acquired in 2024 and placed in service in 2026 still gets 20% bonus depreciation, not 100%, because the acquisition date locks the schedule.
5. Order a cost segregation study scoped to the right year
A flat-fee engineering-based study runs $2,200 and takes 3-5 business days with no site visit required. The study itself doesn't change based on your bonus depreciation rate. It identifies the same reclassified components (flooring, appliances, land improvements, cabinetry) whether you're getting 100% or 20% bonus. What changes is how much of that reclassified basis you can deduct immediately versus depreciate over 5, 7, or 15 years.
6. Run the math before you commit
Say your STR has a $400,000 building basis and cost segregation reclassifies 25% of it, or $100,000, into shorter-lived asset classes. At 100% bonus depreciation, you deduct the full $100,000 in year one. At a 37% marginal rate, that's roughly $37,000 in tax savings. At 20% bonus depreciation, only $20,000 is deductible immediately, worth about $7,400 in tax savings, with the remaining $80,000 spread across the 5-, 7-, and 15-year MACRS schedules. See the full 100% vs 60% bonus depreciation example for the year-by-year breakdown.
“If you signed a binding contract before January 19, 2025, the acquisition date locks your bonus depreciation rate no matter when you close or place the property in service.”
7. File correctly and document your acquisition date
Your CPA elects bonus depreciation on Form 4562 using the components identified in your cost segregation report. If you missed claiming depreciation on a property acquired in 2023 or 2024, you generally don't need to amend prior returns. A Form 3115 accounting method change lets you catch up the difference on your current-year return instead.
Keep your signed contract, HUD-1, and the study report together. If you're audited, the report needs to show the acquisition date used to determine the bonus rate, since that's the first thing an examiner checks under the IRS cost segregation audit technique guide.
Troubleshooting
- Contract signed in 2024, closed in 2026 after construction delays: Your acquisition date is the 2024 contract date. You're on the old schedule (60% or 20% depending on placed-in-service year), not the 100% OBBBA rate.
- No written contract, just a verbal agreement: Acquisition date defaults to the closing or title transfer date shown on your HUD-1.
- Self-constructed short-term rental (built, not bought): Acquisition date is generally when physical construction began, not the permit date or the date you broke ground on paper.
- Not sure if your 2025 purchase falls before or after the cutoff: Check the exact contract date against January 19, 2025. A property acquired January 15, 2025 gets 40%. One acquired January 25, 2025 gets 100%. Ten days is the entire difference.
- Missed depreciation from a 2023 or 2024 acquisition: You don't need an amended return. A Form 3115 catches up the missed amount on this year's return.
- Co-owned property with partners closing on different dates: The acquisition date is set at the entity level (the LLC's contract or closing date), not by individual member timelines.
Tools and resources
- The pre-OBBBA phase-down schedule (80% for 2023, 60% for 2024, 40% for 2025, 20% for 2026) applies to any acquisition before January 19, 2025, regardless of property type, as long as it's residential rental property eligible for cost segregation.
- A cost segregation study is the only way to know your actual reclassified basis, since the percentage that matters (25% is typical for a well-built STR) varies by property age, finishes, and land improvements.
- Virtual Cost Segregation runs flat-fee studies at $2,200 with a 100+ page CPA-ready report and audit support built in, regardless of which bonus depreciation year applies to your property.
Confirm your bonus depreciation rate
Get a study scoped to your exact acquisition date, flat fee, 3-5 business days.
What to do next
If your property has been sitting on an old acquisition date for a year or more without a cost segregation study, don't write off the missed deduction. A Form 3115 accounting method change lets you claim the difference on your current-year return without amending anything, no matter which bonus depreciation percentage applied when you acquired the property.
FAQ
What bonus depreciation rate applies if I bought my rental before January 19, 2025?
Your rate follows the old TCJA phase-down: 80% for 2023 acquisitions, 60% for 2024, 40% for 2025 acquisitions before the cutoff, and 20% for 2026. The 100% OBBBA rate only applies to acquisitions after January 19, 2025.
Does the acquisition date or the placed-in-service date control bonus depreciation?
The acquisition date controls which schedule you're on. A property acquired in 2024 and placed in service in 2026 still gets 20% bonus depreciation, not 100%, because the acquisition date locks in the old phase-down.
Can I still get 100% bonus depreciation on a property I bought in 2024?
No. Property acquired before January 19, 2025 follows the old phase-down schedule regardless of when you place it in service. A 2024 acquisition tops out at 60% if placed in service that year, or 20% if placed in service in 2026.
What is the bonus depreciation phase-down schedule for 2023 through 2027?
Under the pre-OBBBA schedule, bonus depreciation was 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and 0% in 2027 for property acquired before January 19, 2025. Property acquired after that date gets 100%, with no further phase-down under current law.
How much does a cost segregation study cost in 2026?
A flat-fee engineering-based study runs $2,200 in 2026, with a 3-5 business day turnaround and no site visit required. The fee doesn't change based on which bonus depreciation rate applies to your property.
Is signing a binding contract the same as closing on a property?
No. A binding written contract sets your acquisition date even if closing happens months or years later. If you signed a contract before January 19, 2025 but closed after, you're still on the old bonus depreciation schedule.
Can I catch up depreciation I missed on an older rental property?
Yes. A Form 3115 accounting method change lets you claim missed depreciation on your current-year return without amending prior filings, regardless of which bonus depreciation rate applied when you acquired the property.
Does OBBBA change bonus depreciation after 2026?
For property acquired and placed in service after January 19, 2025, OBBBA sets bonus depreciation at 100% with no scheduled phase-down under current law, unlike the pre-OBBBA schedule that dropped to 0% by 2027.
One last thing
Even at 20% bonus depreciation in 2026, cost segregation still reclassifies the same 25% or so of your building's basis into 5-, 7-, and 15-year MACRS property instead of the standard 27.5-year residential schedule. That means the remaining 80% of the reclassified basis still depreciates four to five times faster than straight-line, even without the 100% first-year write-off. Most STR owners on the old schedule still recover the $2,200 study fee within the first year just from the accelerated, non-bonus portion.