100% Bonus Depreciation Is Back: What OBBBA Means for Real Estate Investors in 2026

OBBBA §70301 made 100% bonus depreciation permanent for property acquired after Jan 19, 2025. What this means for your rental, STR, or commercial purchase — with worked examples.

100% Bonus Depreciation Is Back: What OBBBA Means for Real Estate Investors in 2026

For five years, real estate investors planned around a calendar that was running out. The 100% bonus depreciation window opened in 2017 under the Tax Cuts and Jobs Act, and the schedule baked into TCJA §13201 had it stepping down 20 points a year starting in 2023 — 80%, 60%, 40%, 20%, then zero. By the time most 2025 acquisitions were under contract, the prevailing assumption among CPAs and cost-segregation engineers was that bonus would land at 40% and keep falling.

Then, on July 4, 2025, the One Big Beautiful Bill Act (Public Law 119-21) was signed into law. Section 70301 of OBBBA struck the phase-down, restored 100% bonus depreciation, and made it permanent for property acquired after January 19, 2025. The IRS implemented the change in Notice 2026-11, issued in January 2026.[^1]

Most cost-segregation calculators floating around the web haven't been updated. They still show 40% or 60% bonus rates for 2025 and 2026 acquisitions. If you're sizing the year-one tax effect of a property you closed on last quarter — or one you're buying this summer — the rate that goes into the math is now 100%, not 40%. That is a meaningful difference.

This article walks through what changed, why the inflection date matters, how the IRS implemented it, and what the year-one federal tax effect looks like for three common real-estate-investor scenarios. Every example links to our free feasibility estimator at /cost-seg/ so you can plug in your own numbers.

Quick note on what this article is not. This is a general explainer of federal tax concepts. It is not tax advice. It is not a cost segregation study. TaxProtestTx is a feasibility-screening tool — owners commonly evaluate further with a CPA or licensed engineering firm before acting on any number you read here.

The TCJA phase-down everyone was bracing for

To understand why OBBBA matters, it helps to remember the schedule investors were planning around through the first half of 2025.

The Tax Cuts and Jobs Act of 2017 (TCJA) amended IRC §168(k) to allow taxpayers to deduct 100% of the basis of qualifying property — generally, MACRS property with a recovery period of 20 years or less — in the year it was placed in service. For real estate investors, this turned cost segregation from a tactic with a long payback period into a high-leverage move. A study reclassifying 25% of a $1M rental into 5- and 15-year property meant a $250,000 first-year deduction instead of a slow drip across 27.5 or 39 years.

That 100% rate ran from late 2017 through 2022. TCJA §13201 then phased the rate down on the following schedule:

| Property acquired in | Bonus rate (pre-OBBBA) | |---|---| | 2017 (post-Sep 27) – 2022 | 100% | | 2023 | 80% | | 2024 | 60% | | 2025 | 40% | | 2026 | 20% | | 2027 and later | 0% |

By the time 2025 closings were happening, most planners were modeling the 40% rate, advising clients that "the window is closing," and steering big-basis projects into late-2024 placements to capture the 60% tail. There were several legislative attempts to reverse the phase-down between 2022 and 2024 — the Tax Relief for American Families and Workers Act of 2024 came close — but none made it across the finish line. The phase-down was the working assumption.[^2]

That's the world OBBBA walked into.

What OBBBA §70301 actually changed (Pub. L. 119-21, signed Jul 4, 2025)

The One Big Beautiful Bill Act was signed into law on July 4, 2025, as Public Law 119-21. Section 70301 of OBBBA is the provision that touches §168(k). In substance, §70301 does three things:

1. 1. Strikes the phase-down. The 80/60/40/20/0 schedule in §168(k)(6) — the part TCJA §13201 had inserted — is removed for property acquired after the inflection date.
2. 2. Restores 100% bonus depreciation. The "applicable percentage" in §168(k)(1)(A) returns to 100% for qualifying property.
3. 3. Makes the restoration permanent. Unlike the original TCJA window, which had a built-in expiration, OBBBA §70301 does not include a sunset. 100% bonus continues for 2025 (post-inflection), 2026, 2027, and beyond unless Congress acts again.

The "qualifying property" definition didn't materially change. It's still MACRS property with a recovery period of 20 years or less — which, for real estate investors, primarily means the 5-year personal property and 15-year land improvements that a cost segregation study reclassifies out of the 27.5- or 39-year building shell. Roof replacements, HVAC, and other §1250 building components remain in the 27.5- or 39-year bucket and are not eligible for §168(k) bonus.

The statutory citation that should appear on your CPA's workpapers (and on our calculator's footer) is now: IRC §168(k) as amended by OBBBA §70301 (Pub. L. 119-21, signed Jul 4, 2025); IRS Notice 2026-11.[^3]

The Jan 19, 2025 inflection date — the bimodal year explained

The most important detail — and the one that's tripping up the calculators that have been partially updated — is that 2025 is a bimodal year.

OBBBA §70301 applies to "property acquired after January 19, 2025." That cutoff was chosen because it tracks the original effective-date language Congress used when it built the TCJA bonus regime, and because it allows the restored 100% rate to apply prospectively without reopening returns for property already placed in service in early January.[^4]

The practical consequence:

• Property acquired on or before January 19, 2025: 40% bonus rate (the TCJA phase-down rate that would otherwise have applied to all of 2025).
• Property acquired after January 19, 2025: 100% bonus rate (the OBBBA-restored permanent rate).

For most investors reading this in 2026, the post-inflection rate is the one that matters. The narrow Jan 1–19, 2025 window catches a small slice of early-year closings — and those owners commonly evaluate with a CPA whether any other year-end planning move (cost segregation timing, partial-disposition election, a §481(a) catch-up on a property in a prior year) is more efficient than retrofitting the 40% rate.

Our calculator handles the inflection automatically: when you select a 2025 acquisition and enter a closing month of January, the engine drops to the 40% rate; February or later, you get 100%. For 2026, 2027, and beyond, the rate is 100% across the board.

How IRS Notice 2026-11 implements it

IRS Notice 2026-11 is the implementation guidance the Service issued after OBBBA was enacted.[^1] It does the housekeeping work of telling taxpayers and preparers how to apply §168(k) as amended:

• Confirms the 100% rate for property acquired after January 19, 2025. The notice walks through the same statutory language as the bill text and confirms the inflection date.
• Confirms used property remains eligible. TCJA had already opened §168(k) to used property (a meaningful change from pre-2017 law); OBBBA did not narrow that. Notice 2026-11 reiterates that used qualifying property — the bulk of what real estate investors buy — is eligible.
• Provides transition guidance for §481(a) lookbacks. If a taxpayer placed property in service in a prior year and didn't claim bonus (or claimed a study-based reclassification on a return that's already filed), the change in method of accounting under Rev. Proc. 2024-23 (or its successor) and Form 3115 procedure remains the path to a §481(a) catch-up adjustment. Notice 2026-11 doesn't expand that — it confirms the existing mechanic.
• Election-out under §168(k)(7) is preserved. Owners who don't want bonus depreciation in a given year can still elect out class-by-class under §168(k)(7). The election is irrevocable without IRS consent and is made on a timely-filed return (including extensions) for the year the property is placed in service.

A key practical point for real estate: Notice 2026-11 is implementation guidance, not a regulation, and it does not rewrite the cost-seg playbook. The IRS Cost Segregation Audit Techniques Guide (ATG) and IRS Publication 946 remain the controlling references for how property is classified and depreciated.[^5][^6] What changed is the §168(k) rate the reclassified property accelerates at — not the underlying classification rules.

What this means for your 2026 acquisitions — three scenarios (LTR, STR, commercial)

The pattern across all three scenarios below is the same: the 5-year personal property and 15-year land improvement portions of the building basis can be 100% expensed in the year of placement. The 27.5-year residential building shell or 39-year commercial shell continues to depreciate straight-line under the mid-month convention.

The numbers below are illustrative ballparks using mid-of-range industry allocation percentages calibrated to the IRS ATG Chapter 7.2 residential rental guidance.[^7] They are not a substitute for an engineering analysis. Results not guaranteed.

Scenario 1 — Long-term rental (LTR)

• Purchase price: $500,000
• Land allocation: $100,000
• Depreciable basis: $400,000
• Closing: 2026 (post-inflection — 100% bonus rate applies)
• Marginal federal bracket: 24%
• REPS / material participation: Yes (loss is non-passive)

Using mid-range allocations for a single-family long-term rental — roughly 10% to 5-year personal property and 7% to 15-year land improvements — about $68,000 of the depreciable basis sits in bonus-eligible classes. With 100% bonus, that entire $68,000 is deductible in year one. The 27.5-year building shell contributes a partial-year mid-month deduction on top.

Year-one deduction in this scenario: approximately $80,000–$85,000 (bonus-eligible portion plus partial-year shell). At a 24% marginal federal rate with REPS treatment, the year-one federal tax effect is estimated at roughly $19,000–$20,000 of cash tax saved. Results are not guaranteed; actual numbers depend on the engineering allocation, AMT exposure, state conformity, and your overall return.

Run this scenario with your own numbers →

Scenario 2 — Short-term rental (STR)

• Purchase price: $750,000
• Land allocation: $150,000
• Depreciable basis: $600,000
• Closing: 2026 (post-inflection — 100% bonus rate applies)
• Marginal federal bracket: 32%
• Material participation: Yes; average guest stay 4 days (the §469 STR carve-out)

Short-term rentals — an average rental period of seven days or less, with material participation — are not "rental activities" under Treas. Reg. §1.469-1T(e)(3)(ii), which means the loss can offset W-2 or active business income without REPS. The cost-seg math itself doesn't care about §469; the §469 question is whether you can use the loss this year. Owners commonly evaluate with a CPA whether their facts cleanly meet the STR test — average stay length, hours of personal involvement, and substantial-services exclusions all matter.

Mid-range STR allocations run higher than LTR — typically 13% to 5-year and 8% to 15-year — reflecting more furniture, appliance, and outdoor-amenity reclassification. On a $600,000 depreciable basis, that's about $126,000 of bonus-eligible property, plus the partial-year building shell.

Year-one deduction: approximately $140,000–$150,000. At a 32% marginal federal rate with material participation, the year-one federal tax effect is estimated at roughly $45,000–$48,000. Again — illustrative, not guaranteed.

Run this scenario with your own numbers →

Scenario 3 — Commercial strip retail

• Purchase price: $1,500,000
• Land allocation: $300,000
• Depreciable basis: $1,200,000
• Closing: 2026 (post-inflection — 100% bonus rate applies)
• Marginal federal bracket: 32%
• Status: Active business owner (loss is non-passive)

Strip retail typically allocates around 12% to 5-year and 10% to 15-year (parking-lot resurfacing, exterior lighting, signage, landscaping). On $1.2M depreciable basis, that's roughly $264,000 of bonus-eligible property. The 39-year building shell adds a small partial-year deduction.

Year-one deduction: approximately $280,000–$290,000. At a 32% marginal federal rate with active business treatment, the year-one federal tax effect is estimated at roughly $90,000–$93,000. As always — ballpark, not guaranteed.

Run this scenario with your own numbers →

Used-property treatment under OBBBA

One of TCJA's quieter but most consequential changes was opening §168(k) to used property — the building you bought from another investor, not just new construction. Before 2017, bonus depreciation was generally limited to property whose original use began with the taxpayer. After TCJA, used property qualifies if the taxpayer didn't previously have a depreciable interest in it, hadn't acquired it from a related party, and otherwise meets §168(k)(2)(E)(ii).

OBBBA §70301 did not narrow this. Used property — the typical real estate investor's acquisition — remains bonus-eligible after the January 19, 2025 inflection. Notice 2026-11 reiterates the point.

The practical upshot: a $750,000 STR purchased in 2026 from another individual investor gets the same 100% bonus treatment as a newly built duplex. The §168(k)(2)(E)(ii) related-party and prior-interest tests are the gating questions, not "new versus used."

Electing out of bonus depreciation under §168(k)(7)

Bonus depreciation is the default. To not take it, the taxpayer must affirmatively elect out under §168(k)(7), and the election applies to all property within a class of property (e.g., all 5-year property placed in service that year) — not property by property.

Common reasons owners evaluate the election-out path:

• Net operating loss already large enough. If a return is already in NOL territory and additional deductions don't help in the current year, smoothing depreciation over the asset's MACRS life may produce more usable deductions in future high-income years. (NOL deductibility is now capped at 80% of taxable income under §172(a)(2), which complicates the math in either direction.)
• §163(j) interest deduction modeling. A taxpayer who has elected out of the §163(j) limitation as a "real property trade or business" must use ADS for residential rental, nonresidential real, and qualified improvement property — and ADS-classed property is not eligible for §168(k) bonus. The interaction matters.
• State conformity arbitrage (covered in the next section).
• Pass-through QBI optimization. §199A's wage-and-UBIA tests can occasionally tip the scale.

The election-out is made on a timely-filed return (including extensions) for the year the property is placed in service, and it's irrevocable without IRS consent. This is one of the places where the value of a CPA shows up clearly — the math involves multi-year forecasts and interaction effects that a single-year calculator (ours included) doesn't model. See our cost-seg FAQ on the bonus 2026 rules for more detail and the FAQ on Form 3115 for the §481(a) lookback mechanic.

State conformity to §168(k) — why your state tax bill might differ

Federal bonus depreciation is set by IRC §168(k). Whether your state income tax follows it is a separate question, decided state by state. Conformity falls into three rough buckets:

• Full conformity (rolling). The state automatically follows the current Internal Revenue Code, including OBBBA §70301. Bonus depreciation flows through to state taxable income with no state-specific adjustment.
• Partial or static conformity. The state has adopted the IRC as of a fixed date and hasn't updated, or has explicitly decoupled from §168(k). Investors in these states add back federal bonus depreciation on the state return and recover it through normal MACRS straight-line over the asset's life. The federal benefit isn't reduced — but the state benefit is deferred or eliminated.
• No state income tax. Texas, Florida, Tennessee, Wyoming, Nevada, South Dakota, Washington, and Alaska have no broad-based individual income tax. The federal §168(k) benefit is the whole story for individual real estate investors in these states. (Texas does levy a franchise tax on entities; pass-through investors generally aren't directly affected by §168(k) at the franchise-tax level, but business entities should confirm with their preparer.)

The conformity question is the one most likely to surprise a multi-state investor — a property owner in California or Pennsylvania, both of which have historically decoupled from federal bonus, will see a smaller state-level benefit than the federal calculator implies. Owners commonly evaluate state conformity with a CPA licensed in the relevant state before relying on the year-one number for any state-level cash-tax projection.

Common misconceptions

A handful of confusions show up repeatedly in the post-OBBBA conversation. Worth flagging:

"Cost segregation creates the deduction." It doesn't. The deductions exist regardless — the building is going to depreciate over 27.5 or 39 years either way. A study reclassifies portions of the basis into shorter-lived MACRS classes, which lets §168(k) bonus accelerate the timing. The total deduction over the asset's life is the same; the present value is what changes.

"100% bonus eliminates depreciation recapture." It doesn't. §1245 recapture on the 5- and 15-year property reclassified by a study is taxed at ordinary rates on disposition (up to the amount of depreciation taken), and §1250 recapture continues to apply to the building shell. Accelerating depreciation accelerates the recapture liability too — the question is whether the time value of the deferral, combined with potential §1031 carryover or a step-up at death, makes the trade worthwhile. See our FAQ on recapture for a fuller treatment.

"The Jan 19, 2025 cutoff is a placed-in-service date." It's an acquired date — meaning when the taxpayer became contractually bound to acquire the property, typically the contract execution under §168(k)(2)(H). Closing date and placed-in-service date are usually later, and for the §168(k) inflection, what matters is when the binding written contract was entered into.

"Our online calculator already shows the right number." Many don't. We've sampled several public cost-seg calculators in May 2026 and found a meaningful share still using 40% or 60% rates for 2025 and 2026 acquisitions, or assuming a phase-down that no longer exists. Check your tool's footer or "as-of" date — if it doesn't cite OBBBA §70301 or Notice 2026-11, the rate it's applying is probably wrong for any post-inflection acquisition.

"You can DIY the study." A feasibility estimate (what our tool produces) is not a study. The IRS Cost Segregation ATG sets out methodology, documentation, and engineering-based-asset-class expectations that an owner-prepared spreadsheet generally won't satisfy on audit. Owners commonly use a feasibility estimator first — to decide whether the year-one effect justifies the cost of a real engineering study — and then engage a licensed firm if the numbers warrant it.

Estimate your accelerated depreciation in 30 seconds

The OBBBA permanent 100% rate, combined with cost segregation, is the highest-leverage federal tax tool available to most 1–4 unit residential, STR, and small-commercial investors right now. Whether it's worth pursuing for your specific property depends on the basis, the closing date, your bracket, your passive-activity status, and your state's conformity posture.

Our free cost-seg feasibility calculator plugs in the post-OBBBA rate automatically, asks for your purchase price, land allocation, property type, and a few feature questions (pool, finish level, lot size), and produces an estimated year-one federal tax effect — with the bonus rate citation footer-stamped to the law as it stands today. It is not a study. It is not tax advice. It is a screening tool you can use to decide whether the math is worth a deeper conversation.

The three deep-link starting points from this article:

• Long-term rental — /cost-seg/?purchase_year=2026&property_use=long-term-rental
• Short-term rental (4-day stays) — /cost-seg/?purchase_year=2026&property_use=short-term-rental&avg_rental_days=4
• Commercial retail — /cost-seg/?purchase_year=2026&property_use=commercial-retail

If the estimate clears the threshold investors typically use to justify an engineering study (commonly cited as $5,000+ in year-one tax savings, though the right number for your situation depends on study cost and personal facts), the next step owners commonly take is to engage a licensed cost-seg firm and loop in their CPA before the return is filed.

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Sources

[^1]: IRS Notice 2026-11 (January 2026), implementation guidance for IRC §168(k) as amended by OBBBA §70301. https://www.irs.gov/pub/irs-drop/n-26-11.pdf

[^2]: TCJA §13201 (Pub. L. 115-97, December 22, 2017), establishing the original 100% bonus depreciation regime and the 2023–2027 phase-down schedule. https://www.congress.gov/bill/115th-congress/house-bill/1

[^3]: One Big Beautiful Bill Act, Public Law 119-21, signed July 4, 2025. §70301 amends IRC §168(k) to restore 100% bonus depreciation permanently for property acquired after January 19, 2025. https://www.congress.gov/bill/119th-congress/

[^4]: IRC §168(k) (current, as amended by OBBBA §70301). https://www.law.cornell.edu/uscode/text/26/168

[^5]: IRS Cost Segregation Audit Techniques Guide (ATG), Chapters 4 and 7. https://www.irs.gov/businesses/cost-segregation-audit-techniques-guide

[^6]: IRS Publication 946, How to Depreciate Property. https://www.irs.gov/publications/p946

[^7]: IRS ATG Chapter 7.2, Industry-Specific Guidance — Residential Rental. https://www.irs.gov/businesses/cost-segregation-audit-techniques-guide-chapter-7-2-industry-specific-guidance-residential-rental

Additional primary references:

• IRC §168(k)(7) election-out: https://www.law.cornell.edu/uscode/text/26/168#k_7
• IRC §469 passive activity rules and Treas. Reg. §1.469-1T(e)(3)(ii) STR carve-out: https://www.law.cornell.edu/cfr/text/26/1.469-1T
• IRC §1245 / §1250 depreciation recapture: https://www.law.cornell.edu/uscode/text/26/1245 and https://www.law.cornell.edu/uscode/text/26/1250
• Form 3115, Application for Change in Accounting Method: https://www.irs.gov/forms-pubs/about-form-3115
• Rev. Proc. 2024-23 (automatic accounting method change procedures): https://www.irs.gov/pub/irs-drop/rp-24-23.pdf

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Disclaimer. This article describes general federal tax concepts. TaxProtestTx (Nought Labs LLC) is a feasibility-screening tool, not tax advice or a cost segregation study. Calculator output cannot be relied on under Treasury Circular 230. Consult a qualified CPA, EA, or attorney before filing. Results are not guaranteed.