Bonus Depreciation for Rental Property: What Qualifies in 2026

By Tom, CPA · Updated October 27, 2026

Part of: Rental Property Taxes

TL;DR: As of Oct 2026, qualified property acquired after January 19, 2025 gets a permanent 100% bonus depreciation deduction. For landlords that means appliances, furniture, carpet, land improvements and cost-segregated components, but not the 27.5-year building itself. You can elect out by class, and many states do not follow federal bonus.

Educational only, not tax, legal, or investment advice. Examples are illustrations, not predictions. Rules and limits change; verify current figures and talk to a qualified professional about your situation.

Your tenant pays the mortgage and the IRS pays for the roof over 27.5 years. Bonus depreciation is the part where the IRS pays for the refrigerator, the fence and the carpet all at once, this year, with a smile, and a sticky note that says "see you at closing."

Bonus depreciation (officially the "additional first year depreciation deduction" under section 168(k)) lets you deduct a percentage of qualified property's cost in the year it is placed in service, before regular MACRS depreciation on the rest. After phasing down under the 2017 law, it was restored to 100% and made permanent by the One, Big, Beautiful Bill Act for property acquired after January 19, 2025, as described in IRS Notice 2026-11 (January 2026). This guide covers the current rate and transition rules, what rental property qualifies, how it compares with Section 179, how to elect out, and why your state may disagree with all of it.

CPA Warning Label: Bonus depreciation is the tax code's "buy now, pay later." The later part is recapture at ordinary rates when you sell, so make sure you can actually use the loss today.

Current bonus rate and law changes

Timeline as described in Notice 2026-11:

Key details:

• Acquisition date matters, not just placed-in-service date. Under OBBBA, property is not treated as acquired after the date a written binding contract is entered into. A contract signed in December 2024 for property delivered in March 2025 is generally treated as acquired in December 2024, so the old 40% rate applies.
• Transition election. For the first taxable year ending after January 19, 2025 (calendar 2025 for most individuals), taxpayers can elect to deduct 40% instead of 100% for qualified property placed in service that year (section 168(k)(10) as amended).
• No sunset. The prior requirement that property be placed in service before January 1, 2027 was removed.

The phase-down percentages for 2023 and 2024 come from the 20-point annual reduction described in the notice. Always confirm which regime applies to each asset by its acquisition date.

What property qualifies

Qualified property generally includes MACRS property with a recovery period of 20 years or less, certain computer software, qualified improvement property and a few other categories, and both new and used property can qualify if acquisition requirements are met (the used-property rules were added in 2017 and Notice 2026-11 says taxpayers may generally rely on the existing regulations). For landlords:

The biggest lever for rental owners is a cost segregation study, which identifies 5-, 7- and 15-year components inside the purchase price of a building.

Illustration: A landlord buys a $500,000 rental in April 2026 (land $100,000). A study reclassifies $60,000 to 5-year property and $20,000 to 15-year land improvements, leaving $320,000 of 27.5-year building. Year-one depreciation:

• Bonus on $80,000: $80,000.
• Building, April start (Table A-6, 2.576%): $320,000 x 2.576% = $8,243.
• Total: about $88,243, versus about $10,300 without the study ($400,000 x 2.576%).

Whether that $88,243 is usable depends on the passive loss rules; see below.

Bonus vs Section 179 for rentals

For most long-term residential landlords, bonus depreciation does the work and Section 179 is irrelevant. Details: Section 179 and rentals.

Electing out

Bonus depreciation applies automatically to qualified property unless you elect out. Section 168(k)(7), unchanged by OBBBA, lets you elect not to deduct bonus for any class of property placed in service during the year. Per Notice 2026-11 and the Form 4562 instructions, you make the election by attaching a statement to your timely filed return (including extensions) for the year the property is placed in service, indicating the class and that you are not claiming bonus for it.

Why would anyone elect out?

• Suspended passive losses. If you cannot use the loss for years, spreading depreciation may better match future income.
• Low-income year. A deduction in a 10% or 12% bracket year that comes back as recapture at 24% or 32% later is a bad trade.
• ACA or other income-based benefits where a smooth income profile matters more than a single big deduction.
• State simplicity in non-conforming states, though separate state depreciation schedules are usually needed anyway.
• Excess business loss limit or net operating loss planning.

The election is per class (all 5-year property, all 15-year property, and so on) for the year, not per asset, and is generally irrevocable without IRS consent.

State conformity problems

Many states with income taxes do not follow federal bonus depreciation, or require an addback and then allow the difference over several years. The result is two depreciation schedules: federal and state. Effects:

• A big federal loss can be a small state loss, or a state profit.
• State basis is higher than federal basis, so state gain on sale is smaller, which offsets later.
• Nonresident landlords may deal with the property state's rules and their home state's rules.

Check your state revenue department's instructions for the addback form. This guide does not list state-by-state conformity because it changes frequently and must be verified for each tax year on the state's own site.

Passive losses and recapture

Bonus depreciation is a deduction, but whether it reduces your tax this year depends on the passive activity rules (Pub. 925). A W-2 earner with MAGI over $150,000 and a long-term rental usually cannot use the loss until there is passive income or the property is sold. Real estate professionals who materially participate, and short-term rental owners who meet the 7-day test and materially participate, can generally use it now, subject to the excess business loss limit.

At sale, bonus depreciation on 5-, 7- and 15-year property is recaptured under section 1245 as ordinary income to the extent of gain allocable to those assets (Pub. 544). On the $80,000 example above, a sale in year six could produce up to $80,000 of ordinary income if those assets are allocated value equal to their original cost, though in practice components such as carpet are often worth much less by then, and gain is allocated by fair market value.

Bonus is best treated as an interest-free loan from the Treasury that you repay on sale, or never repay if you exchange forever or hold until death.