Bonus depreciation for rental property in 2026

If you bought a rental after January 19, 2025 and placed it in service after that date, the 5-, 7- and 15-year parts of it qualify for 100% bonus depreciation. That rate is now permanent. The building itself never qualifies, so the size of the deduction depends on how much of the property a cost segregation study can move off the 27.5- or 39-year schedule.

The older phase-down still applies to anything acquired before January 20, 2025, and the date that counts is often earlier than the closing date.

What changed in 2025

The 2017 tax law set bonus depreciation at 100% and then cut it by 20 points a year starting in 2023. By 2025 it was down to 40%. The One Big Beautiful Bill Act, signed July 4, 2025, restored 100% and removed the end date, for property acquired after January 19, 2025 and placed in service after January 19, 2025.

Both dates have to be after January 19. A home you closed on in December 2024 and first rented in March 2025 was acquired too early. It stays on the old schedule.

The binding-contract rule

For bonus purposes, you acquire property on the date you sign a written binding contract to buy it, not on the closing date. If you signed a purchase agreement on January 10, 2025 and closed in February, the IRS treats the home as acquired on January 10. It gets the phase-down rate for the year you placed it in service, not 100%.

This catches people who went under contract in late 2024 or early January 2025 and closed months later. Pull your signed purchase agreement before you assume 100%.

Rates for homes acquired before January 20, 2025

Placed in service	Bonus rate
Sept 28, 2017 through 2022	100%
2023	80%
2024	60%
2025	40%
2026	20%
2027 and later	0%

Any part of the 5- or 15-year basis that doesn’t get bonus is depreciated on its normal MACRS schedule instead. A 20% rate isn’t a lost deduction. Most of it arrives over the following years.

A December purchase still gets the full amount

Bonus depreciation isn’t prorated for the part of the year you owned the property. A rental placed in service on December 15 gets the same bonus as one placed in service in January. The building is a different story, because the mid-month convention gives you only half a month in December.

Illustration. An owner buys a $480,000 rental with $80,000 of land and places it in service on December 15, 2026. The depreciable basis is $400,000. A study puts 30% of it, $120,000, on 5- and 15-year schedules.

Item	No study	With study
Bonus on 5- and 15-year parts	$0	$120,000
Building, 27.5 years, December	$606	$424
First-year depreciation	$606	$120,424

The building figures are basis × 0.5 ÷ 12 ÷ 27.5. That’s $400,000 × 0.5 ÷ 330 = $606 without a study, and $280,000 × 0.5 ÷ 330 = $424 with one.

If the same owner had signed the purchase contract in December 2024, the 2026 rate would be 20%, and bonus would be $24,000 instead of $120,000. The other $96,000 would go on regular 5- and 15-year schedules. For property placed in service late in the year, the mid-quarter convention often applies to those schedules, so the first-year amount on that $96,000 would be small.

The date that counts is when the rental is ready and available to rent, which isn’t always the closing date. If renovations run past December 31, the whole deduction moves to the next tax year. Try your own dates in the bonus depreciation calculator.

Bonus never applies to the building

Bonus depreciation covers MACRS property with a recovery period of 20 years or less. A residential rental building is 27.5-year property and a short-term rental is often 39-year property, so neither qualifies. Without a study, nearly the whole house sits on the building schedule and bonus does almost nothing for you. Furniture you bought separately is the usual exception.

Used property has qualified since 2017, which is why bonus works on an existing house you buy, not only on new construction. The exceptions are property you used before, property bought from a related party, and inherited property. Carryover basis in a 1031 exchange doesn’t qualify either. Only the extra basis you add, such as new cash or a larger loan, can qualify.

Electing out, by class

Bonus is automatic. To skip it, you elect out on a timely filed return, including extensions. The election applies to a whole class of property for that year. You can, for example, keep bonus on the 5-year class and elect out for the 15-year class.

The usual reason to elect out is a year when the loss would be passive and you’d rather spread the deductions into years when you can use them. Owners also elect out when the loss would run past the excess business loss limit, or to avoid keeping separate schedules in a state that doesn’t follow federal bonus. The election is hard to undo, so decide with your CPA before filing.

The transition election for 2025

The 2025 law also lets you elect a lower rate in place of 100% for property placed in service in your first tax year ending after January 19, 2025. For most individual owners, that’s the 2025 tax year. It suits owners who want some bonus but not all of it in one year. The election has its own rules and deadlines, so ask your CPA whether it fits your 2025 return.

State conformity

States decide for themselves whether to follow federal bonus depreciation. California and New York don’t conform. On those state returns you depreciate the reclassified parts on regular schedules, so the state deduction is smaller in year one and larger later. Other states vary. Some follow federal rules, some require an add-back spread over several years, and some changed their rules after 2025. Check yours, or ask your CPA, before you count on the state savings.

Section 179 usually isn’t an option

Section 179 lets businesses expense equipment, and its limits went up under the 2025 law. For rental owners it rarely matters. It generally doesn’t apply to property used to furnish lodging, which covers most residential rentals. It also can’t create a loss, because it’s limited to business income. For a rental owner, bonus depreciation does the job section 179 would otherwise do.

What to do next

Find your signed purchase agreement and the date the rental was first ready to rent. Those two dates set your rate. Then run the numbers in the bonus depreciation calculator, or request a free proposal for a property-specific estimate and a fixed fee. If your rental went into service in an earlier year, read how a look-back study works. Prices are on the pricing page, and the FAQ covers common questions.

This is general information, not tax advice. Your CPA should confirm how it applies to you.