The Big Beautiful Bill fundamentally altered the 2026 tax landscape for real estate investors. Congress permanently reinstated 100% bonus depreciation for qualifying property acquired after January 19, 2025.
This reversal eliminates the scheduled phase-down that would have reduced bonus depreciation to 20% in 2026 and to zero in 2027. The Tax Cuts and Jobs Act's gradual elimination of this critical tax benefit no longer applies to new acquisitions.
The legislation creates a clear dividing line. Properties under binding contract before January 19, 2025, remain subject to the old phase-down rates. Properties acquired after this date qualify for full bonus depreciation on all eligible components. This distinction makes acquisition timing crucial for maximizing tax benefits.
Real estate investors now face dramatically different economics for 2026 acquisitions. A $3 million property purchase can generate hundreds of thousands in additional first-year deductions compared to the previously scheduled 20% rate.
What Changed and What It Means for Your Properties
The One Big Beautiful Bill restored bonus depreciation to its full 100% rate for qualified property. The legislation maintains existing qualification criteria while eliminating the phase-down schedule entirely.
Qualifying property continues to include MACRS assets with recovery periods of 20 years or less. Cost segregation studies identify these components: 5-year personal property, 7-year fixtures and equipment, and 15-year land improvements. These classifications remain unchanged under the new law.
Consider a $3 million apartment complex acquisition in 2026. A professional cost segregation study typically identifies 30% of the purchase price as qualifying components. This represents $900,000 in bonus-eligible assets. Under the new law, investors claim the full $900,000 as a first-year deduction. The previous 2026 rules would have limited this deduction to $180,000.
This $720,000 difference in first-year deductions translates to approximately $250,000 in federal tax savings for investors in the 35% bracket. The permanent restoration of 100% bonus depreciation makes cost segregation studies essential for maximizing these benefits.
Making Sure Your Property Qualifies for 100% Bonus Depreciation
The January 19, 2025, acquisition date serves as the definitive threshold for 100% bonus depreciation eligibility. The IRS examines binding contract dates, not closing dates, when determining qualification.
Properties qualifying for bonus depreciation include the same categories that cost segregation has always identified. Personal property components include appliances, window treatments, decorative lighting, and specialized electrical systems. Land improvements encompass parking lots, sidewalks, landscaping, and site utilities. These elements typically represent 20% to 35% of a property's total cost basis.
Investors must understand that land value never qualifies for depreciation. Only improvements to land and building components qualify for accelerated depreciation schedules. Accurate allocation between land and improvements directly impacts available tax benefits.
Recapture rules continue to apply when investors dispose of property before the end of its depreciation schedule. Proper documentation and compliance protect investors from potential penalties and unexpected tax liabilities.
Maximizing Your 100% Bonus Depreciation
Cost segregation studies now deliver immediate return on investment. Every dollar reclassified from 39-year property to shorter recovery periods generates a dollar of first-year deduction under 100% bonus depreciation rules.
Real Estate Professional status enables investors to utilize these losses immediately against other income. Investors without this designation may face passive activity loss limitations, though the benefits still accumulate for future use.
Study costs typically start at $2,800, depending on property complexity. With 100% bonus depreciation, these studies often pay for themselves through tax savings within the first quarterly payment cycle.
Bonus Depreciation in 2026
The permanent restoration of 100% bonus depreciation transforms 2026 investment strategies. Properties acquired after January 19, 2025, generate maximum first-year deductions when combined with professional cost segregation studies.
Investors should calculate their specific tax savings potential and schedule cost segregation feasibility reviews for recent acquisitions.
Contact R.E. Cost Seg today to get a free cost segregation proposal that calculates your 2026 tax benefits.
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