Bonus Depreciation in 2026: What Rental Property Investors Need to Know
The Current State of Bonus Depreciation
Bonus depreciation has been one of the most powerful tax incentives for real estate investors in recent years. Under the Tax Cuts and Jobs Act of 2017, 100% bonus depreciation was available for qualified property placed in service from September 2017 through 2022. Since then, the rate has been phasing down, and understanding the current rules is essential for investors planning their cost segregation strategy in 2026.
Phase-Down Schedule
The bonus depreciation rate has been decreasing by 20 percentage points each year. For property placed in service in 2023, the rate was 80%. In 2024, it dropped to 60%. In 2025, the rate is 40%. And in 2026, it is down to 20%. Without legislative action, bonus depreciation will be fully phased out for property placed in service after December 31, 2026.
This phase-down makes timing critical. Every year you delay a cost segregation study, you lose access to a higher bonus depreciation rate on the 5, 7, and 15-year property identified in the study.
What This Means for 2026 Purchases
For a property purchased in 2026, a cost segregation study that identifies $120,000 in components eligible for bonus depreciation would allow the investor to deduct 20% of that amount ($24,000) as bonus depreciation in the first year. The remaining $96,000 would be depreciated over the applicable recovery periods (5, 7, or 15 years) using the standard MACRS tables.
While 20% is significantly less than the 100% bonus depreciation available in earlier years, it still provides meaningful first-year acceleration compared to straight-line depreciation over 27.5 years. And the regular accelerated depreciation under MACRS (without bonus) continues to provide significant front-loading of deductions over the 5, 7, and 15-year recovery periods.
Legislative Outlook
There has been bipartisan interest in restoring higher bonus depreciation rates. Several proposals have been introduced in Congress to extend or restore 100% bonus depreciation, though none have been enacted as of the time of this writing. Investors should work with their tax advisors to monitor legislative developments and plan accordingly.
Regardless of the bonus depreciation rate, cost segregation remains valuable because it reclassifies components from 27.5-year property into 5, 7, and 15-year property. Even without any bonus depreciation, the accelerated MACRS depreciation over these shorter periods provides significant tax benefits compared to straight-line depreciation.
Act Now
If you own rental property and have not yet conducted a cost segregation study, 2026 may be the last year to capture any bonus depreciation benefit. Stratum delivers studies within 14 business days, giving you time to implement the study before year-end deadlines.