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Year-End Tax Playbook: 100% Bonus Depreciation Is Back — and What a 5–20 Unit Owner Does With It

By the Succession Editorial Desk ·

Year-End Tax Playbook: 100% Bonus Depreciation Is Back — and What a 5–20 Unit Owner Does With It

The Biggest Tax-Timing Change in Years Is Already Signed

On July 4, 2025, the One Big Beautiful Bill Act (P.L. 119-21) permanently restored 100% bonus depreciation for qualifying property acquired after January 19, 2025, reversing the phase-down that had dropped the rate to 40% for early-2025 placements. Under the old schedule, 2026 placements would have gotten 20% bonus; under current law they get 100%, with no phase-down or sunset date. The IRS issued interim guidance in Notice 2026-11 (January 14, 2026), which taxpayers can generally rely on while proposed regulations are developed.

Eight weeks remain in 2026. For a 5–20 unit owner, this is the rare year-end where the tax move is structural, not cosmetic — but it has to be matched to your actual situation. Here is what the law does, the three moves it enables, and the gate that decides whether any of them help you.

What Actually Qualifies

Bonus depreciation is an additional first-year allowance under IRC §168(k). The qualifier is the recovery period: the property must have a MACRS recovery period of 20 years or less. Your 27.5-year residential building never qualifies. The components hidden inside it do.

A cost segregation study — an engineering-based analysis that reclassifies building components into shorter recovery periods — is the machine that finds them: 5-year property (appliances, carpeting, decorative lighting, window treatments), 7-year property (certain fixtures and specialty equipment), and 15-year property (land improvements — paving, fencing, landscaping, site lighting, drainage). With 100% bonus, every dollar reclassified into those buckets is fully deductible in the year the property is placed in service.

Three fine-print points that trip people up. First, the January 19, 2025 cutoff is about acquisition, not closing date: property acquired under a written binding contract on or before that date stays on the old schedule (40% for 2025 placements, 20% for 2026). Second, bonus applies to used property as well as new — as long as you did not use it before and the purchase was arm's-length, which covers most investment acquisitions. Third, state conformity varies: California, for example, does not conform to §168(k) at all — the federal deduction simply does not exist there.

Move 1: Commission the Study Now, Mind the Placed-in-Service Date

The study must follow methodology the IRS will accept. The agency's own audit manual, the Cost Segregation Audit Techniques Guide (Publication 5653, revised February 2025), is explicit that the IRS has not established any requirements or standards for preparing studies, but it lists 13 principal elements of what it calls a quality study and instructs examiners to view rule-of-thumb percentage studies with caution. That means a back-of-the-envelope reallocation from your accountant is not a study — a defensible one is built by someone with construction and tax expertise, with costs reconciled to actual construction or purchase records.

The practical deadline is December 31: property must be placed in service in 2026 for the deduction to land on this year's return. A purchase closing in January 2027 gets next year's return. If you are acquiring a building this quarter, the study should be in motion before closing documents gather dust — engineers need the contract, closing statement, and ideally access before tenants turn over.

Move 2: Use the $2,500 De Minimis Safe Harbor for the Small Stuff

Before anything is depreciated, it might be deductible outright. The de minimis safe harbor under Treas. Reg. §1.263(a)-1(f) lets taxpayers without an applicable financial statement — which covers nearly all individual landlords — expense tangible property items of $2,500 or less per invoice or per item in the year placed in service, rather than capitalizing and depreciating them. Think appliances, fixtures, and furnishings bought unit by unit.

It is not automatic. You must elect it every year with a statement attached to the timely filed return (amended returns do not count), treat the amounts as expenses on your books under procedures in place at the start of the year, and remember the threshold is all-in: delivery and installation on the same invoice count toward the $2,500 ceiling. For a small landlord furnishing turnover units, this election costs nothing and sweeps hundreds of small purchases out of the depreciation schedule entirely.

Move 3: The Form 3115 Catch-Up for Buildings You Already Own

You do not have to buy a building in 2026 to benefit. A study performed on a building you already own is applied through Form 3115, Application for Change in Accounting Method (automatic change procedures), with a §481(a) adjustment that lets you claim the "catch-up" depreciation you missed — in a single year, on the current return. That catch-up uses the bonus rate in effect when the property was originally placed in service, so 100% bonus does not retroactively rewrite a 2023 placement — but for any short-life property acquired after January 19, 2025, the full rate applies.

One caution: a 3115 on an older building can still be worthwhile even at partial bonus rates if the study uncovers 5- and 7-year property you have been depreciating over 27.5 years. The engineering cost is the gating factor, not the bonus percentage.

The Gate That Decides Everything: Can You Use the Loss?

A cost segregation study does not decide whether you can use the loss. Rental losses are passive under §469. Unless you qualify as a real estate professional (more than 750 hours in real property trades or businesses, and more than half your working time), or you materially participate under the short-term-rental exceptions, passive losses can generally only offset passive income. The $25,000 rental loss allowance phases out between $100,000 and $150,000 of modified adjusted gross income.

For the classic 5–20 unit long-term landlord who is not a real estate professional, a six-figure first-year write-off often becomes a carryforward — valuable, but not the cash-in-hand the headlines imply. Know which side of that gate you are on before you spend on the study.

The Action, Stated Plainly

If you bought or placed a building in service in 2026, get an engineering-based cost segregation study in motion now — the IRS's own guide is the standard your preparer should be able to cite. Elect the de minimis safe harbor with the return for sub-$2,500 items. If you already own the building, ask your CPA whether a Form 3115 catch-up pencils. And before any of it, ask the gate question: can you use the loss this year? The honest uncertainty here is not the law — that is settled, at least until Congress revisits it — but your own tax position. The deduction belongs to the year the property went into service; the strategy belongs to the person who can actually use it.

SOURCES

  • REP Helper, "Bonus Depreciation for STR Owners: 2026 Rules" (updated ~July 2026) — OBBBA permanently restored 100% bonus for qualified property acquired and placed in service after January 19, 2025; building itself does not qualify, 5-/7-/15-year components do.
  • K&R Strategic Partners, "Cost Segregation Rental Property: 2026 Tax Savings Guide" — OBBBA signed July 4, 2025 (P.L. 119-21); Section 179 limit raised to $2.5M for 2025, indexed to ~$2.56M for 2026, phase-out threshold ~$4.09M.
  • BNBCalc, "Maximize 100% Bonus Depreciation in 2026 with Cost Segregation Studies" — old phase-down: 40% in early 2025; improvements placed in service after the cutoff qualify; Form 3115 / §481(a) catch-up for existing properties.
  • GuestManual, "Bonus Depreciation for Short-Term Rentals: Complete Guide (2026)" — under TCJA schedule 2026 would have been 20%; cost seg reclassification categories (5/7/15-year examples).
  • Gulf Coast Tax, "2026 Cost Segregation & 100% Bonus Depreciation" (June 2026) — IRS Notice 2026-11 (Jan 2026) interim guidance; used property qualifies if not previously used and arm's-length; binding-contract date rule.
  • CrowdfundedWealth, "Cost Segregation Study" (Oct 2026) — Pub. 5653 (rev. Feb 6, 2025), 13 elements of a quality study, rule-of-thumb studies viewed with caution; §469 passive loss rules, real estate professional 750-hour/more-than-half tests, $25,000 allowance phasing out at $150,000 MAGI; old schedule: 40% 2025 / 20% 2026 placements.
  • LegalClarity, "IRS Cost Segregation Guide for Residential Rental Property" — OBBBA §70301, Notice 2026-11, permanent 100% under current law.
  • McKee Company, "Bonus Depreciation and Cost Segregation for Rentals" (Oct 2026) — §168(k) as amended by OBBBA §70301; California non-conformity.
  • StaySTRA, "STR Bonus Depreciation 2026" (Oct 2026) — placed in service by Dec 31, 2026 to capture current-year deduction; "permanent means until Congress changes it."
  • DepreciMax, "Short-Term Rental Taxes and Deductions: 2026 Guide" (Oct 2026) — de minimis safe harbor $2,500 per invoice/item, election attached to timely filed return each year.
  • LegalClarity, "The De Minimis Safe Harbor for Rental Property" — no AFS required for most individual landlords to have a consistent policy in place at the start of the tax year; $2,501 threshold is cliff-style (no partial deduction).

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