Bonus depreciation in 2026: the 100% rate, the rules, and examples

By Preston Seo, founder of Legacy Investing Show. Last reviewed October 6, 2026. Change log: Oct 6, 2026 moved the answer to the top, fixed the worked example to use the first-year mid-month rate, and added the qualification checklist, video, and IRS links.

What does bonus depreciation do?

Normal depreciation spreads the cost of an asset over its recovery period. A 5 year asset gives you a piece of the deduction each year for six tax years. Bonus depreciation under Section 168(k) lets you take a set share of the cost in the first year instead.

For 2026 that share is 100% for qualified property acquired after January 19, 2025. You buy a $60,000 machine, place it in service, and deduct $60,000 the same year.

It is a timing tool. You never deduct more than you paid. You get the deduction sooner, and you keep the tax saved working for you until the depreciation comes back as recapture when you sell.

What is the bonus depreciation rate for 2026?

The One Big Beautiful Bill Act, signed July 4, 2025, amended Section 168(k). It set bonus depreciation at 100% for qualified property acquired after January 19, 2025, with no end date. The IRS gave interim guidance in Notice 2026-11, which taxpayers may rely on until regulations come out.

"Acquired" means the date you signed a written binding contract, not the closing or delivery date. For property you build, it is when physical work of a significant nature started. A building under contract in December 2024 and finished in 2026 stays on the old schedule.

What schedule did this replace?

Those rates still apply to property acquired on or before January 19, 2025, and to amended returns for earlier years. Notice 2026-11 also describes a one-time election to take 40% instead of 100% (60% for some long production period property) for the first tax year ending after January 19, 2025. For a calendar-year filer that was the 2025 return, so it does not apply to 2026.

Who can use bonus depreciation?

You need all of these

• The property is used in a business or held to produce income, such as a rental.
• It has a recovery period of 20 years or less, or it is off-the-shelf software or qualified improvement property.
• It is new to you, and you did not buy it from a related party.
• It is placed in service in the tax year, meaning ready and available for use, not just paid for.
• You can use the deduction this year, or you are fine carrying it forward.

Who this does not work for

• W-2 earners with a long-term rental and no way past the passive loss rules. The loss is suspended until you have passive income or sell.
• Owners in a low bracket this year who expect a higher bracket later. Deducting at 12% and recapturing at 32% is a bad trade.
• Anyone selling soon. Most of the deduction comes back as ordinary income.
• Businesses that need to keep taxable income steady for a lender or for the QBI deduction. Electing out by class can be smarter.
• Buildings with no cost segregation study. The building shell itself never qualifies.

What qualifies, and what does not?

Qualified property under Section 168(k) is tangible property with a MACRS recovery period of 20 years or less, off-the-shelf software, qualified improvement property, and a few special categories. In practice that covers:

• Machinery, tools, and equipment.
• Computers, servers, and off-the-shelf software.
• Office furniture and fixtures.
• Business vehicles, subject to the Section 280F caps on passenger cars.
• Appliances, carpet, cabinets, and furniture in a rental, which are 5 or 7 year property.
• Land improvements such as driveways, fencing, and landscaping, which are 15 year property.
• Qualified improvement property: interior work on a non-residential building after it was first placed in service.

These do not qualify: the residential building (27.5 years) or commercial building (39 years), land, the roof and structural shell, property bought from a related party, and property that must use the alternative depreciation system. The 2025 law also added a separate 100% deduction for qualified production property, meaning parts of factory buildings used in manufacturing. It has its own dates and rules, so ask a CPA if that applies to you.

How does bonus depreciation work with cost segregation?

When you buy a building, nearly all of its basis lands in a 27.5 or 39 year class, and none of it qualifies for bonus. A cost segregation study finds the parts that belong in shorter classes. Bonus depreciation then writes those parts off in year one. One creates the eligible property and the other deducts it.

This is an example, not a forecast. Every number is an assumption.

A study on a building this size often costs $8,000 to $15,000. The first-year difference here is about $81,000 of tax, if the loss is usable this year. Estimate your own numbers with the bonus depreciation estimator and the cost segregation savings calculator.

Can bonus depreciation offset W-2 income?

Only through a rental or business you can count as non-passive. A rental loss is passive under Section 469, and a passive loss cannot reduce wages. Two routes change that. The short-term rental loophole needs an average guest stay of 7 days or less and material participation. Real estate professional status needs more than 750 hours and more than half of your working time in real estate, which usually means a spouse who does not work full time elsewhere.

Order matters. Decide whether you can pass a participation test before you pay for a study. Then check the Section 461(l) cap: in 2026, business losses above $512,000 on a joint return carry forward as a net operating loss.

What does our own data show?

Of the 61 wealth plans we published between August 2025 and April 2026, 25 mention bonus depreciation. One plan dated April 11, 2026 was for a W-2 earner with about $250,000 of projected income. It modeled a $300,000 short-term rental with $50,000 of furnishings and estimated $70,000 to $90,000 of first-year deductions from cost segregation and bonus depreciation. The plan only works because the owner had time to pass the 100-hour test. Plans are planning scenarios, not results, and names are left out.

What does Preston say about this on video?

The 100% Write-Off Playbook for 2025 (10 min, October 2025). Preston walks through 100% bonus depreciation, when Section 179 is the better tool, cost segregation on a purchased building, short-term rental participation, heavy vehicles, state conformity, and the QBI and estimated tax checks to run before December 31. Watch on YouTube.

The video was made in October 2025, so its "before December 31" deadlines refer to 2025. The 100% rate and the Section 179 rules it covers still apply in 2026.

Should you use bonus depreciation or Section 179?

The 2026 Section 179 figures come from Rev. Proc. 2025-32. The usual order is Section 179 first on items only it can reach, then bonus depreciation on the rest, then regular depreciation on what is left. See the Section 179 guide for more.

How does it work on business vehicles?

Bonus depreciation reaches business vehicles, but Section 280F caps first-year depreciation on passenger cars, and the cap includes the bonus. Vehicles over 6,000 pounds gross vehicle weight are outside those caps. You only deduct the business-use share, and business use must stay over 50% or the extra depreciation is recaptured. Keep a mileage log during the year. See the business vehicle deduction guide.

What are the common mistakes?

• Using the closing date instead of the contract date for the January 19, 2025 cutoff.
• Claiming it in the wrong year. The test is placed in service, not paid for.
• Calling structural work qualified improvement property. Roofs, framing, and outside walls are out.
• Buying from a related party, which disqualifies the property.
• Taking a loss you cannot use, because of passive loss limits, the 461(l) cap, or a low rate.
• Forgetting the state return. Several states add bonus depreciation back.
• Forgetting recapture when you sell.

How do you claim it?

1. Confirm the contract date and the placed-in-service date.
2. Get an asset list with a recovery period for each line. On a building, that means a cost segregation report.
3. Check that nothing came from a related party.
4. Apply Section 179 where it reaches something bonus cannot, then bonus on the rest.
5. Report it on Form 4562, Part II.
6. Decide whether to elect out for any class under Section 168(k)(7). The election is by class and is hard to reverse.
7. Keep the study, the invoices, and the in-service proof with the return.

What changed for 2026?

• 100% bonus depreciation is permanent for qualified property acquired after January 19, 2025.
• Section 179 is $2,560,000 with a $4,090,000 phase-out start.
• A new 100% deduction exists for qualified production property used in manufacturing.
• The 2026 excess business loss cap is $512,000 for joint filers.

Related reading: bonus depreciation on residential rentals, depreciating rental improvements, how cost segregation lowers taxes, and the 2026 tax changes. The tax strategy library lists every guide.

Which IRS sources back this up?

Read the rule itself before you rely on a summary, including this one.

• IRS Notice 2026-11, interim guidance on 100% bonus depreciation
• Internal Revenue Code Section 168
• IRS Publication 946, How to Depreciate Property
• IRS Form 4562, Depreciation and Amortization
• Rev. Proc. 2025-32, 2026 Section 179 and inflation amounts
• IRS overview of One Big Beautiful Bill provisions
• IRS Publication 925, Passive Activity and At-Risk Rules