Cost segregation and 100% bonus depreciation in 2026

In short

Property acquired under a written binding contract after January 19, 2025 qualifies for 100% bonus depreciation, permanently, under P.L. 119-21. Property acquired under a contract signed on or before that date stays on the TCJA phase-down: 40% if placed in service in 2025, 20% in 2026, and 0% after 2026. A cost segregation study is what moves building cost into the 5-, 7- and 15-year classes that bonus applies to.

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The rule in four lines

Test date: Written binding contract
After Jan. 19, 2025: 100%
Earlier, in service 2026: 20%
IRS guidance: Notice 2026-11

Long-production-period property and certain aircraft get one extra year on the phase-down.

§168(k)

Bonus rate by acquisition date and year placed in service

Two inputs decide it: when you acquired the property, and, for older contracts only, the year it was placed in service.

Bonus depreciation rate for property other than long-production-period property
Acquired (binding contract)	Placed in service	Bonus rate	Authority
After January 19, 2025	Any year	100%	P.L. 119-21 §70301; Notice 2026-11 §2.02
September 28, 2017 to January 19, 2025	2018 to 2022	100%	TCJA; Notice 2026-11 §2.01
September 28, 2017 to January 19, 2025	2023	80%	TCJA phase-down
September 28, 2017 to January 19, 2025	2024	60%	TCJA phase-down
September 28, 2017 to January 19, 2025	2025	40%	TCJA phase-down
September 28, 2017 to January 19, 2025	2026	20%	TCJA phase-down
September 28, 2017 to January 19, 2025	2027 or later	0%	TCJA phase-down ends

Property acquired before September 28, 2017 follows the earlier PATH Act phase-down, not shown. Used property qualifies only if you did not use it before and did not buy it from a related party.

Why the contract date, not the closing date

The statute grants 100% to property acquired after January 19, 2025. Notice 2026-11 applies the existing acquisition rules in Treas. Reg. §1.168(k)-2(b)(5) with the new dates substituted: property acquired under a written binding contract is acquired on the date the contract was entered into.

So a building under a binding contract in December 2024 that closed in March 2025 was acquired in 2024 and stays on the phase-down. A letter of intent is not a binding contract; a contract that limits damages for walking away to a small amount may not be either. The study records the date and the document it came from.

What this does to a 2026 purchase

A post-January 2025 contract means every component a study moves into 5-, 7- or 15-year property can be deducted in full in the year the building is placed in service. Under a pre-cutoff contract placed in service in 2026, only 20% of those components is deducted up front and the rest follows regular MACRS.

Some published calculators still apply the 20% rate to every 2026 placement. Ours asks for the contract date: try the calculator.

New construction and self-constructed property

For property you build or have built for you, acquisition is when construction begins: when physical work of a significant nature starts, or, under a safe harbor, when more than 10% of the total cost has been paid or incurred. Construction that began after January 19, 2025 gets 100%.

A project that began before that date can still have components acquired later, and Notice 2026-11 carries forward an election to treat those components separately. Construction pay applications and change orders are what prove those dates, which is one reason new-construction studies start from the AIA G702/G703 file.

Elections that change the answer

Electing out by class. You can elect out of bonus for all property in a class for a year. Reclassified components then follow regular MACRS.
The 40% transition election. For the first tax year ending after January 19, 2025, §168(k)(10) lets you take 40% (60% for long-production-period property and certain aircraft) instead of 100%, by a statement with Form 4562.
Electing real property trade or business. If you made the §163(j) election to avoid the interest limit, nonresidential buildings, residential rental buildings and qualified improvement property must use the alternative depreciation system (20-year straight line for qualified improvement property) and lose bonus. Personal property and land improvements identified by a study keep it.
Section 179. For tax years beginning in 2026 the limit is $2,560,000, phased out from $4,090,000, and it can reach nonresidential roofs, HVAC, fire protection and security systems. It is a return election, limited by taxable income; a study can show the options but your preparer decides.

Look-back studies

A study on a building placed in service in an earlier year uses the bonus rate of that year. A building bought under a 2022 contract and placed in service in 2023 gets 80% on the reclassified components, claimed as part of the Form 3115 catch-up. See Form 3115 look-back studies.

Manufacturing: §168(n)

P.L. 119-21 also created an elective 100% deduction for qualified production property, the production portion of a nonresidential building, for construction beginning after January 19, 2025 and before 2029. Identifying that portion is a study question. See cost segregation for manufacturers and the 2026 changes for R&D.

Bonus depreciation questions

Is 100% bonus depreciation permanent now?

For property acquired after January 19, 2025, yes: P.L. 119-21 removed the phase-down for that property rather than extending it for a set number of years. Congress can always change the law again, so a study records the acquisition date and the rule applied.

We signed the contract in December 2024 and closed in March 2025. Which rule applies?

The phase-down. The acquisition date is the date a written binding contract was entered into, so a binding December 2024 contract means the property was acquired before January 20, 2025. Placed in service in 2025, the rate is 40%; in 2026, 20%. Whether a contract was binding (for example, with damages limited to a small deposit) is a facts question your CPA should look at.

Can I take less than 100%?

Yes. You can elect out of bonus depreciation for any class of property for a year. For the first tax year ending after January 19, 2025, you can also elect a 40% rate (60% for certain long-production-period property) instead of 100%. Owners who expect higher rates later, or who cannot use the loss, sometimes prefer that.

Does bonus depreciation apply to the building itself?

No. Bonus applies to property with a recovery period of 20 years or less, which is why a study matters: it moves components out of the 27.5- or 39-year building into 5-, 7- and 15-year classes. Qualified improvement property (interior improvements to nonresidential buildings) is 15-year straight-line property and bonus-eligible.

Does my state allow it?

Often not. California does not follow federal bonus depreciation, and New York, New Jersey, Pennsylvania and Massachusetts decouple in whole or part. Those states depreciate the same components on their own schedules, so you keep a separate state basis.

Primary sources

What this page relies on, as reviewed October 2, 2026.

Tax law, IRS guidance and state conformity change. Confirm the current rules and how they apply to your property with a qualified professional before acting.

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