Bonus depreciation on rental property: the current rules

The current rule

The IRS says the One, Big, Beautiful Bill (Public Law 119-21) provides a permanent 100% additional first year depreciation deduction for qualified property acquired after January 19, 2025. The IRS issued guidance in Notice 2026-11 and a news release dated January 14, 2026. Property acquired before January 20, 2025 remains under the earlier phase-down rules, which Publication 946 describes for the 2025 tax year, including a 40% allowance for certain property acquired after September 27, 2017 and before January 20, 2025.

Taxpayers can elect a 40% rate instead of 100% for qualified property placed in service in the first tax year ending after January 19, 2025. Publication 946 also says you can elect, for any class of property, not to claim the allowance for all property in that class placed in service during the year, by attaching a statement to your return. You make the election separately for each class.

Rules change, and details vary by facts. This article summarizes IRS pages read on October 30, 2026. Check the current IRS pages and ask your tax preparer.

What qualifies on a rental

Publication 946 says qualified property is, among other things, tangible property depreciated under MACRS with a recovery period of 20 years or less, and that it can be new property or certain used property. For a residential rental, that points to:

The classes come from Publication 527, which lists residential rental property at 27.5 years and appliances, carpeting and furniture used in a residential rental activity as 5 year property. Whether a specific item is 5 year property, 15 year property or part of the building is a fact question. A cost segregation study is how owners of larger buildings answer it. For small items, the de minimis safe harbor or section 179 may be simpler, so compare them with your preparer.

A worked example

Example a made-up owner buys a 6 unit building in March 2026 and spends $42,000 on new appliances and carpet across the six units, all placed in service that year. These are 5 year property. With 100% bonus depreciation, the owner can deduct the whole $42,000 in 2026 on Form 4562. Without it, the regular method takes 20% in year one, which is $8,400, with the rest spread over the following years.

Example the same year the owner also spends $30,000 on a new roof. A roof is part of the building and is depreciated over 27.5 years, not eligible for bonus, so year one depreciation on the roof is a small share of $30,000, about $30,000 / 27.5 = $1,091 for a full year (the first year is less). The owner's first year depreciation on these two projects is therefore about $42,000 + $1,091 = $43,091, not $72,000.

Limits that decide whether it helps

• You must have income to use the loss. A rental deduction that creates a loss may be limited under the passive activity rules, and a loss that cannot be used yet carries forward. See Publication 925 and rental losses against other income.
• Depreciation can be taxed when you sell. The IRS guide to cost segregation discusses why personal property and buildings are treated differently on a sale. Ask your preparer to model it.
• Bonus is the default. If you do not want it, you have to elect out by class. Some owners choose to spread deductions out to match higher income years.
• Your state may not follow the federal rule. Check your state's treatment.
• Records matter. Keep the invoice showing what was bought, when, and when it was placed in service. A property is placed in service when it is ready and available for use, not when it is paid for.

How to keep your books ready for it

1. Record appliance and flooring purchases to a capital account, not to repairs, when they are bigger than your de minimis limit.
2. Note the date each item was placed in service.
3. Keep the invoice with the entry.
4. Give your tax preparer a list of capital purchases by property at year end.

How DoorKeeping handles it

DoorKeeping keeps improvements apart from repairs in each property's own books and ties every expense account to a Schedule E line, so the list of capital purchases for your tax preparer is already separate. It does not compute depreciation elections or give tax advice; your tax preparer decides what to claim and prepares the return.

Sources

1. IRS, Treasury, IRS issue guidance on the additional first year depreciation deduction (IR-2026-06, Notice 2026-11), January 14, 2026, read Oct 30, 2026
2. IRS, Publication 946 (2025), How To Depreciate Property, read Oct 30, 2026
3. IRS, Publication 527, Residential Rental Property, read Oct 30, 2026
4. IRS, Publication 925, Passive Activity and At-Risk Rules, read Oct 30, 2026

Questions

Is bonus depreciation 100% in 2026?

For qualified property acquired after January 19, 2025, the IRS says the additional first year depreciation deduction is 100% under the One, Big, Beautiful Bill. Confirm the current IRS guidance and your facts with your tax preparer.

Can I take bonus depreciation on a rental building?

Not on the building itself. A residential rental building has a 27.5 year recovery period, and bonus depreciation applies to property with a recovery period of 20 years or less.

Can I take bonus depreciation on used rental property?

Publication 946 says qualified property can be new or certain used property. Whether yours qualifies depends on how and from whom you acquired it, so ask your tax preparer.

Can I opt out of bonus depreciation?

Yes. You can elect not to claim it for a class of property placed in service during the year, by attaching a statement to your return, or elect a 40% rate in the first tax year ending after January 19, 2025.