Bonus Depreciation in 2026: What STR Investors Need to Know

100% bonus depreciation is permanently restored for 2025 and beyond under the One Big Beautiful Bill Act (signed July 2025). Property placed in service on or after January 19, 2025 qualifies for full Year-1 expensing of any component with a recovery period of 20 years or less — no phase-down, no expiration. Combined with cost segregation, this writes off reclassified 5-, 7-, and 15-year property entirely in Year 1.

Bonus depreciation in 2026 is at 100%, meaning any building component with a MACRS recovery period of 20 years or less can be fully deducted in the year the property is placed in service. This rate was permanently restored by the One Big Beautiful Bill Act (OBBBA), signed in July 2025, after declining from 100% (2022) to 80% (2023) to 60% (2024) under the TCJA phase-down schedule.

For rental property investors, 100% bonus depreciation combined with a cost segregation study means that reclassified 5-year personal property (appliances, flooring, cabinetry, fixtures), 7-year property, and 15-year land improvements (landscaping, paving, fencing) are all written off entirely in Year 1. On a $500,000 rental property where a cost segregation study reclassifies $100,000 into accelerated categories, the full $100,000 is deductible immediately rather than being spread over 5 to 15 years.

What is bonus depreciation?

Normally when you buy a rental property, you write off the building structure over a long time: 27.5 years if it’s residential, or 39 years if it’s commercial. That’s straight-line depreciation — useful, but it spreads your deductions out over decades.

Bonus depreciation works differently. It lets you deduct certain property components — the ones classified as 5-year, 7-year, or 15-year property under MACRS — immediately in Year 1. At 100%, you get the entire deduction upfront, not in tiny annual pieces.

Imagine you buy a $500K rental property and a cost segregation study reclassifies $100K of the basis into accelerated property categories. With bonus depreciation at 100%, you’d claim $100K in deductions in Year 1 instead of spreading them across 5, 7, or 15 years.

The bonus depreciation timeline

To understand why 2026 is special, here’s the recent history. The Tax Cuts and Jobs Act of 2017 introduced 100% bonus depreciation and extended it through 2022. It was a massive win for real estate investors. But Congress didn’t make it permanent. Starting in 2023, the rate started declining: 80% in 2023, 60% in 2024.

Then in July 2025, the One Big Beautiful Bill Act (OBBBA) permanently restored bonus depreciation to 100% for 2025 and beyond — no phase-down, no sunset clause. This is stronger than the original TCJA treatment, which had always been temporary.

Year placed in service	Bonus depreciation rate
2022	100% (TCJA)
2023	80% (TCJA phase-down)
2024	60% (TCJA phase-down)
2025+	100% (OBBBA, permanent)

Why this matters for STR investors specifically

If you own short-term rentals, you’ve got two unique advantages.

First, short-term rentals contain way more depreciable components than standard long-term rentals. Furniture, electronics, hospitality-grade fixtures, outdoor entertainment areas, pools, hot tubs, alarm systems, smart home tech, kitchen equipment. While a typical long-term rental might have 10-15% of its purchase price in accelerated categories, a well-equipped STR often has 20-30%.

Second, STR investors can often claim material participation status, which means you can offset rental losses against your active income — your W-2 job, your business income. Regular rental investors are limited to $25K of passive loss deductions per year. STR investors who meet the material participation tests aren’t.

The combination of 100% bonus depreciation, cost segregation, and material participation is the most powerful tax strategy in real estate right now.

What qualifies for bonus depreciation?

Any property component with a MACRS recovery period of 20 years or less qualifies. In practical terms:

• 5-year personal property — appliances, flooring, cabinetry, fixtures, furniture
• 7-year property — certain fixtures and equipment
• 15-year land improvements — fencing, landscaping, paving, pools, outdoor lighting, decks

What doesn’t qualify? The building structure itself. The 27.5-year (residential) or 39-year (commercial) shell stays on straight-line depreciation. Most investors have no idea how much of their property actually falls into these shorter categories — that’s what a cost segregation study identifies.

New construction vs. existing properties

Bonus depreciation works for both. If you bought or built a property in 2026, you apply the cost segregation study to your new acquisition and claim bonus depreciation in Year 1.

But here’s the underused part: if you bought a property three years ago, five years ago, or even ten years ago and never did a cost seg study, you can do a lookback study and catch up on all the missed accelerated depreciation in a single year through Form 3115. You don’t even need to amend your prior returns — the cumulative missed depreciation is claimed as a Section 481(a) adjustment on your current-year return.

A worked example

Say you bought a $750K vacation rental in 2024 and finally did a cost segregation study in 2026. The study reclassifies $90K to 5-year property and $45K to 15-year property. That’s $135K total in assets eligible for bonus depreciation. With the rate at 100%, you claim the full $135K in Year 1.

At a 37% bracket, that $135K deduction saves you approximately $50,000 in actual cash taxes. The cost segregation study itself starts at $495 for residential properties — roughly a 100x return on the study fee.

Estimates above assume material participation or STR active treatment so the deduction can offset other income. Talk to your CPA before relying on this for your specific tax situation.

What happens if you wait?

Even with the rate now permanent, you’re losing a full year of accelerated deductions for every year you delay. A property purchased in 2025 that doesn’t get studied until 2027 loses two years of front-loaded deductions. That’s not getting them back; that’s just a smaller present-value benefit.

There’s no reason to wait if you own qualifying rental property. Get the study done, talk to your CPA, and put the cash back to work.

Frequently asked

Is bonus depreciation permanent now, or will it phase down again?

Yes, 100% bonus depreciation is now permanent under the One Big Beautiful Bill Act (OBBBA), signed July 2025. Unlike the TCJA version that phased down from 100% to 80% to 60%, the OBBBA has no sunset clause. Any property with a MACRS recovery period of 20 years or less placed in service on or after January 19, 2025 qualifies for full first-year expensing.

Can I use bonus depreciation on a property I bought years ago?

Yes. If you purchased a rental property in a prior year and never performed a cost segregation study, you can file a lookback study and catch up on all missed accelerated depreciation in a single tax year using IRS Form 3115. The cumulative missed depreciation from all prior years is claimed as a Section 481(a) adjustment on your current-year return.

What building components qualify for 100% bonus depreciation?

Any component classified as MACRS 5-year, 7-year, or 15-year property qualifies. In practical terms, that includes appliances, cabinetry, flooring, light fixtures, furniture, certain specialized fixtures, and land improvements such as landscaping, fencing, paving, outdoor lighting, pools, and decks. The building structure itself (27.5-year residential or 39-year commercial) does not qualify.

How much does a cost segregation study cost, and how fast is delivery?

Cost Seg Smart delivers engineering-based, IRS-compliant cost segregation studies starting at $495 for residential and $995 for commercial, with reports delivered in under one hour. Every report includes a CPA-Ready Guarantee.

Do STR investors benefit more than long-term rental owners?

Short-term rentals generally have 20-30% of purchase price in accelerated MACRS categories vs. 10-15% for unfurnished long-term rentals, because of furniture, electronics, hospitality fixtures, and outdoor amenities. STR owners who meet material participation requirements can also use rental losses to offset active W-2 income, which passive long-term rental investors generally cannot.