Bonus Depreciation Rate Changed in 2025 — How to Verify Current Rules

TL;DR: The additional first-year depreciation deduction (bonus depreciation) was made permanent at 100% by the One Big Beautiful Bill for qualified property acquired after January 19, 2025. The TCJA's scheduled phase-down to 40% and 20% no longer applies to property acquired after that date. Acquisition date, placed-in-service date, and binding contract dates all matter — confirm current rules on IRS.gov and talk to a CPA before electing.

_Last reviewed: July 2026 · 6 min read_

Bonus depreciation has been a moving target. The Tax Cuts and Jobs Act originally scheduled a gradual phase-down starting in 2023, dropping the deduction percentage from 100% to zero by 2027. Then Congress reversed course with the One Big Beautiful Bill in 2025, making 100% bonus depreciation permanent for property acquired after January 19, 2025. If you're trying to plan a property purchase or equipment upgrade, you need to know which rate applies to your situation and when.

Okoniq Property Hub logs acquisition dates, placed-in-service dates, and depreciation elections alongside your property records so you can hand your CPA a complete timeline at tax time.

What changed with the bonus depreciation phase-down?

The TCJA scheduled bonus depreciation to drop from 100% in 2022 to 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and 0% in 2027. That schedule no longer applies to property acquired after January 19, 2025. The One Big Beautiful Bill (P.L. 119-21) reset bonus depreciation to 100% permanently for qualified property acquired after that date.

Property acquired before January 19, 2025 follows the old schedule. Property acquired on or after that date gets the new rule. The binding contract date can also matter — if you signed a binding contract before January 19, 2025 but closed after that date, you may still fall under the old phase-down rule depending on when the property was placed in service. This is why verification matters more than relying on a blog post written before the legislation passed.

Bonus depreciation applies to new or used tangible property with a recovery period of 20 years or less — think appliances, furniture, site improvements through cost segregation, and certain equipment. It does not apply to the building structure itself. A rental property owner using bonus depreciation typically applies it to personal property inside the building that would otherwise depreciate over 5, 7, or 15 years under MACRS.

How do I verify the current bonus depreciation rate?

Check the IRS directly. The Treasury and IRS issue guidance when legislation changes depreciation rules, and the source page is updated to reflect current law. As of January 2025, Notice 2026-11 provided interim guidance on the permanent 100% bonus depreciation for property acquired after January 19, 2025. The official source is Treasury/IRS guidance on the additional first year depreciation deduction.

Do not trust articles that predate the One Big Beautiful Bill. Many older posts and tax guides still reference the TCJA phase-down schedule because that was the law when they were written. Even articles from late 2024 may not reflect the 2025 reversal. Always confirm the effective date of the rule you're reading about and cross-check it against the IRS source page before making a decision.

When you talk to your CPA, bring the acquisition date, the binding contract date if any, and the placed-in-service date for the property or component you want to depreciate. Those three dates determine which set of rules applies. A property placed in service in December 2024 is governed by one rate, a property acquired and placed in service in February 2025 by another.

Do acquisition and placed-in-service dates still matter?

Yes. Bonus depreciation requires that the property be both acquired and placed in service during the tax year you claim it. "Placed in service" means available for its intended use — for a rental, that's typically when the unit is ready to rent and you begin marketing it or a tenant moves in. The acquisition date determines which bonus depreciation percentage applies if the rules have changed between contract signing and closing.

For property acquired under a binding contract signed before January 19, 2025, the old TCJA phase-down schedule may still apply even if the closing happened after that date. The IRS defines a binding contract as one that is enforceable under state law and does not limit damages to a specified amount — a standard purchase agreement for real estate usually qualifies. If you signed a contract in October 2024 but closed in March 2025, confirm with your CPA which rule governs your property.

The mid-month convention applies to real property under MACRS, which means you get half a month of depreciation for the month you place the property in service. Bonus depreciation does not change that convention, but it does let you front-load depreciation on the personal property and site improvements that qualify for bonus treatment. If you're doing a cost segregation study, the acquisition date on the study report needs to match the acquisition date on your tax return for bonus depreciation to apply correctly.

When should I elect out of bonus depreciation?

Bonus depreciation is optional. You can elect to use regular MACRS instead by attaching a statement to your timely filed return. Sometimes that's the smarter move. If your taxable income is low in the year you acquire the property, taking a large bonus depreciation deduction may not save you much tax — you could be wasting the deduction in a year when your marginal rate is low or you have passive loss limitations.

Passive loss rules limit how much rental loss you can deduct in a given year unless you qualify as a real estate professional or fall under the $25,000 allowance for active participants. If you take bonus depreciation and generate a rental loss that you cannot currently deduct, that loss carries forward to future years, but you've used up the bonus election and cannot reclaim it later when your income is higher. Electing out lets you spread the depreciation over the property's recovery period, which can produce a more consistent deduction across multiple tax years.

Some taxpayers elect out to avoid depreciation recapture when they sell. Bonus depreciation accelerates recapture into the year of sale, and recaptured depreciation is taxed as ordinary income up to a 25% rate on unrecaptured Section 1250 gain. If you plan to sell within a few years, the front-loaded deduction may not justify the recapture tax. Run the numbers with your CPA before you decide.

You can also elect to take 40% bonus instead of 100% for certain property under interim guidance issued in Notice 2026-11. The election lets you smooth the deduction if 100% creates a loss you cannot use, and it applies per class of property rather than all-or-nothing across your entire return.

What do I need to document for bonus depreciation elections?

Keep the acquisition date, the binding contract date if any, the placed-in-service date, and a copy of any depreciation election statement attached to your return. If you elect out of bonus depreciation or elect the 40% rate instead of 100%, the election is irrevocable for that property in that year. Your CPA needs to know what you elected and when to prepare future-year returns correctly, especially if you sell the property and need to calculate depreciation recapture.

If you did a cost segregation study, save the engineer's report and the supporting invoices for components that were reclassified into shorter recovery periods. The IRS may ask for documentation that the components qualify for bonus depreciation, particularly if you took a large deduction relative to the property's purchase price. Having the report and the acquisition date documented in one place makes that easier.

Okoniq logs acquisition dates, placed-in-service dates, and notes for tax elections on a per-property basis so you can retrieve them years later when you file an amended return or respond to an IRS notice. A single missed date can disqualify a five-figure deduction, and paper files degrade. Store it digitally with the rest of your property records.

FAQ

Does bonus depreciation still phase down to zero by 2027?

No. For property acquired after January 19, 2025, the One Big Beautiful Bill made bonus depreciation permanent at 100%. The TCJA phase-down schedule still applies to property acquired before that date, so a purchase in December 2024 follows the old rule while a purchase in February 2025 does not. Verify the effective date of the rule that applies to your property on IRS.gov.

Can I take bonus depreciation on a rental property I just bought?

Bonus depreciation applies to personal property and site improvements with a recovery period of 20 years or less, not the building structure. If you do a cost segregation study that reclassifies appliances, carpet, parking lot paving, and landscaping into shorter recovery periods, those components qualify for bonus depreciation. The building itself continues to depreciate over the residential rental recovery period under regular MACRS.

What happens if I elect out of bonus depreciation one year and want it back the next year?

Bonus depreciation elections are made per class of property per tax year. If you elect out for five-year property in 2025, you can choose to take bonus on five-year property acquired in 2026 — you are not locked out forever. However, you cannot revoke an election retroactively for property you already placed in service. Once the return is filed and the period for amendment expires, the election stands.

Do I need to attach a statement to elect 100% bonus or is it automatic?

One hundred percent bonus depreciation is automatic unless you elect out or elect a lower percentage. You only need to attach a statement if you are electing out entirely or electing the 40% rate under the interim guidance. The statement must include the class of property and the election language specified in the regulations. Your tax software may handle this automatically if you indicate the election in the depreciation schedule.

How do I know if a binding contract signed before Jan 19 2025 disqualifies me from the new rule?

A binding contract is one that is enforceable under state law and does not limit the buyer's damages to a specified amount. Most standard real estate purchase agreements meet that definition. If you signed a contract before January 19, 2025 and closed after that date, the old TCJA phase-down rule likely applies, but exceptions exist for certain property types. Confirm with a CPA — the answer depends on the contract terms and the type of property.

<div class="glass rounded-2xl p-5 mt-7 max-w-4xl border border-red-400/30 bg-red-500/5"> <div class="flex items-start gap-3"> <span class="text-2xl flex-shrink-0">⚠️</span> <div class="flex-1 min-w-0"> <p class="text-red-200 text-sm font-bold">Not tax advice</p> <p class="text-slate-300 text-xs mt-1 leading-relaxed"> This post assumes property acquired after January 19, 2025 under the One Big Beautiful Bill and does not account for binding contracts signed before that date, alternative depreciation systems, or future legislation. It does not cover your specific tax bracket, state rules, entity type, or passive loss position. Tax rules change and depend on your specific situation. Talk to a licensed CPA before acting on anything here, and confirm current figures on IRS.gov. </p> </div> </div> </div>