The One Big Beautiful Bill Act (OBBBA) permanently restored 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025. That is the largest first-year write-off change for real estate investors since the 2017 phase-down. For BRRRR sponsors, the interaction between placed-in-service date, a cost segregation study, and first-year deduction size can materially change after-tax returns on the same deal.
This is general information, not tax advice. Consult a qualified CPA before making depreciation elections. Sources: IRS business tax provisions, IRS Notice 2026-11, and IRS Publication 946.
What OBBBA changed for real estate investors
Before OBBBA, the Tax Cuts and Jobs Act schedule put the bonus rate at 40% for qualified property placed in service during 2025, and at 40% for specified plants planted or grafted during 2025. IRS Notice 2026-11 states that rule. OBBBA then replaced the phase-down with a permanent 100% additional first-year deduction for qualified property acquired and placed in service after January 19, 2025. The IRS business provisions page describes the same Section 70301 change.
IRS Notice 2026-11 is the interim guidance taxpayers may rely on until proposed regulations are published. It tells you to apply the existing bonus-depreciation regulations with the new dates and the 100% rate. Investors should confirm current IRS publications with their tax advisor as additional guidance issues.
| Provision | Pre-OBBBA (2025) | Post-OBBBA |
|---|---|---|
| Bonus depreciation rate | 40% if placed in service during 2025 under the old schedule | 100% if acquired and placed in service after Jan 19, 2025 |
| Acquisition test | TCJA dates | After Jan 19, 2025, including the binding-contract rule in Notice 2026-11 |
| Permanence | Phasing down | Permanent |
Cost segregation: unlocking shorter-lived components
A cost segregation study is an engineering-based analysis that reclassifies portions of a building’s purchase or construction cost from 27.5-year residential rental property (or 39-year commercial) into 5-, 7-, and 15-year MACRS property classes. Those shorter-lived assets qualify for 100% bonus depreciation in the year placed in service.
Typical reclassified components:
- Carpeting, vinyl flooring, and decorative fixtures
- Cabinetry and appliances (where separable)
- Landscaping, fencing, and site improvements
- Parking lots and sidewalks
- Specialty electrical and plumbing for equipment
KMCO notes that cost seg studies are most valuable on properties with $500K+ basis and meaningful personal-property or land-improvement components — exactly the profile of a BRRRR duplex or four-unit after rehab.
Worked example: BRRRR investor with cost seg
Scenario: Investor acquires a distressed Milwaukee duplex for $245,000, invests $73,000 in rehab, and places the stabilized rental in service in Q3 2026.
| Step | Detail |
|---|---|
| Total basis (land excluded) | ~$285,000 building + improvements |
| Cost seg reclassification | |
| 100% bonus on reclassified assets | ~$100,000 first-year deduction |
| Remaining 27.5-year basis | |
| Year-one total depreciation | ~$106,730 |
Without cost seg, straight-line on $285,000 building basis yields roughly $10,360/year — a 10x difference in year-one tax shield. The actual numbers depend on land allocation, study quality, and entity structure; your CPA models the file.
Placed-in-service timing: If rehab completes in December 2026, the property is generally placed in service in 2026 and captures the 100% bonus that year. If permitting delays push completion to January 2027, the deduction lands in 2027 — same rehab, different tax year. That is why closing speed on acquisition and draw-funded rehab matters for tax planning.
How Jaken Finance Group’s products control placed-in-service timing
Fast hard-money closings are not just about winning offers — they let sponsors control when a property crosses placed in service:
| Product | Tax-planning role |
|---|---|
| Fix and flip loans | Acquire and fund rehab draws on a defined timeline |
| Hard money lenders | Bridge capital with 7–10 day close — start the rehab clock sooner |
| DSCR loans | Permanent exit after stabilization — basis established at refi |
An investor who closes acquisition in March, completes rehab by August, and leases by September places the property in service in the same tax year — capturing 100% bonus on cost-seg reclassified assets before year-end. A sponsor stuck in a 45-day bank approval loses months of depreciation timing optionality.
Pair acquisition with fix and flip loans or state-level hard money, run a cost seg study at stabilization, and exit to DSCR permanent debt when rents support the ratio.
Who benefits most in 2026
- BRRRR investors with meaningful rehab spend (higher reclassifiable basis)
- Value-add multifamily sponsors with site improvements and unit interiors
- Ground-up builders placing new construction in service after Jan 19, 2025
- High W-2 or passive-income investors who can use accelerated deductions against other income (subject to passive activity and at-risk rules — CPA required)
Risks and limitations
- Passive activity loss rules may limit immediate use of deductions against W-2 income
- Recapture applies on sale — bonus-depreciated assets recapture at 25% (unrecaptured Section 1250) or ordinary rates depending on asset class
- Cost seg study cost — typically $5K–$15K; justify on basis size and hold period
- State conformity — not all states follow federal bonus depreciation rules
What actually qualifies for the 100% deduction
The building shell usually does not. Publication 946 describes qualified bonus property as tangible MACRS property with a recovery period of 20 years or less, plus certain other categories such as listed software and specified productions. Residential rental real property is recovered over 27.5 years. Nonresidential real property is recovered over 39 years. Those lives are longer than 20 years, so the structure itself stays on straight-line depreciation.
A cost segregation study moves eligible pieces into 5-year, 7-year, or 15-year classes. Those shorter lives are what the 100% deduction can reach. Land is not depreciable. A bad land allocation inflates the building and the study. Your CPA, not the lender, signs that split.
Publication 946 also defines placed in service. Property is placed in service when it is ready and available for its specific use. You do not have to have a tenant in the unit yet. A machine delivered last year but installed this year is placed in service this year. The same idea applies to a rehab: the deduction year is the year the rental is ready and available, not the year you wired the earnest money.
The binding-contract rule and the 40% election
Notice 2026-11 carries forward a binding-contract idea from the statute. Property is not treated as acquired after the date of a written binding contract for that acquisition. A contract signed on or before January 19, 2025 can keep the old percentage even if you close later. Show the contract date to your CPA before you assume the 100% rate.
For the first tax year ending after January 19, 2025, you may elect 40% additional first-year depreciation instead of 100%. The election is 60% for certain longer-production property and certain aircraft. Notice 2026-11 says the election is made on Form 4562, using procedures consistent with the existing regulations. Sponsors who do not want a large passive loss in a low-income year sometimes prefer the smaller percentage. That is a CPA decision.
Section 179 is a separate ceiling
Section 179 expensing is not the same as bonus depreciation. The IRS business provisions page states the Section 179 dollar limit rose from $1,000,000 to $2,500,000 for property placed in service in tax years beginning after December 31, 2024. The limit phases down, but not below zero, once Section 179 property placed in service that year exceeds $4,000,000. Amounts are indexed for inflation for tax years beginning after 2025. Bonus depreciation and Section 179 can interact on the same asset. Do not add both percentages to the same dollar of basis.
Passive losses can block the write-off you just created
Publication 925 is the passive-activity guide. A rental loss is generally passive. You can deduct up to $25,000 of loss from a rental in which you actively participate against nonpassive income. Married taxpayers who file separately and lived apart all year are capped at $12,500. If you lived with your spouse at any time and file separately, you cannot use the allowance. The maximum is reduced when modified adjusted gross income exceeds the amounts in the publication. The publication’s example uses modified adjusted gross income under $100,000.
You qualify as a real estate professional for the year only if you meet both tests. More than half of your personal services in all trades or businesses were in real property trades or businesses in which you materially participated. And you performed more than 750 hours in those real property trades or businesses. Employee hours count only if you owned more than 5% of the employer. A W-2 sponsor with a single rental usually fails those tests. The bonus deduction can then sit as a suspended passive loss until you have passive income or you sell.
Recapture when you sell
IRS Tax Topic 409 says unrecaptured Section 1250 gain on real property is taxed at a maximum 25% rate. Shorter-life property identified in a cost study can be taxed under different rules. Do not assume every bonus dollar comes back at 25%. The CPA tracks asset class. A fast flip that never places the property in service as a rental may not take the rental deduction at all. Bonus depreciation is a hold tool. It is not a substitute for flip profit.
Illustration: a Knoxville duplex and the year of the deduction
Illustration only, not a study. An investor buys a duplex for $260,000, spends $55,000 on rehab, and allocates $70,000 to land. Depreciable basis is $245,000. The illustration assumes a study moves 30%, or $73,500, into lives of 20 years or less. The other $171,500 stays on a 27.5-year life, about $6,236 a year.
Year-one depreciation in the illustration is about $79,736 if the $73,500 qualifies for 100% bonus and the property is placed in service that year. Straight-line on the full $245,000 would be about $8,909. The gap is the point of the study. If the certificate of occupancy or the finished unit is not ready until January of the next year, Publication 946 puts the deduction in that next year. Jaken Finance Group’s fix-and-flip loans close in 7–10 business days at 8.99%–13.5%, which starts the rehab clock. The DSCR exit, at 5.75%–10.5%, closes in about 14 business days after the rent is in place. Closing speed does not create the deduction. Readiness does.
Ask the CPA which tax year the placed-in-service date falls in before you schedule the last draw. Then pre-qualify the acquisition if the hold still works after the passive-loss limit. Call (833) 264-7776 with the scope and the target in-service month.
Bottom line
OBBBA’s permanent 100% bonus depreciation, combined with a cost segregation study, can deliver a six-figure first-year deduction on a typical BRRRR project. The placed-in-service date — controlled by acquisition speed and rehab timeline — determines which tax year captures it. Fast hard money and fix-and-flip closings are a capital tool and a tax-timing tool.
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General information only — not tax advice. Consult a qualified CPA. Rates, terms and conditions offered only to qualified borrowers. Jaken Finance Group only finances non-owner occupied investment properties.