Bonus Depreciation in 2026: What Changed and What STR Investors Should Do Now
If you're an STR investor planning for the 2026 tax year, here's the headline: 100% bonus depreciation is permanent. The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, ended the TCJA phase-down and restored full first-year expensing for qualifying assets. This guide covers exactly what that means for your 2026 return, including the critical January 19, 2025 cutoff date, how bonus depreciation interacts with cost segregation, and the specific planning moves to make this year.
The 2026 Bonus Depreciation Rate: 100%
For any qualifying asset placed in service on or after January 20, 2025, the bonus depreciation rate is 100%. This is not a one-year extension — the OBBBA made this permanent. There is no scheduled phase-down. No sunset date. No annual uncertainty about rates. For STR investors, this means every property you acquire and place in service in 2026 qualifies for full first-year expensing of reclassified components.
Properties placed in service before January 20, 2025 follow the old TCJA phase-down schedule: 40% for 2025 placements (pre-OBBBA), 20% for 2026. Properties placed in service on or after January 20, 2025 get 100% bonus depreciation permanently. If you placed a property in service in early January 2025, the TCJA rate may still apply to you.
What Changed from 2025 to 2026
| Factor | 2025 (Before OBBBA) | 2025 (After OBBBA) | 2026 |
|---|---|---|---|
| Bonus depreciation rate | 40% (TCJA phase-down) | 100% (placed in service Jan 20+) | 100% |
| Legislative status | Annual uncertainty | OBBBA signed July 4 | Permanent — no expiration |
| Qualifying assets | 5-, 7-, 15-year property | Same | Same — 20-year or shorter recovery |
| 27.5-year building | Not eligible | Not eligible | Not eligible (need cost seg to reclassify) |
| Look-back / catch-up | Available via Form 3115 | Same | Same — Section 481(a) adjustment |
The practical difference between 2025 and 2026 is simplicity. In 2025, investors had to navigate the January 19 cutoff, the TCJA-to-OBBBA transition, and retroactivity questions. In 2026, the rules are clear: 100% bonus depreciation on all qualifying property placed in service this year. No bifurcation. No transitional calculations.
What Qualifies for Bonus Depreciation in 2026
Bonus depreciation applies to tangible property with a MACRS recovery period of 20 years or less. For STR investors, this includes the components identified by a cost segregation study:
- 5-year property: Appliances, carpeting, window treatments, cabinetry, decorative fixtures, certain electrical and plumbing components dedicated to specific equipment.
- 7-year property: Furniture, office equipment, specialty lighting, security systems.
- 15-year property: Land improvements — driveways, walkways, fencing, landscaping, patios, decks, outdoor lighting, irrigation systems.
- Not eligible: The building structure itself (27.5-year residential real property) and land. This is why cost segregation matters — without it, none of these components are separated from the building.
How Cost Segregation Unlocks Bonus Depreciation
Without a cost segregation study, your entire property (minus land) depreciates over 27.5 years at roughly 3.6% per year. The building structure does not qualify for bonus depreciation. A cost segregation study reclassifies 20–40% of your depreciable basis into the shorter recovery classes (5-, 7-, and 15-year) that do qualify. With 100% bonus depreciation, those reclassified components are fully deducted in Year 1.
| Property Value | Typical Reclassification (30%) | Year-1 Bonus Deduction | Tax Savings (35% rate) |
|---|---|---|---|
| $400,000 | $120,000 | $120,000 | $42,000 |
| $600,000 | $180,000 | $180,000 | $63,000 |
| $800,000 | $240,000 | $240,000 | $84,000 |
| $1,200,000 | $360,000 | $360,000 | $126,000 |
2026 Tax Planning Moves for STR Investors
- Get a cost seg study before filing: If you placed an STR in service in 2025 (after Jan 19) or plan to in 2026, order the study now. You need it before filing to claim the full deduction.
- File for extension if needed: The October 15, 2026 extended deadline gives you time to complete a study for 2025 tax returns. Do not rush to file in April without claiming your depreciation.
- Consider a look-back study: Own a property from 2022, 2023, or 2024? A retroactive cost segregation study with a Section 481(a) catch-up adjustment lets you claim all missed accelerated depreciation in a single year — no amended returns required.
- Verify material participation: To use STR depreciation losses against W-2 income, you must materially participate in the rental activity and average guest stays must be 7 days or less. Document your hours now, not at tax time.
- Check state conformity: Not all states follow federal bonus depreciation rules. Some require add-backs. Check your state before counting on the full deduction at the state level.
The Look-Back Opportunity: Properties Placed in Service 2020–2024
If you've been depreciating an STR property using straight-line 27.5-year depreciation and never did a cost segregation study, 2026 is an excellent year to fix that. A look-back (or "catch-up") study identifies the components that should have been classified as 5-, 7-, or 15-year property. You then file Form 3115 to claim the cumulative missed depreciation as a one-time Section 481(a) adjustment on your 2026 return. No amended returns. No IRS approval needed — it's an automatic consent filing.
Frequently Asked Questions
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