Get 100% First Year Write-Off According to the OBBBA
Bonus Depreciation Eligibility, Transition Rules & IRS Guidance
During Biden's Presidential Term, real estate investors saw 100% first year write-off fizzling out. Bonus Depreciation started at a full 100% but dropped to 80% in 2023, then to 60% in 2024. The plan was for it to hit 40% in 2025 and completely phase out by 2027.
But then Congress decided to change things up. With the OBBBA signed into law, the phase-down was stopped, and now 100% bonus depreciation is back for qualified property acquired after January 19, 2025.
In this article, we’ll cover what qualifies, how the cutoff date works, which elections to pay attention to, and what the IRS has communicated so far.
What the OBBBA Changed
The One Big Beautiful Bill Act became law on July 4, 2025. It permanently restores 100% bonus depreciation for qualified property acquired and placed in service after Jan. 19, 2025, reversing the TCJA phasedown that would have eliminated it by 2027.
Here is the schedule the OBBBA replaced. It still applies to property that fails the new eligibility tests.
Year placed in service | Bonus rate under TCJA |
2018 to 2022 | 100% |
2023 | 80% |
2024 | 60% |
2025 | 40% |
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First Year Write-Off Eligibility Tests
To take advantage of the full 100% bonus depreciation, your property needs to meet three specific tests. If you miss the mark on any one of them, you'll revert to the previous schedule. This includes acquiring the property after January 19, 2025, having a binding contract, and ensuring it’s placed in service after that same date.
Property that fail the eligibility date falls back to the pre-OBBBA regime, using the rate in effect for the year it was placed in service.
What Property Qualifies
The rule covers most tangible property with a recovery period of 20 years or less, including used property that meets the acquisition and use requirements.
The OBBBA added no new limits on eligible property types.
That includes:
5yr and 7yr personal property (appliances, carpet, cabinetry, fixtures)
15yr land improvements (parking lots, landscaping, fencing)
QIP, unless you elected out of Section 163(j)
Packaged software
Qualified sound recording productions (new under the OBBBA)
Self-Constructed Property and Development Projects
Construction projects do not have a simple contract date. The regulations handle them differently.
Construction generally begins when physical work of a significant nature starts. Taxpayers with longer construction projects may document the start date using the 10% safe harbor in Treas. Reg. §1.168(k)-2(b)(5)(iv). Under that safe harbor, construction begins once you incur more than 10% of total project cost. If you crossed 10% before January 20, 2025, the project generally falls under the old rules.
Two more points for RE Developers:
Watch related-party work. If a related party did early site prep or preliminary labor before the cutoff, the IRS may look past the paperwork to the economic reality of the timeline.
Use the component election. If the overall project started too early, you may still claim 100% on components acquired or built after the cutoff. Track costs by component from day one.
Transition and Election-Out Options
When 100% bonus depreciation is on the table, you still have the option to take a smaller deduction. You can choose to go with the previous TCJA rate of 40% when you file your return on time. Plus, in any given tax year, you have the flexibility to opt out completely for one or more categories of property. Just keep in mind that this choice applies to the entire class, not just to individual assets. Talk with your tax advisor on specifics.
When Taking Less Makes Sense
A bigger deduction is not always better. Consider the lower rate or an election out when:
Your loss would create an NOL. Corporate NOLs arising after 2017 can generally offset only 80% of taxable income. Preserving depreciation for future years can beat creating a limited NOL.
Your loss would be suspended anyway. Rental losses are generally passive. Without Real Estate Professional Status or a qualifying short-term rental, a huge year-one loss may just sit on the shelf.
You expect higher future income. Deductions are worth more in higher-bracket years.
Your state decouples. Keeping federal and state depreciation closer together simplifies compliance.
Related Rules That Affect Your Deduction
Section 179
Section 179 fills gaps that bonus depreciation misses. It covers certain improvements to nonresidential real property, such as roofs, HVAC, and security systems. See our full comparison of bonus depreciation vs. Section 179.
State Conformity
Your state may not follow the federal rule. Illinois and New York decouple from Section 168(k). Florida and North Carolina use their own state bonus methods. Only about one-third of states have historically conformed consistently. Your federal transition or election-out choices may also not carry over at the state level. Check our state conformity guide before you model savings.
Frequently Asked Questions
Is 100% bonus depreciation permanent?
Yes. The OBBBA removed the phase-down for property acquired and placed in service after January 19, 2025. No expiration date exists under current law.
What date counts as "acquired" for real estate?
Generally the date you signed a written binding contract, not the closing date.
What makes a purchase contract binding?
It must be enforceable under state law and not cancellable without a substantial penalty. A penalty of at least 5% of the price is generally substantial.
Does used property qualify?
Yes, if you never used it before and it meets the acquisition rules, including the related-party limits.
Can I claim 100% on a building?
Not on the building itself. A cost segregation study identifies the components that do qualify.
Can I choose a lower rate?
Yes. For your first tax year ending after January 19, 2025, you can elect 40% (60% for certain long-production property). You can also elect out by property class in any year.
Has the IRS issued final regulations?
No. Notice 2026-11 provides interim guidance. Proposed regulations are expected to follow the same framework.
Can a landlord use the new Section 168(n) deduction?
Generally no. Lessors do not qualify, even if the tenant runs a qualifying production activity.
Final Thoughts
100% first year write-off is here to stay, but qualifying for it isn’t a given. Make sure to check your dates... when you signed, when you started using the property, and for construction projects, when the work kicked off. Get those right, pick the right elections, and cost segregation turns a decades of deductions into an immediate tax benefit.
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