Cost Segregation and Bonus Depreciation in 2026: A Planning Playbook

Cost segregation and bonus depreciation pair better in 2026 than at any point since the Tax Cuts and Jobs Act phasedown started. Section 70301 of the One Big Beautiful Bill Act, Public Law 119-21, amended IRC 168(k)(1)(A) to set the bonus rate at 100 percent, and the amendment applies to property acquired after January 19, 2025. A cost segregation study reclassifies parts of a building into shorter-lived property, and shorter-lived property is what bonus depreciation reaches. At 100 percent, a dollar the study moves out of a 39-year building becomes a current deduction instead of a deduction spread across four decades. That is the whole planning case, and it is also where the diligence starts.

Key Takeaways: Cost Segregation and Bonus Depreciation in 2026

• Section 70301 of Public Law 119-21 amended IRC 168(k)(1)(A) by "striking the applicable percentage and inserting 100 percent." The amendments apply to property acquired after January 19, 2025.
• A transitional election substitutes 40 percent, or 60 percent for certain property, for the first taxable year ending after January 19, 2025.
• Bonus depreciation reaches MACRS property with a recovery period of 20 years or less. Reclassification is what makes a building's components eligible.
• A study on a building placed in service in an earlier year is picked up as a change in accounting method under Rev. Proc. 2015-13, with a section 481(a) adjustment.
• On examination, the IRS verifies the asset classifications and recovery periods the study assigned, so the engineering support carries the position, not the summary number.

How Do Cost Segregation and Bonus Depreciation Work Together?

The two provisions solve different halves of one problem. Bonus depreciation sets a rate. Cost segregation determines how much basis that rate can be applied to.

Treas. Reg. 1.168(k)-2(b)(2)(i)(A) defines the property that qualifies:

MACRS property, as defined in § 1.168(b)-1(a)(2), that has a recovery period of 20 years or less. For purposes of this paragraph (b)(2)(i)(A) and section 168(k)(2)(A)(i)(I), the recovery period is determined in accordance with section 168(c) regardless of any election made by the taxpayer under section 168(g)(7).

A building does not meet that test. Under MACRS, nonresidential real property carries a 39-year recovery period and residential rental property carries 27.5 years under the general depreciation system. Neither is 20 years or less, so the building shell gets nothing from a 100 percent bonus rate.

Components inside and around the building are a different matter. Section 1245 property is defined at Treas. Reg. 1.1245-3(a)(1) as "any property [...] which is or has been property of a character subject to the allowance for depreciation provided in section 167 and which is either: (i) Personal property (within the meaning of paragraph (b) of this section), (ii) Property described in section 1245(a)(3)(B) [...]" Land improvements are shorter-lived as well. The IRS Cost Segregation Audit Technique Guide works an example in which "the land improvements have a 20-year class life and a 15-year recovery period for GDS."

Sorting one from the other is the study's job. The same guide states the point plainly: "Taxpayers have used cost segregation studies to determine what constitutes Section 1245 (personal) or Section 1250 (real) property for many years."

So the sequence runs study first, rate second. Without the reclassification there is no 20-year-or-less property for the 100 percent rate to reach.

What Does Section 70301 Actually Change?

Section 70301 of Public Law 119-21 did two things to IRC 168(k). It made the allowance permanent by striking the clause that ended it, and it fixed the rate:

Section 168(k) is amended [...] in paragraph (1)(A), by striking the applicable percentage and inserting 100 percent, and [...] by striking paragraphs (6) and (8).

Paragraph (6) held the phasedown schedule. Removing it is what turned a declining percentage into a flat one.

The effective date is the part to check against each client's facts. The statute reads: "Except as otherwise provided in this subsection, the amendments made by this section shall apply to property acquired after January 19, 2025." Acquisition is the operative event in that sentence. For a building bought before that date, the shorter-lived components a study identifies are not reached by this amendment, and the analysis has to run under prior law.

There is also an election that cuts the other way. For qualified property placed in service during the first taxable year ending after January 19, 2025, a taxpayer may elect a lower rate:

In the case of qualified property placed in service by the taxpayer during the first taxable year ending after January 19, 2025, if the taxpayer elects to have this paragraph apply for such taxable year, paragraph (1)(A) shall be applied [...] in the case of property which is not described in clause (ii), by substituting 40 percent for 100 percent, or [...] in the case of property which is described in subparagraph (B) or (C) of paragraph (2), by substituting 60 percent for 100 percent.

A client with a loss year or expiring attributes may be better off at 40 percent than at 100 percent. That is a modeling exercise, not a checkbox. Background on the rate change itself is in the walkthrough of what changed for 2025 bonus depreciation under OBBBA.

What If the Building Was Placed in Service in an Earlier Year?

This is the question that comes up most, and the answer is better than clients expect. A study performed years after acquisition is not a lost opportunity, and it does not require amending prior returns. It is a change in accounting method.

The Cost Segregation Audit Technique Guide describes the mechanism. Under Rev. Proc. 2015-13, the guide states, "a taxpayer may request automatic or non-automatic consent for the change. Although a Form 3115 may be subject to National Office review, it is generally the responsibility of the examiner to verify the propriety of the revised method of accounting for depreciation and the accuracy of the Section 481(a) adjustment at the time of the examination."

The catch-up runs through section 481(a). Treas. Reg. 1.481-1 sets out the rule: "In computing taxable income for the taxable year of the change, there shall be taken into account those adjustments which are determined to be necessary solely by reason of such change in order to prevent amounts from being duplicated or omitted."

The depreciation the client should have claimed in prior years therefore lands in the year of the change rather than being spread backward across amended returns. Pair that with a 100 percent rate on the reclassified components and a single Form 3115 can produce a deduction well beyond the current year's ordinary depreciation. Practitioners who worked through the research expensing method change will recognize the machinery. The same Form 3115 discipline described in the walkthrough of Section 174 expensing after OBBBA applies here.

What Does the IRS Check on Examination?

The guide is candid about where an examiner spends time. Step 7 of its procedure states: "A major goal of a Cost Segregation Study examination is to verify the proper classifications and recovery periods of the assets included in the study."

That should shape how a study gets bought. The deliverable that survives an examination ties each reclassified item to a cost, a classification, and a recovery period, with engineering support behind it. A percentage-of-basis estimate with no asset detail gives an examiner nothing to verify and gives the taxpayer nothing to defend. Ask a provider for a sample report before signing anything, and read the asset schedule rather than the executive summary.

Keep the study, the depreciation schedules, and the Form 3115 together in the permanent file. The examination arrives years after the engagement, often after the preparer has changed.

State Conformity Is a Separate Calculation

Federal treatment does not settle the state answer. States adopt the Internal Revenue Code on their own terms, and some decouple from IRC 168(k), which leaves a client with a large federal deduction and a much smaller state one in the same year. Confirm the conformity posture of every state where the property sits and where the owner files before any number reaches the client. The mechanics of how states adopt federal law are covered in the breakdown of rolling, static, and selective conformity.

A Screen to Run Before Ordering a Study

Four questions, in order, before anyone quotes a fee.

Is there enough building basis to work with? A study reclassifies basis, so basis allocated to land produces nothing. Pull the purchase price allocation first.

When was the property acquired? The January 19, 2025 date in Section 70301 governs whether the 100 percent rate is in play at all for the components a study would identify.

Can the owner use the deduction this year? A deduction against income the owner cannot offset is a timing shift, not a savings. Run it at the owner level, including the state result, before it becomes a promise.

What happens on disposition? Reclassified components are section 1245 property and stay section 1245 property until the building sells. Model the exit alongside the entrance.

If all four hold, the study usually earns its fee in the first year. If any one of them fails, the honest answer is that the fee buys a schedule and not a refund. Say that before the engagement letter, not after the return.