Bonus Depreciation 2026: Rules for Multifamily Investors

For 2026, 100% bonus depreciation is back, and this time it is permanent. The One, Big, Beautiful Bill Act restored a full first-year deduction for qualifying property acquired and placed in service after January 19, 2025. For multifamily investors, the headline is only half the story. The apartment building itself does not get written off in year one, and a big paper loss does not automatically cut your W-2 tax. This guide shows what qualifies, what does not, and how to model the deduction before you wire a dollar.

TL;DR

• The phase-down is over: qualifying property acquired and placed in service after January 19, 2025 gets a permanent 100% first-year deduction.
• In multifamily, the building shell stays on a 27.5-year schedule. Bonus depreciation mostly applies to shorter-lived components identified through cost segregation.
• Passive loss rules decide when you can use the deduction. Ask “when can I use this loss?” before “how big is it?”
• It is a timing strategy. Recapture and suspended losses show up when you sell.
• Dates matter: acquisition date, binding contract date and placed-in-service date can each change your result.

Table of Contents

• What changed for 2026
• What actually qualifies in an apartment deal
• The passive loss problem for high earners
• Dates that decide eligibility
• Bonus depreciation vs. Section 179
• Electing out, and state taxes
• The exit: recapture and the full picture
• Perspective: how we underwrite the tax benefit
• Run the numbers on real deals
• A pre-closing checklist
• FAQ
• Sources

What changed for 2026

Under the Tax Cuts and Jobs Act, bonus depreciation was set to step down each year. For property acquired before January 20, 2025 and placed in service in 2026, the prior schedule would have meant 20%, heading to zero after that. Congress replaced that path. The House-passed bill summary describes Section 70301 as permanently extending 100% bonus depreciation, and the IRS Schedule E instructions confirm the 100% allowance is restored for qualified property acquired after January 19, 2025.

On January 14, 2026, Treasury and the IRS issued Notice 2026-11 as interim guidance. It covers eligibility, acquisition timing, the deduction amount and elections. Taxpayers can generally rely on existing regulations while proposed regulations are developed.

What this means for your underwriting: you no longer have to race a shrinking percentage. You can model a 100% rate across a multi-year hold and a multi-deal strategy. That is a real improvement. It does not remove the classification and passive loss limits below.

What actually qualifies in an apartment deal

Qualified property generally means depreciable property with a recovery period of 20 years or less, subject to acquisition, original-use or used-property, and business-use requirements. Residential rental buildings use a 27.5-year recovery period, so the shell does not qualify on its own.

Publication 527 is clear on the structure: the building stays on the 27.5-year schedule and land is not depreciable. The opportunity sits in components that an engineering-based cost segregation study can separate out.

Typical candidates in a multifamily property include:

• Appliances, carpeting and removable flooring
• Certain fixtures and cabinetry
• Land improvements such as parking lots, sidewalks, fencing and landscaping
• Other personal property inside the units and common areas

Whether a specific item qualifies, and how much of your purchase price it represents, depends on the study and your tax adviser’s read of it. We do not give a percentage here because it varies by asset age, finishes and amenities.

A simple illustration

This is a hypothetical, not a projection. Say you buy a stabilized property and a study allocates $300,000 to 5-, 7- and 15-year components. With 100% bonus, the full $300,000 is deductible in year one instead of spreading over those recovery periods. The remaining building basis continues on the 27.5-year schedule. The land allocation is never depreciated.

That $300,000 is a depreciation deduction, not a cash refund. Whether it lowers your tax bill this year is the next question.

The passive loss problem for high earners

This is where most first-time syndication and direct-ownership investors get surprised. Rental activities are generally passive. The IRS explains in Topic 425 that passive losses exceeding passive income are disallowed for the current year and carried forward.

So a large bonus-driven loss typically offsets other passive income, not your salary. Publication 925 describes the exceptions, including real estate professional status and the limited active participation allowance. The Schedule E instructions describe the limited allowance as capped at $25,000 and tied to a $100,000 modified adjusted gross income threshold. If you earn well above that, assume the allowance is reduced or gone.

Here is how it plays out in practice:

Suspended losses are not lost. The IRS notes they carry forward until used or until you dispose of your entire interest in a fully taxable transaction. But a deduction you cannot use for six years is worth less than one you can use now. That is why we tell investors to model usable tax loss, not generated tax loss.

Dates that decide eligibility

Three dates can change your outcome.

1. Acquisition date. Under Notice 2026-11, the permanent rule generally applies to property acquired after January 19, 2025. A written binding contract generally means the property is not treated as acquired after that date. Check your purchase agreement and any amendments.
2. Placed-in-service date. Depreciation starts when the property is ready and available for rent, not when you sign or necessarily at closing. On a value-add deal, renovation schedules and lease-up evidence can push the start of the deduction into a different tax year.
3. Tax year. A deal that closes in December but is not rent-ready until February starts its depreciation in the later year.

The Schedule E instructions also flag a wrinkle: property placed in service between January 1, 2025 and January 19, 2025 follows different rules. That is a 2025 issue, but it matters if you are reviewing last year’s return.

Bonus depreciation vs. Section 179

The two are not interchangeable. The IRS describes the 100% Section 168(k) deduction and Section 179 as separate elections with separate rules. Section 179 has its own dollar, taxable-income, property and business-use limits. For an apartment acquisition, check eligibility and passive treatment separately for each. Generic comparison tables are a starting point at best. Use the current Form 4562 instructions and your CPA’s calculation.

Electing out, and state taxes

Bonus depreciation is the default for qualifying property, but you can elect out by asset class. Some investors do this when a large first-year loss would only be suspended, or when they want deductions in future years against higher expected income. Notice 2026-11 addresses elections, so raise this with your CPA before filing, not after.

States are a separate question. Not every state follows the federal rule, and Bloomberg Tax maintains a state-by-state conformity lookup showing which states conform and which do not. If your property or your syndication sponsor sits in a non-conforming state, your state return can look very different from your federal return.

The exit: recapture and the full picture

Bonus depreciation moves deductions forward. It does not erase tax. The IRS explains that on a sale of rental property, depreciation-related gain can be recaptured or otherwise taxed, and the result depends on asset classification and transaction facts. Depreciation also reduces your basis.

The Congressional Research Service frames the tradeoff well: immediate expensing accelerates deductions, but basis and recapture effects matter at sale. The right comparison is after-tax cash flow across the whole hold period, not year-one savings alone.

Build your sale model with three lines in it: recapture, suspended passive losses and the tax rate you expect in the exit year. Strategies like holding long term or a 1031 exchange can change the picture, and those need a CPA or tax attorney who knows your return.

Perspective: how we underwrite the tax benefit

We teach investors to treat tax benefits as a bonus on top of a deal that works, never as the reason to buy it. A property with weak NOI, aggressive rent growth assumptions or thin reserves does not become a good investment because a cost segregation study produces a large depreciation number.

Our approach has three rules. First, underwrite the deal on cash flow and exit value without any tax benefit. Second, layer in depreciation as an upside, and only the part you can actually use given your passive income and participation profile. Third, get the documents in order at closing: purchase contract and amendments, closing statement, rent-ready evidence, fixed-asset detail and any engineering study. Those records determine eligibility, basis allocation and how defensible your position is if the IRS asks.

Most of the high earners we work with are busy professionals who want passive income and a lower tax bill. The fastest way to protect both is to find and analyze enough deals that you are choosing the best one, not the first one. We are not your tax adviser, and nothing here replaces one. Bring the numbers to your CPA early.

— Justin

Run the numbers on real deals

Depreciation only helps if the deal underneath it is sound. Our MFScout.ai software is an all-in-one AI platform for multifamily that helps you find and analyze opportunities, and it is free to start. If you want deal analysis tools and step-by-step training, the Multifamily University and RealEstateRadar.ai plans are listed at $97 per month and $149 per month respectively.

If you want one-on-one help getting to your first multifamily deal, you can apply for our mentorship through a strategy call. Our mentorship page also describes a 90-day first-deal guarantee, and you can read the terms on the mentorship page before you decide.

A pre-closing checklist

1. Confirm the acquisition date and whether any binding contract predates January 20, 2025.
2. Estimate the placed-in-service date, especially on renovation deals.
3. Ask whether a cost segregation study is worth its fee for this asset.
4. Have your CPA project usable loss: passive income, participation status and MAGI.
5. Check your state’s conformity to federal bonus depreciation.
6. Plan for Form 4562 reporting, with supporting records. The Schedule E instructions point to Form 4562 for property first placed in service and to Publications 527 and 946 for detailed rules.
7. Model the sale: recapture, suspended losses and exit-year tax.

FAQ

Is 100% bonus depreciation coming back in 2026?

It is already back. The law restored a permanent 100% deduction for qualifying property acquired and placed in service after January 19, 2025, and the IRS issued guidance in January 2026. Property acquired before January 20, 2025 may still fall under the old phase-down.

Is there still a bonus depreciation phase-out?

Not for property acquired after January 19, 2025. The old schedule would have taken the rate to 20% for 2026 and zero afterward, but Congress made the 100% rate permanent. Property acquired earlier is the exception, so check your contract dates.

Can I deduct the whole apartment building in year one?

No. The building shell is generally on a 27.5-year schedule and land is not depreciable. Bonus depreciation typically applies to qualifying shorter-lived components identified through cost segregation, as Publication 527 describes for residential rental property.

Will bonus depreciation reduce my W-2 income taxes?

Only if you can use the loss. Rental losses are generally passive and offset passive income, with exceptions for real estate professionals and limited active participation. Otherwise the loss carries forward. A CPA should confirm your status.

Do all states allow bonus depreciation?

No. States decide for themselves whether to follow the federal rule, and the Bloomberg Tax conformity lookup lists their status. Check the state where the property is located and the state where you file.

Sources

• Treasury, IRS guidance on the additional first year depreciation deduction (IR-2026-06)
• IRS Notice 2026-11
• H.R.1 summary, Congress.gov
• Tax Provisions in P.L. 119-21, Congressional Research Service
• Congressional Record, Senate section S2207
• IRS Publication 527, Residential Rental Property
• IRS Publication 925, Passive Activity and At-Risk Rules
• IRS Topic no. 425, Passive activities
• 2025 Instructions for Schedule E
• IRS FAQ: Sale or trade of business depreciation, rentals
• IRS: Working families tax cuts for businesses
• Bloomberg Tax: State conformity to federal bonus depreciation

Written with BabyLoveGrowth AI