Bonus depreciation in 2026: the deduction, Section 179, and what New Jersey allows

Bonus depreciation had been stepping down under the earlier schedule, and a lot of material still online describes 80, 60 or 40 percent as the current rate. That is out of date.

The IRS describes a permanent 100 percent additional first year depreciation deduction for qualified property acquired, or specified plants planted or grafted, after January 19, 2025. Acquisition date is what controls, not the date you placed the property in service, and on a long closing those are different days.

Notice 2026-11, issued January 14, 2026, adds a choice. A taxpayer can elect a reduced rate of 40 percent, or 60 percent for certain longer-production property, instead of taking the full 100 percent. Most coverage of the new law skips this, and it is the most useful planning lever on the page.

The point for a property owner is that the building itself almost never qualifies. What qualifies is the set of components inside and around it, and identifying those components reliably is what a cost segregation study does.

They are often described as alternatives. They behave differently in ways that matter to an investor.

The row that decides it for most rental owners is the third one. The whole purpose of accelerating depreciation on a rental is often to create a deductible loss, and Section 179 cannot do that.

This is the part a national article will not tell a New Jersey investor.

New Jersey decoupled from federal bonus depreciation for corporation business tax purposes in 2002 and for gross income tax purposes in 2004. It also limits the Section 179 deduction to $25,000. The federal deduction and the New Jersey deduction are computed separately, and the difference is reported on Form GIT-DEP.

Two consequences follow, and the second one is delayed.

• In the year you accelerate, the New Jersey saving is a fraction of the federal saving, and on a large study it is close to nothing.
• From then on your New Jersey adjusted basis is higher than your federal basis, because New Jersey has allowed less depreciation. When you sell, the New Jersey gain and the federal gain are different numbers, and someone has to have tracked the difference for every year in between.

That tracking is not optional and it is not automatic. It is the single most common thing we see missing when a New Jersey investor arrives with returns prepared somewhere else.

A deduction is worth your marginal rate in the year you use it, and nothing at all in a year you cannot.

Three questions decide the timing. Is the loss passive, in which case it may be suspended regardless of size. Is this a high income year or a low one. And will the deduction push your taxable income so low that you waste part of it.

Where the answer suggests restraint, the Notice 2026-11 election to take 40 percent instead of 100 percent is the clean tool. Electing out of bonus depreciation entirely for an asset class is the other. Both beat taking a deduction you cannot use and carrying the consequences forward.

Whether a rental loss is usable at all comes down to the passive activity rules, which are covered on the short-term rental rules and real estate professional status.