Bonus depreciation is one of the most powerful tax tools real estate investors and business owners have used in the last decade, and the rules are changing fast. If you bought equipment or qualifying property in the past few years, you got a 100% first-year deduction. That window is closing on a phase-out schedule, and the difference between buying in 2026 versus 2027 versus 2028 is meaningful enough that it should change how Houston investors plan their next purchase.
The current phase-out schedule
Under the Tax Cuts and Jobs Act, bonus depreciation has been stepping down each year:
- 2023: 80% bonus
- 2024: 60% bonus
- 2025: 40% bonus
- 2026: 20% bonus
- 2027 and beyond: 0% (no bonus depreciation)
Property placed in service in 2026 still gets a 20% first-year deduction on top of regular MACRS depreciation for qualifying assets. After January 1, 2027, that goes to zero unless Congress extends it.
What still qualifies
Bonus depreciation applies to property with a recovery period of 20 years or less. That covers most equipment, furniture, computers, vehicles (with limits), and the components a cost segregation study would carve out of a building purchase — the 5-year, 7-year, and 15-year buckets. The 27.5-year residential building shell doesn’t qualify for bonus, but the personal property and land improvements inside it do.
Section 179 fills part of the gap
Section 179 lets you fully expense qualifying business property up to an annual limit ($1.16 million for 2024, indexed for inflation). It applies to most of the same property as bonus, plus some real property improvements. Unlike bonus depreciation, Section 179 doesn’t phase out — but it has income limits (you can’t deduct more than your taxable income from the business). For most Houston small businesses buying $50K-$500K of equipment annually, Section 179 is a clean substitute.
Real estate strategy: cost segregation timing
For property investors, the bonus phase-out changes the math on cost segregation studies. A study that carves $200,000 of basis into 5- and 15-year property would have generated a $200,000 deduction at 100% bonus. In 2026 at 20%, that’s a $40,000 bonus deduction plus normal MACRS on the rest — still meaningful, but a fraction of what it was. We covered the mechanics in our cost segregation guide.
If you’ve bought property in 2024 or 2025 and haven’t commissioned a cost seg study yet, you can still get the higher bonus rates retroactively through a Form 3115 change in accounting method. Don’t leave that on the table.
Vehicle deductions in 2026
Heavy SUVs, trucks, and vans (over 6,000 lbs gross vehicle weight) used more than 50% for business get bonus depreciation plus Section 179, with first-year deductions that can run $25,000-$100,000+ depending on the vehicle and use percentage. Light vehicles are subject to luxury auto limits regardless of price. The phase-out matters most for heavy vehicles — if you’ve been planning a Yukon, Suburban, or F-250 purchase for the business, doing it in 2026 captures the last meaningful bonus year.
What to do before December 31, 2026
If you have a planned major equipment or vehicle purchase, the deadline math is real. Property must be both purchased AND placed in service before year-end to qualify. “Placed in service” means available for use, not just delivered — install a piece of equipment with all systems operational, or take delivery of a vehicle and put it on the road. Don’t let “sitting in the warehouse” cost you the deduction.
Should Congress extend it?
There’s ongoing political conversation about restoring 100% bonus depreciation, but no legislation has passed. Don’t plan around hope. Plan around the law as written. If Congress changes the rules retroactively, you’ll be pleasantly surprised — but a tax plan built on hypothetical future legislation is a bad plan.
The bottom line for Houston business owners
2026 is the last year of meaningful bonus depreciation. If you have legitimate equipment, vehicle, or property purchases planned within the next 18 months, the timing of those purchases is now a tax decision, not just a cash flow decision. Sit down with a CPA before you sign the order to make sure you’re capturing what’s available.
To work through your specific situation, call the office at (832) 983-7080 or use the contact page. We coordinate tax planning with purchase timing across our small business and real estate clients every quarter.