Bonus Depreciation 2026 for Physicians: The OBBBA Schedule and the Tax Planning Moves Around It
Somewhere between a hallway conversation and a cost segregation sales call, you heard that 100% bonus depreciation is back. It is. What it means for your 2026 return depends on two questions those conversations tend to skip: when you acquired the property, and whether the tax code will let you use the deduction this year.
This guide covers the 2026 bonus depreciation schedule under the One Big Beautiful Bill Act, what qualifies (the imaging system in your practice, not just rental buildings), and the passive activity gate that decides whether a rental loss ever reaches your clinical income. You did not go to med school to read Section 168(k). Ten minutes here will make the conversation with your tax team a lot shorter.
In This Blog
What is bonus depreciation, and what did OBBBA change?
Bonus depreciation lets you deduct a large share of an asset's cost in the year you place it in service instead of spreading it over the asset's recovery period. Under the One Big Beautiful Bill Act (Public Law 119-21, enacted July 4, 2025), that share is 100% for qualifying property acquired after January 19, 2025, with no phase-down built into the statute.
Two quick definitions. Depreciation is the tax deduction for wear and tear on business property, taken over a set number of years. Basis is, for most purchases, what you paid. Bonus depreciation accelerates the deduction on that basis.
Under the 2017 tax law, bonus depreciation was stepping down 20 points a year and sat at 40% for property acquired before January 20, 2025 and placed in service in 2025. OBBBA replaced that schedule. Section 168(k)(1)(A) now reads that the first-year allowance equals "100 percent of the adjusted basis of the qualified property," and the IRS describes the change as a permanent 100% deduction in Notice 2026-11.
The catch is the acquisition date. Property you locked in on or before January 19, 2025 stays on the old schedule, which is where many 2026 planning conversations go wrong.
What is the bonus depreciation schedule for 2026?
For 2026 the schedule turns on one date rather than one year. Property acquired after January 19, 2025 and placed in service in 2026 qualifies for a 100% first-year deduction. Property acquired on or before January 19, 2025 does not get the new rate, even if you place it in service in 2026.
When you acquired the property | Placed in service in 2025 | Placed in service in 2026 |
After January 19, 2025 | 100% (or an elective 40%) | 100% |
On or before January 19, 2025 | 40% (60% for long production period property and certain aircraft) | The older, lower phase-down rate; ask your tax team for the figure |
Property acquired after January 19, 2025
The easy column. The 2025 Form 4562 instructions describe OBBBA as reinstating the 100% special depreciation allowance for qualified property acquired and placed in service after January 19, 2025, and current law carries no scheduled reduction.
Property acquired on or before January 19, 2025
If your contract predates January 20, 2025, the old phase-down still governs. For such property placed in service during 2025, the allowance was limited to 40% of depreciable basis (60% for long production period property and certain aircraft). Your tax team can tell you where a 2026 placed-in-service date lands for that older property.
What counts as "acquired"?
The acquisition date, not the closing date, is the test. Under Notice 2026-11, once you sign a written binding contract for the property, the IRS will not treat it as acquired any later than that signing date. A binding purchase agreement signed January 15, 2025 keeps that property under the old rules even if you closed in March. Self-constructed property and contracts with contingencies have their own rules, so bring the paperwork to your tax team.
One footnote: for the first tax year ending after January 19, 2025 (the 2025 return for calendar-year filers), the law allowed an election to take 40% instead of 100%, made by statement on a timely filed return, including extensions. That was a 2025 decision, not a 2026 planning choice.
What qualifies for 100% bonus depreciation?
Qualified property is property depreciated under MACRS with a recovery period of 20 years or less, plus certain computer software and other listed categories. Used property can qualify as long as you never used it before you acquired it and the other statutory purchase conditions are met.
Real estate: the building does not qualify, but its components can
Residential rental property is depreciated over 27.5 years and nonresidential real property over 39 years under Section 168(c). Both fall outside the 20-year test (our post on residential vs commercial vs short-term rental depreciation timelines walks through the differences). What falls inside it, per IRS Publication 527, Table 2-1:
Computers and their peripheral equipment: 5 years
Appliances, carpets, and furniture used in a rental: 5 years
Office furniture and equipment: 7 years
Land improvements such as roads, shrubbery, and fences: 15 years
Qualified improvement property (interior improvements to nonresidential buildings): the 15-year class
Land is never depreciable, so the purchase price is split between land and building first. A cost segregation study then allocates the building cost among the shorter-lived components, which is what makes bonus depreciation worth discussing on a rental at all. Whether you need an engineering study or a software estimate is covered in our guide to DIY vs professional cost segregation studies.
Practice equipment, furniture, software, and vehicles
This is the half of the topic the cost segregation vendors skip. An imaging system, exam tables, a new server, waiting room furniture, and practice software placed in service in 2026 can qualify for 100% bonus depreciation if the asset's recovery period is 20 years or less and the acquisition tests are met. Computers carry a 5-year recovery period and office furniture and equipment 7 years; your tax team can tell you which class your clinical equipment falls into.
Vehicles carry their own caps. The tax code draws the line at 6,000 pounds: a four-wheeled vehicle rated at 6,000 pounds unloaded gross vehicle weight or less (gross vehicle weight for trucks and vans) is a passenger automobile. Passenger automobiles face annual depreciation limits. A heavier SUV sits outside those limits, but the $32,000 Section 179 cap for tax years beginning in 2026 still applies to it. How bonus depreciation treats a heavy vehicle depends on other rules, including how much of its use is business use, so ask your tax team before you count on it.
Qualified production property (probably not you)
OBBBA also created a separate 100% deduction under Section 168(n) for certain new manufacturing and production buildings where construction begins after January 19, 2025 and before January 1, 2029, placed in service before January 1, 2031. The statute excludes portions used for offices, administrative services, lodging, parking, and sales activities. A medical office building does not qualify. If someone tells you otherwise, ask them to show you the statute.
Bonus depreciation vs Section 179: which should a physician practice use?
Both let a practice deduct equipment in year one. The differences matter most for a practice with variable income.
Bonus depreciation is automatic and applies by class of property. Section 179 is an election you make for specific assets, and you can choose how much of each asset's cost to expense.
Section 179 is capped. For tax years beginning in 2026 the limit is $2,560,000, shrinking dollar for dollar once you place more than $4,090,000 of Section 179 property in service (Rev. Proc. 2025-32). Bonus depreciation has no dollar cap.
Section 179 is limited to taxable income from the active conduct of a trade or business, so it cannot create a business loss; the excess carries forward. Bonus depreciation has no business income limit and can create a loss, though the passive activity and excess business loss rules can still limit what you use this year.
The $32,000 heavy SUV cap for 2026 is a Section 179 rule. Bonus depreciation on a heavy vehicle turns on other limits.
States treat the two differently. California caps Section 179 at $25,000 and does not follow federal bonus depreciation at all.
For 2025 the Section 179 figures were $2,500,000, $4,000,000, and $31,300 for SUVs. They are indexed, so the 2027 numbers will move again.
Can a physician actually use the deduction against clinical income?
For practice equipment, usually yes: the deduction offsets the practice's own nonpassive income. For rental real estate, usually not without planning. Rental activities are passive by default under Section 469(c)(2), and a passive loss can only offset passive income. The rest is suspended and carried to the next year.
There are two doors out of that box.
Door one: real estate professional status AND material participation
You (or your spouse) qualify only if you spend more than 750 hours, and more than half of your total working time across all trades or businesses, in real property trades or businesses where you materially participate. On a joint return one spouse has to meet both tests alone; IRS Publication 925 says not to count your spouse's services toward them. In addition, a real estate professional will still need to materially participate in the rental activities for them to not be considered a passive activity.
A full-time attending almost never gets there. A spouse who manages the household's rentals full time sometimes does. Our real estate professional status guide covers the hour tests and the records that support them.
Door two: the short-term rental exception
Under Treasury Regulation 1.469-1T(e)(3)(ii)(A), an activity is not a rental activity if the average period of customer use is seven days or less. That takes a true short-term rental out of the rule that makes rentals passive automatically. You still have to materially participate. The two most common tests are more than 500 hours in the activity, or more than 100 hours and at least as much as anyone else involved.
That is the mechanism behind the short-term rental tax loophole, and it is fact-intensive. The hours have to be real, and you need a reasonable record of them. How depreciation works on a short-term rental specifically is covered in a companion post.
The second gate: the excess business loss limit
Even when a loss is not passive, Section 461(l) caps the business losses a noncorporate taxpayer can deduct against other income. For tax years beginning in 2026 the threshold is $256,000, or $512,000 on a joint return (Rev. Proc. 2025-32), and OBBBA made the limit permanent. Losses above the threshold are not lost; they become a net operating loss carryover.
Dr. Patel's 2026 bonus depreciation math
Dr. Patel is a W-2 hospitalist earning $400,000. Her spouse manages their rentals full time and qualifies as a real estate professional, an assumption that carries the whole example. In 2026 they buy a $1,200,000 long-term rental and place it in service in November.
Purchase price: $1,200,000
Land (not depreciable): $200,000
Depreciable basis: $1,000,000
Cost segregation study allocates 25% of building basis to 5-, 7-, and 15-year property: $250,000 (a hypothetical allocation; every property is different)
Remaining 27.5-year structure: $750,000
Column A: the purchase contract was signed in March 2026.
100% bonus depreciation on $250,000 of short-life components: $250,000
Plus the first year of regular straight-line depreciation on the $750,000 structure, prorated under the mid-month convention for a November start
Column B: same property, but the binding contract was signed in December 2024 and closing slipped into 2026.
Acquired before January 20, 2025, so the 100% rate does not apply
The short-life components get the older, lower phase-down rate for 2026, with the remainder depreciated over the component class lives
First-year deduction: materially smaller than Column A
Because the spouse qualifies as a real estate professional and materially participates in the rental, the Column A loss is nonpassive and can offset Dr. Patel's wages, subject to the $512,000 joint excess business loss threshold, which this example stays under. Remove the real estate professional status (or remove the material participation) and the same $250,000 deduction becomes a suspended passive loss waiting for passive income or a sale. The deduction did not change. The ability to use it did.
A second, smaller example. Dr. Patel's S corporation practice buys $180,000 of imaging equipment that falls in a class with a recovery period of 20 years or less and places it in service in December 2026.
100% bonus depreciation: $180,000, regardless of the practice's income for the year
Section 179 instead: limited to the practice's business taxable income. If that income is $150,000, the election deducts $150,000 and carries $30,000 forward.
Either route lowers the practice's taxable income this year; the difference is what is left to deduct in 2027. If the practice expects a bigger 2027, taking Section 179 on part of the equipment and letting the rest depreciate normally keeps some of the deduction for next year, which is exactly the kind of call your tax team should make with you in December rather than in April.
What are the downsides of bonus depreciation?
Bonus depreciation is a timing benefit, and four things make some physicians decide to slow it down.
Recapture when you sell
Depreciation taken on the personal property components (Section 1245 property) is recaptured as ordinary income at sale. Depreciation on the building and on land improvements comes back as unrecaptured Section 1250 gain, taxed at a maximum rate of 25%. The 3.8% net investment income tax may apply on top for income above $250,000 on a joint return ($200,000 for most other filers). A large deduction in year one means a larger recapture bill later, so planning the exit is part of planning the purchase. Our post on depreciation recapture at sale goes deeper.
Your state may not play along
Federal bonus depreciation does not automatically carry to your state return. California's instructions for Form FTB 3885A state that California has not conformed to the federal additional first-year depreciation deduction, and the same 2025 instructions cap California's Section 179 deduction at $25,000. Other states have their own rules. If you practice in one state and hold property in another, the two returns can look nothing alike.
Electing out is a real option, and a sticky one
Because bonus is automatic, you have to elect out if you would rather spread the deduction. The election is made by class of property, with a statement attached to a timely filed return, including extensions, and under Section 168(k)(7) it can be revoked only with IRS consent. A physician expecting a much higher bracket in two years, or one whose loss would be suspended anyway, may prefer the slower schedule. That decision belongs on the calendar before the return is filed.
One related interaction: qualified business income for the 20% QBI deduction is a net figure after business deductions, so a large depreciation deduction lowers the QBI from that business. Whether that matters depends on your income and your entity, so have your tax team run it.
"Permanent" means permanent under current law
The statute has no sunset. Congress can still amend it, and the IRS calls Notice 2026-11 interim guidance with proposed regulations to come. Plan on the current rule without building a 10-year plan that collapses if it changes.
What should physicians do before December 31, 2026?
Pull the contract for anything bought in 2025 or 2026 and confirm the acquisition date. A written binding contract dated before January 20, 2025 means the new 100% rate does not apply.
Confirm the property will be placed in service, meaning ready and available for its intended use, by December 31. Equipment paid for in December and sitting in a crate until January does not count for 2026.
Decide bonus vs Section 179 by asset class with your tax team, using this year's practice income and next year's outlook.
If the deduction is on a rental, count the hours now. Real estate professional status and material participation are tested on the calendar year. The regulations accept any reasonable record, but a record built as you go is far easier to defend than one reconstructed in April.
Check your state's add-back before counting on the deduction twice.
If you bought the rental in a prior year and never ran a cost segregation study, ask whether a look-back study makes sense before this return is filed. The year-end tax moves that matter most have hard deadlines, and placed-in-service is one of them.
Most of the 2026 bonus depreciation mistakes we see trace back to a contract dated a few weeks too early or a crate that did not open until January. Contact your tax team today, before the December calendar fills up. You will get prompt, dependable communication from a physician-founded team of tax attorneys, CPAs, and enrolled agents who handle depreciation schedules so you do not have to.
Disclaimer: This material is intended for educational and informational purposes only and does not constitute tax, legal, accounting, or financial advice. The content is general in nature and may not apply to your specific circumstances. Tax laws and financial regulations are subject to change and interpretation, and the application of these laws can vary based on individual situations. Before making any decisions, you should consult with a qualified tax advisor, legal counsel, or financial professional.
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