100% Bonus vs 40% Election Under Section 168(k)(10)
Elect 40% bonus depreciation under Section 168(k)(10) when 100% would create a net operating loss the taxpayer would prefer to use across multiple years rather than carry forward. Elect 40% when state-level conformity is more favorable at the partial rate. Otherwise take 100% bonus. The election is class-by-class and irrevocable for the year.
The election under Section 168(k)(10)
OBBBA added Section 168(k)(10) permitting a taxpayer to elect 40% bonus depreciation (60% for long-production-period property and certain aircraft) for the first tax year ending after January 19, 2025. The election is class-by-class. A taxpayer can elect 40% on 5-year property while taking 100% on 15-year property.
The election is made via statement attached to the return. Irrevocable for the year. IRS Notice 2026-11 covers the mechanics.
When 40% election wins
If 100% bonus would create a net operating loss larger than the taxpayer can absorb, the 40% election preserves NOL absorption capacity. The 60% of basis not deducted in year one depreciates on regular MACRS in years 2-6 (5-year property) or years 2-16 (15-year land improvements).
If state conformity is decoupled at 100% but accepted at lower rates, the 40% election captures more state-level benefit. California's decoupling is the most common case where this analysis matters.
When 100% wins
If the taxpayer can fully absorb the 100% bonus depreciation in year one (passive income, REPS, or STR loophole), 100% wins. Maximum first-year deduction at the highest marginal rate available.
If state conformity is uniform (rolling-conformity state), 100% wins because the state benefit matches the federal benefit. No state-level reason to limit the federal deduction.
Frequently asked questions
- How does WeCostSeg coordinate with my CPA?
- Every engagement follows the three-touch CPA Coordination Protocol. Preliminary analysis CC'd to your CPA on intake, draft report shared five business days before final delivery, and Form 3115 filing coordinated when a Section 481(a) adjustment applies.
- Does OBBBA's 100% bonus apply to my acquisition?
- 100% applies to property under a binding contract on or after January 20, 2025 per Public Law 119-21. Property under a binding contract on or before January 19, 2025 stays on the legacy phase-down: 40% in 2025, 20% in 2026, 0% in 2027 and after.
- Is audit defense included?
- Yes. Every WeCostSeg engagement includes five years of written audit defense at no extra charge, aligned to the 13 Principal Elements of a Quality Cost Segregation Study under IRS Publication 5653 Chapter 4.
- Can I get a free preliminary analysis?
- Yes. Submit property details via the free proposal form or WhatsApp. Engineer-reviewed estimate returned within four business hours during US Eastern hours.
Zawwad Ul Sami, Founder
Zawwad Ul Sami is the founder of WeCostSeg, a founder-led cost segregation firm serving real estate investors across the US. He focuses on strategy, pricing, and the firm's overall direction.