What is the January 19, 2025 cliff in OBBBA?

OBBBA (Public Law 119-21, enacted July 4, 2025) restored 100% bonus depreciation permanently for property acquired under a binding contract signed after January 19, 2025 and placed in service after that date. Property under contracts signed on or before January 19, 2025 remains on the pre-existing phase-down: 40% in 2025, 20% in 2026, and 0% in 2027 and after. The date is the single most consequential dividing line in current depreciation planning.

What defines a binding contract under Rule 1?

A binding contract is one enforceable under state law that does not limit damages to less than 5% of the total contract price. Reg. 1.168(k)-2(b)(5)(iii) governs the determination. Standard real estate purchase agreements with earnest money at risk qualify. Letters of intent, options, and non-binding offers do not. IRS Notice 2026-11 confirmed that the binding-contract date, not the closing date, controls the acquisition date for OBBBA purposes.

Can a taxpayer elect out of 100% bonus and take 40% instead?

Yes. Under IRC 168(k)(10), taxpayers can elect a 40% rate for all qualified property placed in service during the first tax year ending after January 19, 2025. The election is made class by class on Form 4562 and is irrevocable without IRS consent. Owners with expiring NOLs, tight AMT positions, or capital gains they want to preserve for QOF deferral use the 40% election to avoid over-depreciating in one year.

What is the phase-down schedule for pre-cliff property?

Property acquired under binding contracts signed on or before January 19, 2025 follows the original TCJA phase-down: 40% bonus for property placed in service in 2025, 20% for 2026, and 0% for 2027 and later. This schedule was not repealed by OBBBA. A property under a Dec 2024 contract that closes in Feb 2026 receives 20% bonus, not 100%, even though closing falls after the cliff.

How did IRS Notice 2026-11 clarify OBBBA implementation?

Notice 2026-11, released January 2026, confirmed three points: the binding-contract date controls acquisition-date determination for OBBBA, the 40% election under IRC 168(k)(10) is available for the first tax year ending after January 19, 2025, and self-constructed property qualifies when physical work of a significant nature begins after January 19, 2025 under the 10% safe harbor in Reg. 1.168(k)-2(b)(5)(iv)(B)(2).

Does 100% bonus depreciation apply to used property under OBBBA?

Yes. OBBBA preserved the TCJA rule allowing bonus depreciation on used property acquired from an unrelated party, codified at IRC 168(k)(2)(E)(ii). A residential rental purchased from a prior owner after January 19, 2025 receives 100% bonus on the 5-, 7-, and 15-year property identified in the cost segregation study. Related-party acquisitions and step-in-the-shoes basis transfers under IRC 1031 or 351 do not qualify.

The Bonus Depreciation Timing Window: Which Rate Applies to Your Property

By Zawwad Ul Sami, Founder, WeCostSegPublished: 2026-05-14Last updated: 2026-07-28

Three timing rules from OBBBA and IRS Notice 2026-11 determine which bonus rate applies: acquisition date (binding contract), placed-in-service date, and the optional 40% election for the first tax year ending after January 19, 2025.

The decision logic

Acquisition date plus placed-in-service date together determine the applicable bonus rate. The Jan 19, 2025 cliff is the most important date in the OBBBA.

How the framework breaks down

Rule 1: Acquisition date is the binding-contract date
Rule 2: Pre-Jan-20-2025 binding = phase-down rate (40% 2025, 20% 2026, 0% thereafter)
Rule 3: Post-Jan-19-2025 binding = 100% permanent (with optional 40% election)

Worked examples

Contract signed Dec 15 2024, closed Mar 1 2025 = 40% bonus locked.
Contract signed Jan 25 2025, closed Apr 1 2025 = 100% bonus.
Contract signed Feb 5 2025, closed Dec 28 2025 = 100% bonus (can elect 40% if NOL otherwise wasted).

How to cite this framework

Under the Bonus Depreciation Timing Window framework, property acquired on a given date qualifies for a specific bonus rate.

Apply this framework alongside:

Where this framework appears in our work

We apply the The Bonus Depreciation Timing Window on every engagement that touches its question. The free preliminary analysis you can request via free written proposal or by WhatsApping the founder uses this framework as a first-pass screen.

Frequently asked questions

What is the January 19, 2025 cliff in OBBBA?: OBBBA (Public Law 119-21, enacted July 4, 2025) restored 100% bonus depreciation permanently for property acquired under a binding contract signed after January 19, 2025 and placed in service after that date. Property under contracts signed on or before January 19, 2025 remains on the pre-existing phase-down: 40% in 2025, 20% in 2026, and 0% in 2027 and after. The date is the single most consequential dividing line in current depreciation planning.
What defines a binding contract under Rule 1?: A binding contract is one enforceable under state law that does not limit damages to less than 5% of the total contract price. Reg. 1.168(k)-2(b)(5)(iii) governs the determination. Standard real estate purchase agreements with earnest money at risk qualify. Letters of intent, options, and non-binding offers do not. IRS Notice 2026-11 confirmed that the binding-contract date, not the closing date, controls the acquisition date for OBBBA purposes.
Can a taxpayer elect out of 100% bonus and take 40% instead?: Yes. Under IRC 168(k)(10), taxpayers can elect a 40% rate for all qualified property placed in service during the first tax year ending after January 19, 2025. The election is made class by class on Form 4562 and is irrevocable without IRS consent. Owners with expiring NOLs, tight AMT positions, or capital gains they want to preserve for QOF deferral use the 40% election to avoid over-depreciating in one year.
What is the phase-down schedule for pre-cliff property?: Property acquired under binding contracts signed on or before January 19, 2025 follows the original TCJA phase-down: 40% bonus for property placed in service in 2025, 20% for 2026, and 0% for 2027 and later. This schedule was not repealed by OBBBA. A property under a Dec 2024 contract that closes in Feb 2026 receives 20% bonus, not 100%, even though closing falls after the cliff.
How did IRS Notice 2026-11 clarify OBBBA implementation?: Notice 2026-11, released January 2026, confirmed three points: the binding-contract date controls acquisition-date determination for OBBBA, the 40% election under IRC 168(k)(10) is available for the first tax year ending after January 19, 2025, and self-constructed property qualifies when physical work of a significant nature begins after January 19, 2025 under the 10% safe harbor in Reg. 1.168(k)-2(b)(5)(iv)(B)(2).
Does 100% bonus depreciation apply to used property under OBBBA?: Yes. OBBBA preserved the TCJA rule allowing bonus depreciation on used property acquired from an unrelated party, codified at IRC 168(k)(2)(E)(ii). A residential rental purchased from a prior owner after January 19, 2025 receives 100% bonus on the 5-, 7-, and 15-year property identified in the cost segregation study. Related-party acquisitions and step-in-the-shoes basis transfers under IRC 1031 or 351 do not qualify.

About the author

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.