The biggest tax changes for landlords in 2026 come from the One Big Beautiful Bill Act, signed July 4, 2025. Full 100% bonus depreciation is permanently back, the 20% qualified business income deduction no longer sunsets, the Section 163(j) business interest cap is calculated on a more generous base, several energy efficiency incentives end by mid-2026, and the Form 1099-K reporting threshold reverts to its old $20,000 and 200-transaction level. Each shift changes the math on upgrades, financing, and reporting, and a few carry irrevocable elections that need attention before you file.
100% Bonus Depreciation Is Back
The phase-down that had bonus depreciation heading toward zero by 2027 is over. For qualifying property acquired after January 19, 2025, you can deduct the full cost in the year you place it in service.1Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One Big Beautiful Bill
Qualifying property is tangible personal property with a recovery period of 20 years or less. For a rental, that typically covers appliances, carpeting, furniture, certain HVAC components, and 15-year land improvements like fencing or paving. It does not cover the building itself or landscaping, which the IRS treats as part of the cost of land.2Internal Revenue Service. Publication 946 – How To Depreciate Property The placed-in-service date, not the purchase date, controls which year’s rules apply. An HVAC unit bought in December 2025 but installed in January 2026 follows 2026 rules.
One trap: landlords who elect out of the Section 163(j) business interest limitation (see below) cannot claim bonus depreciation on residential rental property, nonresidential real property, or qualified improvement property.3Internal Revenue Service. Questions and Answers About the Limitation on the Deduction for Business Interest Expense That election is generally irrevocable, so model both paths before choosing.
QBI Deduction Is Now Permanent
The Section 199A deduction, which lets eligible landlords deduct up to 20% of qualified business income, had been set to expire after 2025.4Office of the Law Revision Counsel. 26 US Code 199A – Qualified Business Income The new law eliminated the sunset. For landlords who qualify, it’s now a permanent feature of the code.
Qualifying means your rental activity rises to the level of a trade or business. The IRS safe harbor in Revenue Procedure 2019-38 sets out a workable path: at least 250 hours of rental services per year, contemporaneous logs of the work performed, and separate books and records for each rental enterprise.5Internal Revenue Service. Rev Proc 2019-38 Countable services include negotiating leases, screening tenants, coordinating repairs, and general management. Time on capital improvements or reviewing financials doesn’t count.
If you own multiple properties, aggregation rules let you combine similar ones into a single enterprise for the 250-hour test. Residential can be grouped with residential and commercial with commercial, but not mixed. Once you group, you keep treating the group as one enterprise, including future acquisitions.5Internal Revenue Service. Rev Proc 2019-38 Landlords outside the safe harbor can still claim the deduction if the activity qualifies as a trade or business under Section 162, but they should be prepared to show regular, continuous involvement.6Internal Revenue Service. Qualified Business Income Deduction
Business Interest Cap Uses a Bigger Base Again
For portfolios carrying significant debt, the Section 163(j) limit just got more forgiving. From 2022 through 2024, the deductible interest cap was based on earnings before interest and taxes only, with depreciation and amortization excluded. For tax years beginning after December 31, 2024, depreciation, amortization, and depletion are back in the adjusted taxable income calculation.3Internal Revenue Service. Questions and Answers About the Limitation on the Deduction for Business Interest Expense The 30% cap is now applied to a larger number, so more interest is deductible.
Small landlords generally sit outside the rule entirely. If your average annual gross receipts over the prior three years fall below the inflation-adjusted small-business threshold ($31 million for 2025), the limitation doesn’t apply. Above the threshold, interest above the cap carries forward.
Real property trades or businesses can also elect out of Section 163(j) altogether. The cost is real: elected-out landlords must depreciate residential rental, nonresidential real, and qualified improvement property using the alternative depreciation system, and those assets lose eligibility for bonus depreciation.3Internal Revenue Service. Questions and Answers About the Limitation on the Deduction for Business Interest Expense The election is irrevocable.
Energy Efficiency Credits Are Ending
Several incentives expanded by the Inflation Reduction Act are being repealed, and the deadlines land inside 2026. The Section 179D energy efficient commercial buildings deduction is not allowed for any property whose construction begins after June 30, 2026. The Section 45L new energy efficient home credit is not available for any qualifying home acquired after that same date.7Internal Revenue Service. FAQs for Modification of Sections 25C, 25D, 25E, 30C, 30D, 45L, 45W, and 179D Under OBBB
Commercial landlords who can start construction before July 2026 can still claim 179D. The deduction scales by square foot and increases substantially when prevailing wage and apprenticeship requirements are met.8Internal Revenue Service. Energy Efficient Commercial Buildings Deduction Section 45L credits are structured per unit, with higher amounts for Zero Energy Ready homes and, for multifamily, a significant premium for projects meeting prevailing wage requirements.9Department of Energy. Section 45L Tax Credits for DOE Efficient New Homes If you have an energy-efficient project underway, confirm the acquisition or construction start will land before June 30, 2026.
The Section 25C energy efficient home improvement credit, which had covered heat pumps and similar residential upgrades, expired after December 31, 2025. It’s not available for 2026 installations at all.7Internal Revenue Service. FAQs for Modification of Sections 25C, 25D, 25E, 30C, 30D, 45L, 45W, and 179D Under OBBB
Form 1099-K Threshold Is Back to $20,000
If you collect rent through payment apps, the reporting landscape simplified. Earlier plans had lowered the Form 1099-K threshold to $600, then attempted a phased $5,000 threshold. The new law scrapped both and retroactively reinstated the original: third-party processors only issue a 1099-K when payments exceed $20,000 and transactions exceed 200 in a calendar year.10Internal Revenue Service. IRS Issues FAQs on Form 1099-K Threshold Under the One Big Beautiful Bill
This changes paperwork, not tax liability. All rental income is still taxable and still reported on Schedule E whether or not a 1099-K arrives.11Internal Revenue Service. Understanding Your Form 1099-K If you receive a 1099-K that mixes personal payments with rental receipts, ask the issuer for a corrected form. If they won’t correct it, keep records separating the personal amounts.12Internal Revenue Service. What To Do With Form 1099-K Keeping a rent-only account is the cleanest way to avoid the problem.
What Didn’t Change but Still Matters
Several rules landlords sometimes assume moved with the new law didn’t. They still shape 2026 planning.
Passive Losses and the $25,000 Allowance
Rental real estate is generally a passive activity, so losses can’t offset wages or other active income. Landlords who actively participate can deduct up to $25,000 in rental losses against non-passive income.13Office of the Law Revision Counsel. 26 US Code 469 – Passive Activity Losses and Credits Limited Active participation is a lower bar than material participation and covers decisions like approving tenants, setting rent, and authorizing repairs. The allowance phases out $1 for every $2 of modified adjusted gross income above $100,000 and disappears entirely at $150,000. Unused losses carry forward and free up when you sell.
Real Estate Professional Status
Qualifying as a real estate professional lets you treat rental losses as non-passive, with no dollar cap. You must meet both annual tests: more than half of all personal services performed across all businesses must be in real property trades or businesses, and more than 750 hours per year in those activities.14Internal Revenue Service. Publication 925 – Passive Activity and At-Risk Rules You also need to materially participate in each rental you want treated as non-passive. Employee hours count only if you own more than 5% of the employer, and a spouse’s hours don’t help you meet the two threshold tests. Keep contemporaneous time logs from January.
Capital Gains, Depreciation Recapture, and 1031
When you sell at a profit, the gain splits. Depreciation you claimed (or were allowed to claim) comes back as unrecaptured Section 1250 gain, taxed at a maximum federal rate of 25%. The remainder is long-term capital gain at 0%, 15%, or 20% depending on income.15Tax Foundation. 2026 Tax Brackets and Federal Income Tax Rates With 100% bonus depreciation back, faster deductions today mean larger recapture on exit.
A Section 1031 like-kind exchange still defers both the capital gain and the recapture when you roll proceeds into another real property. You have 45 days to identify replacements and 180 days to close.16Internal Revenue Service. Like-Kind Exchanges Under IRC Section 1031 The One Big Beautiful Bill did not change 1031, so it remains available for 2026. Line up a qualified intermediary before closing; touching the funds directly blows the exchange.
Net Investment Income Tax
Rental income remains subject to the 3.8% net investment income tax when modified adjusted gross income exceeds $250,000 (married filing jointly) or $200,000 (single).17Internal Revenue Service. Net Investment Income Tax The tax applies to the lesser of net investment income or the excess over the threshold. Real estate professionals who materially participate can potentially avoid the surtax on rental income, since income from a non-passive trade or business is excluded. The thresholds aren’t inflation-indexed, so each year pulls in more filers.