Bonus Depreciation 2026 — 100% Rate Restored, Qualifying Property & Tax Strategy

Bonus depreciation allows businesses to immediately deduct a large percentage of the cost of qualifying assets in the year they are placed in service — rather than depreciating them over multiple years. Bonus depreciation was 100% from 2018 through 2022, then began phasing down under the original Tax Cuts and Jobs Act (TCJA) schedule (80% in 2023, 60% in 2024, and scheduled to fall further in 2025 and 2026 before disappearing in 2027). That phase-down no longer applies. The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, permanently restored 100% bonus depreciation for qualifying property acquired after January 19, 2025.

Quick answer: For qualifying property acquired after January 19, 2025 and placed in service in 2025 or 2026, you can generally deduct 100% of the cost immediately as bonus depreciation — there is no longer a scheduled phase-down to 40% or 20%. If your business acquired property under a binding contract signed before January 19, 2025, confirm which rate applies to your specific transition situation, since older rules may still govern.

Bonus Depreciation Rate: Before and After OBBBA

OBBBA’s 100% rate applies to qualified property acquired after January 19, 2025. Property acquired earlier in 2025 under a pre-existing binding contract, or placed in service in 2023/2024, generally remains subject to the original lower TCJA phase-down percentages for those years. Consult a tax professional to confirm which rate applies to your specific acquisition date.

What Property Qualifies for Bonus Depreciation?

Bonus depreciation applies to qualified property, which includes:

• MACRS property with 20-year or shorter recovery period — the most common category:
  • 5-year property: computers, vehicles (not luxury autos subject to caps), office equipment
  • 7-year property: office furniture, most machinery, agricultural equipment
  • 15-year property: certain land improvements (fences, sidewalks, roads)
• Qualified improvement property (QIP) — interior improvements to non-residential buildings already in service (15-year MACRS life)
• Computer software that is amortisable over 3 years
• Qualified film, television, and live theatrical productions

OBBBA also created a separate, narrower 100% deduction for certain new manufacturing/production real property (qualified production property) that would not otherwise qualify for standard bonus depreciation — this has its own eligibility rules and is distinct from the general bonus depreciation provision described above.

What Does NOT Qualify for Standard Bonus Depreciation

• Buildings (general commercial/residential) — 39-year (commercial) or 27.5-year (residential) life; do not qualify for the standard bonus depreciation rules (though the narrower “qualified production property” provision may apply to certain new factory structures)
• Land — never depreciable
• Intangible assets — trademarks, patents (separate amortisation rules)
• Property used 50% or less for business
• Luxury vehicle caps — even qualifying vehicles are subject to annual deduction limits

Bonus Depreciation vs Section 179: Key Differences

Strategy: With both bonus depreciation and Section 179 now offering up to 100% immediate expensing, the practical difference for many small businesses has narrowed. Section 179 is still useful when you want to selectively choose which assets to expense (e.g., to manage taxable income precisely), while bonus depreciation applies automatically to all qualifying property unless you elect out. Many businesses still use Section 179 first for planning flexibility, then apply bonus depreciation to any remaining or additional basis.

Worked Example: Business Equipment Purchase in 2026

Sarah owns a consulting firm and buys a high-end server system for $80,000, acquired and placed in service in January 2026 (after the January 19, 2025 OBBBA cutoff, so the property qualifies for 100% bonus depreciation).

Bonus depreciation at 100%: Bonus depreciation deduction: $80,000 × 100% = $80,000

Because the rate is 100%, there is no remaining basis to depreciate under regular MACRS — the full cost is deducted in year one. (If Sarah’s business didn’t have enough taxable income to fully use a Section 179 election, bonus depreciation would still apply at 100% since, unlike Section 179, it isn’t limited by taxable income and can create a net operating loss.)

Total Year 1 deduction: $80,000

Luxury Auto Depreciation Caps

Even if a vehicle qualifies for bonus depreciation, the IRS caps annual deductions for passenger automobiles. These caps are adjusted for inflation annually and set by a separate IRS revenue procedure — confirm the current-year figures at irs.gov before relying on a specific dollar amount, since they change each year and the numbers below are illustrative of the general structure (a large first-year cap when bonus depreciation applies, then smaller amounts in years 2 and beyond).

Heavy SUVs and trucks (generally those with a gross vehicle weight rating over 6,000 lbs) are not subject to these passenger-auto caps and can use Section 179 (subject to a separate, lower dollar cap for SUVs than the general Section 179 limit) and bonus depreciation without the per-year passenger-auto limits — confirm the current SUV-specific Section 179 sub-limit at irs.gov.

State Tax Considerations

Not all states conform to the federal bonus depreciation rules. States that do not follow federal bonus depreciation require you to add back the excess federal depreciation and use a different state depreciation schedule. Historically, California and New York have been among the states that do not fully conform to federal bonus depreciation, though state conformity rules change — always check your state’s current depreciation rules, since the federal benefit may be partially offset by higher state taxable income.

2026 Tax Planning: What This Means for Purchase Timing

Because bonus depreciation is now permanently 100% for qualifying property acquired after January 19, 2025, the urgency to “accelerate” purchases before a scheduled rate drop (which applied under the old TCJA phase-down) no longer exists under current law. Key planning points:

• No rush to beat a phase-down — since the rate is now 100% and permanent under current law, there’s less tax-driven pressure to time equipment purchases around year-end
• Confirm your acquisition date — property acquired under a binding contract before January 19, 2025 may still be subject to the older, lower phase-down percentages
• Watch for future legislation — tax law can change again; confirm the current rate with a tax professional or at irs.gov before making large purchase decisions based on this article

Related Small Business and Tax Resources

• Section 179 Deduction Guide — immediate expensing alternative
• QBI Deduction Guide 2026 — 20% pass-through income deduction
• Home Office Deduction Guide — deducting home workspace costs
• Self-Employment Tax Guide — SE tax, quarterly payments, deductions
• US Business Hub — all small business financial guides

With 100% bonus depreciation now permanent for qualifying property under current law, business owners with equipment needs should still plan asset acquisition timing carefully in consultation with a tax professional, since taxable income limits on Section 179, state non-conformity, and any future legislative changes can all affect the actual benefit.

Written by WealthVieu

WealthVieu researches and writes data-driven personal finance guides using primary sources including the IRS, Bureau of Labor Statistics, Federal Reserve, and Census Bureau.