Bonus Depreciation in 2026: 100% Is Back — Permanently
The OBBBA killed the TCJA phase-down and permanently restored 100% first-year expensing. Here are the full rules: what qualifies, the vehicle limits, Section 179 coordination, and the recapture risk nobody mentions.
What Is Bonus Depreciation?
Bonus depreciation (IRC Section 168(k)) is a tax deduction that allows businesses to immediately deduct the cost of qualifying assets in the year they are placed in service, rather than depreciating them over their useful lives. Under the Tax Cuts and Jobs Act (TCJA), enacted in December 2017, bonus depreciation expanded dramatically, allowing a 100% immediate write-off of many asset types — and the One Big Beautiful Bill Act (OBBBA) of July 2025 made the 100% rate permanent.
Core Concept
Bonus depreciation accelerates tax deductions on qualifying property, reducing taxable income and improving cash flow in the year the asset is placed in service. The total deduction is the same either way — the timing is the entire strategy.
Historically, businesses had to depreciate equipment over its useful life — machinery over 5 years, certain improvements over 15 or 20 years. Bonus depreciation compresses that timeline to a single year. Consider a $100,000 asset for a taxpayer in the 37% bracket: standard 5-year MACRS produces a $20,000 Year 1 deduction worth $7,400 in tax savings. With 100% bonus depreciation, the full $100,000 is deducted in Year 1 — $37,000 in immediate tax savings. Every dollar of tax deferred is a dollar you can redeploy now into the next property, the next hire, or debt paydown.
No More Deadline Pressure
Under the old TCJA phase-down, businesses raced to place assets in service before the rate dropped. That urgency is gone: the 100% rate is permanent under current law, so you can plan multi-year capital expenditures with the certainty of full immediate expensing.
From Phase-Down to Permanent 100%
Under the original TCJA, 100% bonus depreciation ran from late 2017 through 2022, then began phasing down by 20 percentage points per year — and that phase-down actually happened for a while: 80% in 2023, 60% in 2024, and 40% scheduled for 2025, heading to 20% in 2026 and 0% in 2027.
Then Congress reversed course. The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025 as Public Law 119-21, permanently restored 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025. There is no new sunset date. The phase-down is now a historical footnote:
| Year Placed in Service | Bonus Rate | Governing Law |
|---|---|---|
| Sept 2017 – Dec 2022 | 100% | TCJA |
| 2023 | 80% | TCJA phase-down |
| 2024 | 60% | TCJA phase-down |
| Jan 1 – Jan 19, 2025 (or acquired before Jan 20) | 40% | TCJA phase-down (transition) |
| Acquired & placed in service after Jan 19, 2025 | 100% | OBBBA (permanent) |
| 2026 and beyond | 100% — no phase-down, no sunset | OBBBA (permanent) |
The Acquisition-Date Trap
The 100% rate keys off when you acquired the property (generally, when you signed a binding contract), not just when it showed up. An asset under contract before January 20, 2025 can be stuck at the old 40% transition rate even if it was delivered and placed in service later in 2025. If a 2025 purchase straddles that line, get the contract dates in front of a CPA before you file.
What this means for 2026: every dollar of qualifying property placed in service in 2026 receives a 100% first-year deduction. The OBBBA also added a separate 100% write-off for certain new manufacturing facilities ("qualified production property") — a niche provision worth a conversation if you are building one.
Plan with Certainty
For the first time since 2017, there is no shrinking percentage to race. Whether you buy one asset this year or ten over the next decade, 100% bonus depreciation applies to all of them under current law. Focus on deal and asset quality, not tax deadlines.
What Assets Qualify
The controlling rule: bonus depreciation applies to property with a MACRS recovery period of 20 years or less. Eligible assets fall into these categories:
Tangible Personal Property
Machinery, equipment, vehicles, furniture, computers, and tools with a recovery period of 20 years or less under MACRS. Examples: manufacturing equipment, office furniture, diagnostic equipment in medical practices, restaurant equipment, and 5/7-year components identified in a cost segregation study (appliances, carpeting, cabinetry, dedicated electrical).
Qualified Improvement Property (QIP)
Improvements to the interior of nonresidential real property (retail stores, office buildings, warehouses) placed in service after the building itself. QIP has a 15-year recovery period and fully qualifies for bonus depreciation. Excluded: building enlargements, elevators/escalators, and internal structural framework.
Land Improvements (15-Year Property)
Parking lots, sidewalks, curbing, fencing, landscaping, outdoor lighting, and drainage systems carry a 15-year MACRS life — which puts them under the 20-year ceiling and makes them bonus-eligible. This is one of the largest categories a cost segregation study typically reclassifies.
Used Property
Since 2018, used property qualifies if it is "new to you" — you did not previously own or use it. Used machinery, vehicles, equipment, and acquired buildings' qualifying components are all eligible, which is invaluable for businesses and investors buying secondhand assets.
What Does NOT Qualify
Land itself, structural components of buildings (27.5-year residential / 39-year commercial — walls, roof, foundation), intangible assets (patents, copyrights), and property used predominantly outside the United States do not qualify.
Cost Segregation Is the Real Estate Unlock
A building doesn't qualify for bonus depreciation — but 20-40% of what's inside and around it usually does. A cost segregation study is the engineering analysis that identifies and documents those components. See our complete cost segregation guide for how studies work, what they cost, and real ROI numbers.
Read the full cost segregation study guide for the component-by-component breakdown.
Section 179 vs Bonus Depreciation
Section 179 and bonus depreciation both allow first-year expensing, but they are distinct mechanisms with different limits. The OBBBA also raised the Section 179 cap to $2,560,000 for 2026 (more than double the prior limit), so both tools are stronger than ever:
| Feature | Section 179 | Bonus Depreciation | Winner |
|---|---|---|---|
| Annual Limit | $2,560,000 (2026, raised by OBBBA) / indexed annually | No annual limit | Bonus |
| Taxable Income Requirement | Limited to taxable income (carryforward allowed) — cannot create a loss | No income limitation — can create or increase a net loss | Bonus |
| Asset Types | Tangible personal property, some real property improvements | Property with a MACRS recovery period of 20 years or less, including QIP and land improvements | Bonus |
| Used Property Eligible | Yes | Yes (since 2018, if "new to you") | tie |
| When to Use | Targeted expensing of specific assets; state conformity is often better | Most businesses — 100% with no cap, permanently, under the OBBBA | Bonus |
When to prioritize each: bonus depreciation has no dollar cap and no income limitation, so for most businesses it does the heavy lifting. Section 179 still earns its keep for targeted elections — particularly in states that do not conform to federal bonus depreciation but do allow Section 179, and for taxpayers who want asset-by-asset control instead of the class-by-class all-or-nothing of bonus. If you need the deduction to create a loss (common in real estate), only bonus depreciation can do that.
Coordinate, Don't Choose
These deductions can be used together. A common plan applies Section 179 to specific assets first, then 100% bonus depreciation to everything else. The ordering affects state taxes, the QBI deduction, and loss limitations — model it before filing.
Not Sure About Your Tax Structure?
Talk to a Taxstra CPA about your income level and get a custom tax optimization plan.
Find Out What You're Overpaying in Taxes
Book a free 30-minute call to walk through your situation. We'll tell you exactly how our CPA-led team can help — and whether we're the right fit.
What to Expect on the Call
Vehicle Deduction Rules
Business vehicles can qualify for bonus depreciation, but the rules split sharply at 6,000 lbs GVWR (Gross Vehicle Weight Rating) because of the Section 280F "luxury auto" limits.
| Under 6,000 lbs GVWR | Over 6,000 lbs GVWR | |
|---|---|---|
| Rule that applies | Section 280F luxury auto caps | Exempt from luxury auto caps |
| Year 1 deduction | Capped at roughly $20,000 (indexed annually), no matter the price | 100% bonus depreciation on the business-use portion |
| Examples | Sedans, most crossovers | Heavy SUVs, full-size trucks and vans |
The Heavy Vehicle ("Hummer") Loophole
Vehicles over 6,000 lbs GVWR are exempt from the luxury auto limits under Section 280F(d)(4) — which means, with 100% bonus depreciation restored, a qualifying heavy SUV or truck used 100% for business can be fully written off in Year 1. A contractor buying a $70,000 heavy truck for business use can deduct the entire $70,000; the same money spent on a sedan would be capped at roughly $20,000 in the first year.
Business Use Percentage Requirement
Only the business-use portion of the vehicle is deductible, and business use must stay above 50% — documented with a mileage log — or prior deductions get recaptured. Commuting is not business use. A G-Wagon that mostly does school runs is not a tax strategy; it's an audit finding.
Vehicle Documentation
Keep detailed mileage logs showing business miles, dates, locations, and business purpose. The IRS scrutinizes vehicle deductions heavily; contemporaneous documentation is your audit defense.
What 100% Bonus Depreciation Means for Real Estate Investors
No group benefits from the OBBBA restoration more than real estate investors. The building itself never qualifies — but pair the purchase with a cost segregation study and the math transforms. A $1,000,000 rental with $300,000 of accelerated components (a typical 30% reclassification) generates roughly a $325,000 total Year 1 deduction at 100% bonus — versus about $36,000 with straight-line depreciation alone, and only ~$170,000 under the old 40% transition rate.
That also means the short-term rental loophole is back at full strength: an STR that would have produced $100K-$120K of paper losses during the phase-down years can now produce $250K or more, available against W-2 income when the owner materially participates. For Real Estate Professional Status holders, cost segregation at 100% bonus remains the single most powerful tax-reduction combination available.
The Window Is Wide Open — Permanently
During the phase-down years there was real pressure to close before the rate dropped. That pressure is gone. The 100% rate applies to acquisitions and capital improvements alike, with no deadline — so underwrite deals on fundamentals and let the depreciation follow.
One caveat: whether those paper losses offset your other income depends on the passive activity rules, not on bonus depreciation itself. Losses from a regular rental are passive unless you qualify for REPS or the STR exception — plan the qualification path before ordering the study.
Strategic Planning Approaches
With permanence in place, bonus depreciation planning shifts from "beat the deadline" to "place the deduction where it does the most good."
Strategy 1: Match Deductions to High-Income Years
A $250,000 deduction is worth far more against income taxed at 37% than at 22%. Because you can elect out of bonus depreciation by asset class, the right answer in a down year is sometimes to decline bonus and bank regular depreciation for the rebound years. Permanence makes this timing flexibility usable — there is no expiring rate forcing your hand.
Strategy 2: Cost Segregation Studies on Real Property
For substantial investments in real estate (offices, warehouses, rentals, STRs), a cost segregation study identifies the 5-, 7-, and 15-year components eligible for 100% bonus. A $5 million warehouse investment might identify $1-1.5 million in qualifying property — now fully deductible in Year 1. Properties bought in prior years without a study can catch up via a look-back study and Form 3115.
Strategy 3: Placed in Service Means In Service
The deduction lands in the year the asset is ready and available for use — not the year you signed or paid. A rental that closes December 28 but isn't furnished and listed until February generally hasn't been placed in service for the earlier year. If you want the deduction this year, year-end purchases need year-end execution.
Strategy 4: Coordinate with Pass-Through Entities and State Taxes
For S-corporations and partnerships, bonus depreciation flows through to owners' personal returns, creating opportunities to offset ordinary income. But watch state conformity: many states (California and New York among them) do not conform to federal bonus depreciation and force an add-back. The federal deduction is usually still worth it — just don't be surprised by the state return.
Action Items for 2026
Identify planned capital investments and confirm placed-in-service timing. Order cost segregation studies for property acquired after January 19, 2025. File Form 3115 look-backs for older properties that never had a study. Model Section 179 vs bonus ordering, state conformity, and loss limitations before year-end.
Depreciation Recapture Implications
Depreciation deductions are not permanent tax reductions — they are timing mechanisms. When you sell a depreciable asset, depreciation previously claimed is recaptured: as ordinary income at rates up to 37% for Section 1245 personal property, plus potential 3.8% Net Investment Income Tax.
Example: You purchase equipment for $50,000 in 2026 and claim 100% bonus depreciation — a $50,000 deduction, bringing your basis to $0. In 2028, you sell the equipment for $45,000. The entire $45,000 gain is Section 1245 recapture, taxed as ordinary income. The 2026 deduction was real and valuable — but the exit has a tax bill, and it should be priced into your sale decision.
Recapture Tax Impact
The effective recapture rate is often 30-40% (ordinary income plus net investment income tax). Bonus depreciation works best for assets you intend to hold — or, for real estate, where a 1031 exchange defers recapture into the replacement property. Model the after-tax exit before claiming large deductions on assets you may sell within a few years.
Section 1245 vs Section 1250
Section 1245 Property (Personal Property): Equipment, vehicles, machinery, and 5/7-year cost-seg components. All depreciation is recaptured as ordinary income. Gains above original cost are capital gains.
Section 1250 Property (Real Property): Buildings and structural improvements. Straight-line depreciation on real property is recaptured at a maximum 25% rate ("unrecaptured Section 1250 gain") — a permanent rate advantage when deductions were taken at 37%.
Plan the Exit Before You Take the Deduction
Hold periods, 1031 exchanges, and the step-up in basis at death all change the recapture math. The strategy is strongest for assets you intend to keep — or for investors who plan to keep deferring through the next acquisition.
How Taxstra Optimizes Your Depreciation
Bonus depreciation requires meticulous planning and documentation. Taxstra CPA specialists help businesses capture maximum deductions while managing recapture risk and ensuring audit defensibility.
Comprehensive Asset Tracking
We maintain detailed fixed asset schedules for all business property, tracking cost, date placed in service, useful life, and depreciation methods. This documentation is critical for audit defense and ensures you claim every qualifying deduction while avoiding double-deductions.
Cost Segregation Coordination
For substantial real property investments, Taxstra coordinates engineering-based cost segregation studies, identifying components qualifying for 100% bonus depreciation. We quantify tax savings, file Form 3115 for look-back studies, and model recapture timing. See our cost segregation study service.
Timing and Election Optimization
We analyze your cash flow and taxable income to optimize when assets are placed in service and which elections maximize savings — coordinating bonus depreciation, Section 179, elect-outs by asset class, and state conformity adjustments.
Recapture Modeling
Before claiming large depreciation deductions, we model the after-tax impact of recapture, especially if you anticipate selling the business or assets. We help you balance current-year tax savings against future sale implications.
Audit Defense Documentation
Depreciation deductions are common IRS audit triggers. We maintain thorough documentation of asset identification, valuation, dates placed in service, and depreciation computations. Should you face an audit, our records defend your position.
Strategic Advantage
Bonus depreciation can generate $50K-$500K+ in deductions in the first year alone, depending on asset purchases. By combining comprehensive planning, cost segregation, timing optimization, and recapture modeling, Taxstra helps businesses capture the full benefit of depreciation while protecting long-term tax position.
Frequently Asked Questions
Related Resources
Let Taxstra Optimize Your Tax Strategy
Our CPA-led team at Taxstra will review your situation and build a clear tax plan. The 30-minute discovery call is free — no obligation.
Find Out What You're Overpaying in Taxes
Book a free 30-minute call to walk through your situation. We'll tell you exactly how our CPA-led team can help — and whether we're the right fit.