Bonus Depreciation 2026: 100% Is Back and Permanent

Yes, bonus depreciation is 100% again. The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, permanently reinstated 100% first-year bonus depreciation under Section 168(k) for qualified property acquired and placed in service after January 19, 2025. There is no new phase-out scheduled. For the first time since the provision was originally created, 100% expensing is a permanent fixture of the tax code rather than a temporary measure.

What Changed and Why It Matters

To understand why this is significant, it helps to trace the arc of bonus depreciation over the past decade.

The Tax Cuts and Jobs Act of 2017 (TCJA) introduced 100% first-year bonus depreciation for qualified property placed in service after September 27, 2017, and before January 1, 2023. That rate was always set to phase down: 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026, before disappearing entirely in 2027. Businesses that had built capital expenditure plans around full expensing had to recalibrate as the phase-down took effect.

The OBBBA ended that uncertainty. For property acquired after January 19, 2025, the deduction is 100% with no expiration date. Congress made this permanent, meaning businesses can now plan multi-year capital programs with confidence that the full deduction will still be available when assets are placed in service.

The Transition Window in Early 2025

The effective date creates a split in 2025 that finance teams need to track carefully. Property placed in service between January 1 and January 19, 2025 was still subject to the old 40% phase-down rate. Property placed in service on or after January 20, 2025 qualifies for 100%, provided it was also acquired after January 19, 2025. A binding written contract dated before January 20, 2025 locks in the pre-OBBBA rate regardless of when the asset is physically placed in service.

For most mid-market companies, this means any capital purchases made from late January 2025 onward carry the full deduction. If your 2025 tax return is not yet filed, confirming which assets fall on which side of the cutoff is a prerequisite to claiming the right amount.

Qualified Property: What Counts

The definition of qualified property under the OBBBA is consistent with prior bonus depreciation rules. Eligible assets include:

• Tangible depreciable property with a recovery period of 20 years or less (machinery, equipment, computers, certain vehicles, office furniture)
• Qualified improvement property (interior improvements to nonresidential buildings, 15-year life)
• New and used property, as long as the taxpayer or a predecessor has not previously used the property
• Specified plants (trees, vines) newly planted or grafted after the effective date
• Qualified sound recording productions where principal recording commences in taxable years ending after July 4, 2025

Property that does not qualify includes real property with a recovery period greater than 20 years (standard commercial buildings, land improvements with longer lives), property used predominantly outside the United States, and property placed in service under certain long-term contracts entered before the cutoff.

Qualified Production Property: A New Category

The OBBBA also introduced a separate provision under new Section 168(n): 100% first-year expensing for nonresidential real property classified as qualified production property (QPP). This is a significant carve-out. Manufacturing facilities, production plants, and facilities used in refining or processing activities typically depreciate over 39 years. Under QPP, those building costs can be fully expensed in year one.

The QPP provision comes with conditions. Construction must begin after January 19, 2025, and before January 1, 2029, with the property placed in service before January 1, 2031. A 10-year recapture rule applies. If the property ceases to be used for qualified production within a decade of being placed in service, a portion of the deduction is recaptured as ordinary income. The IRS issued Notice 2026-16 on February 20, 2026, providing interim guidance on QPP, with proposed regulations still pending.

Section 179 and How It Interacts

Section 179 was also expanded under the OBBBA and now runs alongside bonus depreciation as a permanent, inflation-adjusted expensing option. The 2026 deduction limit is $2,560,000, with a phase-out beginning at $4,090,000 of qualifying property placed in service during the year. Both figures are indexed annually for inflation going forward.

The practical difference between the two tools matters for planning. Section 179 cannot create or increase a net operating loss, while bonus depreciation can. Section 179 is also capped at taxable income from active business activity. For companies with large capital programs that may push them into a loss position, bonus depreciation is usually the preferred first lever. For companies that want targeted deductions on specific assets without affecting their overall tax position as aggressively, Section 179 provides more control.

A well-structured capital expenditure plan considers both in sequence: use Section 179 to maximize deductions on assets where the taxable income limitation is not a constraint, then layer bonus depreciation on top for remaining qualified property.

IRS Guidance: Notice 2026-11

The Treasury and IRS issued Notice 2026-11 on January 14, 2026, providing interim guidance on the OBBBA bonus depreciation rules. The notice confirms that taxpayers may continue relying on existing additional first-year depreciation regulations while final rules are developed. It also describes the transition elections available to taxpayers who prefer to use a lower rate (40% or 60% for long-production-period property and certain aircraft) rather than 100% for property placed in service during the first tax year ending after January 19, 2025.

Those elections might make sense in limited situations, for example if a business expects significantly higher taxable income in future years and would prefer to spread deductions forward, or if state tax conformity issues make 100% bonus depreciation counterproductive at the state level. Not every state conforms to federal bonus depreciation rules, and some states that do conform may have their own carryforward or add-back requirements. Confirming state-level treatment is a necessary step before finalizing the federal strategy.

Planning Around Bonus Depreciation 2026 and Beyond

The permanent status of 100% bonus depreciation changes how finance leaders should approach capital budgeting. A few areas where the impact is most direct:

Accelerated equipment replacement. Under the prior phase-down, deferring a purchase from 2024 to 2025 cost 20 percentage points of first-year deductibility. Under the OBBBA, there is no longer a tax incentive to rush or defer purchases within a given year for depreciation purposes. The full deduction is available whenever the asset is acquired and placed in service.

Real estate and manufacturing investment. QPP opens a path to 100% first-year expensing on what were formerly 39-year assets. For companies considering new manufacturing facilities or major production infrastructure, the after-tax economics of building versus leasing have shifted substantially. The NPV of a 100% first-year deduction on a $20 million facility is materially different from spreading that deduction over 39 years.

Entity structure and tax position. Pass-through entities that generate large bonus depreciation deductions in excess of their taxable income will create losses that flow to individual owners. Those losses may be subject to the passive activity rules or at-risk limitations depending on owner involvement. Modeling the full impact at the individual level, not just the entity level, is important before committing to an aggressive expensing strategy.

Lease vs. buy decisions. When financing costs are elevated and cash preservation matters, the option to fully expense purchased assets rather than lease them becomes more attractive. The tax value of a first-year deduction effectively reduces the after-tax cost of ownership, sometimes enough to tip the analysis in favor of purchase.

For companies working through these decisions, our advisory team and outsourced CFO services can model the full after-tax impact of different capital allocation scenarios.

What to Do Now

If your organization has placed qualifying assets in service after January 19, 2025, and you have not yet filed or finalized your 2025 return, confirm that those assets are correctly classified and that you are claiming the 100% rate. For calendar-year taxpayers, 2025 returns filed on extension are due September 15, 2026 for most pass-throughs and October 15, 2026 for C corporations and individuals.

Looking ahead, the permanent status of this provision justifies updating your company’s capital expenditure policy to reflect the new tax treatment. Fixed asset registers, depreciation schedules, and budgeting models that still assume phase-down rates should be refreshed. Deferred tax calculations for financial reporting purposes should also be updated to reflect the change in timing differences.

For official IRS guidance, see Notice 2026-11 on IRS.gov and the underlying Notice 2026-11 PDF.

Our client accounting services team maintains current depreciation schedules across client engagements and can flag misclassifications before they become filing errors.

Related reading: Beneficial Ownership Reporting: What the CTA Rules Mean Now

Frequently Asked Questions

Is bonus depreciation still 100% in 2026?

Yes. Under the One Big Beautiful Bill Act signed on July 4, 2025, bonus depreciation is permanently set at 100% for qualified property acquired and placed in service after January 19, 2025. There is no scheduled phase-down.

What property qualifies for 100% bonus depreciation in 2026?

Qualified property includes tangible depreciable assets with a recovery period of 20 years or less, including machinery, equipment, computers, certain vehicles, qualified improvement property, and used property the taxpayer has not previously used. Newly introduced qualified production property (manufacturing facilities) is eligible under a separate provision with different rules and time limits.

Does the OBBBA bonus depreciation apply to property purchased in 2023 or 2024?

No. The reinstatement is not retroactive. Property placed in service in 2023 is limited to 80% bonus depreciation, 2024 property is limited to 60%, and property placed in service in the first 19 days of 2025 is limited to 40%. The 100% rate applies only to property acquired and placed in service after January 19, 2025.

How does 100% bonus depreciation interact with Section 179 in 2026?

Both provisions allow immediate first-year expensing. Section 179 has an annual deduction cap ($2,560,000 for 2026) and cannot create a net operating loss. Bonus depreciation has no dollar cap and can produce a loss. Most businesses apply Section 179 first on targeted assets, then layer bonus depreciation on remaining qualified property to maximize the benefit without running into Section 179’s taxable income limitation.

Do all states conform to the federal 100% bonus depreciation rules?

No. State conformity varies significantly. Some states follow federal bonus depreciation rules, others decouple and require addbacks, and a few have their own partial conformity rules. California, for example, has historically disallowed bonus depreciation entirely for state purposes. Before relying on federal expensing to reduce state taxes, confirm your state’s current conformity status with a qualified tax advisor.

What is the transitional election under OBBBA, and when would I use it?

Taxpayers may elect to apply a 40% rate (60% for certain long-production-period property and aircraft) rather than 100% for property placed in service in the first tax year ending after January 19, 2025. This election might be appropriate if a business expects higher income in future years and wants to defer deductions, or if claiming 100% would trigger undesirable state tax consequences. It requires deliberate analysis rather than a default choice.