100% bonus depreciation is back and permanent for qualifying business property acquired after January 19, 2025, under the One Big Beautiful Bill Act. The deduction lets a business write off the full eligible cost of qualifying property in the first year it is placed in service. It is a deduction that reduces taxable income, not a credit that reduces tax dollar for dollar. For 2026, the 100% rate applies automatically to eligible property placed in service during the year unless the business elects out by class of property.
Table of Contents
- What changed with the One Big Beautiful Bill Act and bonus depreciation?
- How do Section 179 and bonus depreciation work together in 2026?
- What property qualifies for 100% bonus depreciation?
- Why does the "placed in service" date matter before December 31?
- Can bonus depreciation create a net operating loss?
- How do state rules affect the 100% bonus depreciation deduction?
- How can a business owner plan the 2026 depreciation strategy?
- Key Takeaways
- References
What changed with the One Big Beautiful Bill Act and bonus depreciation?
The One Big Beautiful Bill Act (OBBBA) became law on July 4, 2025, and permanently reinstated the 100% bonus depreciation rate for eligible business property. According to Bloomberg Tax, property acquired after January 19, 2025, qualifies for the full 100% rate, while property acquired between January 1 and January 19, 2025, falls under the old 40% rate from the Tax Cuts and Jobs Act.
The Treasury and IRS issued Notice 2026-11 on January 14, 2026, providing formal guidance on the permanent additional first year depreciation deduction. The IRS confirmed that OBBBA provides a permanent 100% additional first year depreciation deduction for qualified property acquired after January 19, 2025.
Before OBBBA, the bonus depreciation rate had been scheduled to phase down. U.S. Bank notes the rate was 100% in 2021 and 2022, then dropped to 80% in 2023 and 60% in 2024. The new law reversed that trajectory and made the 100% rate permanent rather than temporary.
How do Section 179 and bonus depreciation work together in 2026?
Section 179 is applied first to eligible property, then bonus depreciation applies automatically to the remaining basis unless the business elects out by class of property. According to Section179.org, the election out of bonus depreciation is typically an all-or-nothing decision by class of property, not an item-by-item choice.
For 2026, the Section 179 maximum deduction is $2,560,000, with the phase-out beginning above $4,090,000 of total qualifying property placed in service. Full phase-out occurs at $6,650,000. These figures come from Section179.org, which tracks the annual inflation adjustments.
The key difference between the two deductions is the income limitation. Section 179 is limited to annual taxable business income, while bonus depreciation can create or increase a net operating loss. Bloomberg Tax confirms that bonus depreciation has no annual dollar limit and is not capped by business income.
Section 179 is a permanent part of the tax code with annual inflation adjustments. Bonus depreciation is now also permanent under OBBBA, ending the uncertainty of scheduled phase-downs. U.S. Bank reports the Section 179 limit was $2,500,000 in 2025 and $2,560,000 in 2026.
What property qualifies for 100% bonus depreciation?
Bonus depreciation applies to both new and used property, but used property must be first use by the purchasing business. According to U.S. Bank, the first-use rule means the business claiming the deduction cannot have previously used the property before acquiring it.
Qualified property generally has a recovery period of 20 years or less, which covers most equipment, machinery, computers, and certain improvements. Section179.org confirms that bonus depreciation applies to both new and used property with a recovery period of 20 years or less.
A new provision under OBBBA extends 100% bonus depreciation to qualified production property. Bloomberg Tax explains this covers specific instances of non-residential real estate intended for qualified production activities, including manufacturing, production, or refining that results in a substantial transformation of the property.
Qualified production property must have construction begun after January 19, 2025, and before January 1, 2029, and must be placed in service before January 1, 2031. The expanded depreciation is not available for foreign property, creating an incentive to invest in the United States.
Qualified sound recordings are also treated as eligible property. The IRS states that a qualified sound recording production is treated as acquired on the date principal recording commences and is considered placed in service at the time of initial release or broadcast.
Why does the "placed in service" date matter before December 31?
The deduction is claimed in the tax year the property is placed in service, not the year it is purchased or paid for. For 2026 planning, property must be placed in service by December 31, 2026, to claim the deduction on the 2026 return. According to Bloomberg Tax, the placed-in-service date determines which tax year receives the deduction.
The acquisition date also matters. Property acquired between January 1 and January 19, 2025, is limited to the 40% rate under the Tax Cuts and Jobs Act, while property acquired after that date gets the full 100% rate. Section179.org confirms that bonus depreciation is generally 100% for qualified property acquired and placed in service after January 19, 2025.
Filing deadlines shift year to year and should be confirmed for the current tax year. The placed-in-service cutoff for a calendar-year taxpayer is fixed at December 31. A business that wants the deduction on the 2026 return needs the property ready and available for its intended use before that date.
Can bonus depreciation create a net operating loss?
Yes, bonus depreciation can push a business into a net operating loss because it is not limited by taxable business income. Bloomberg Tax confirms that unlike Section 179, bonus depreciation can be used to create a net operating loss. Section 179 is capped at annual taxable business income.
A net operating loss can be carried forward to offset taxable income in future years, which changes the timing of the tax benefit. This makes bonus depreciation a more powerful planning tool for businesses expecting a strong year followed by leaner years. The mechanics depend on the full tax picture, including other deductions and credits.
The interaction between bonus depreciation and the Section 163(j) interest deduction limitation is not addressed in current IRS guidance. Section179.org notes that businesses with significant debt should review the full calculation with a tax professional before relying on the NOL outcome.
How do state rules affect the 100% bonus depreciation deduction?
Not all states conform to federal bonus depreciation rules. According to Bloomberg Tax, California, New York, New Jersey, and Pennsylvania do not conform to the federal treatment. California and New Jersey require a 100% addback of the federal bonus depreciation deduction, meaning the deduction is reversed for state purposes.
Businesses selling across state lines or holding property in multiple states need to track state-level treatment separately from the federal return. The federal 100% deduction does not automatically flow through to every state return. State-specific recovery methods vary, and a multi-state tax position should be reviewed before assuming the federal deduction applies everywhere.
For owners with operations in non-conforming states, the practical result is a timing difference. The federal return may show a large first-year deduction while the state return requires depreciation spread over multiple years. That difference needs to be tracked and reconciled each year.
How can a business owner plan the 2026 depreciation strategy?
Spencer Accounting Group provides strategic tax planning that builds the depreciation approach around where the business is heading, not just what happened last year. The firm's Strategic Tax Planning service reviews the full picture, including Section 179 elections, bonus depreciation, and state-level conformity, so the deduction is designed rather than discovered in April.
For owners with multi-state exposure, Spencer Accounting's Sales Tax Resolution and nexus review work complements the depreciation strategy by keeping state obligations current. A business that claims 100% bonus depreciation on the federal return while operating in non-conforming states needs both the federal calculation and the state addback handled correctly.
The goal is a tax position that is intentional and documented, not a surprise at filing time. Bloomberg Tax and Section179.org both emphasize that the interaction between Section 179, bonus depreciation, and state conformity requires planning before the placed-in-service date passes.
Key Takeaways
- OBBBA permanently reinstated 100% bonus depreciation for property acquired after January 19, 2025.
- Property acquired between January 1 and January 19, 2025, is limited to the 40% rate under the TCJA.
- The Section 179 maximum deduction for 2026 is $2,560,000, with a phase-out beginning at $4,090,000.
- Section 179 is limited by taxable income, while bonus depreciation can create a net operating loss.
- Bonus depreciation applies to new and used property, provided the used property is first use by the purchaser.
- California, New York, New Jersey, and Pennsylvania do not conform to federal bonus depreciation rules.
- The deduction is claimed in the year property is placed in service, making the December 31 cutoff critical for 2026 planning.
- This article is general information, not tax advice for a specific situation.
References
- From TCJA to OBBBA: Bonus Depreciation Strategy for 2026 and Beyond — Bloomberg Tax, published March 26, 2026
- Treasury, IRS issue guidance on the additional first year depreciation deduction amended as part of the One, Big, Beautiful Bill — IRS, published January 14, 2026
- Section 179 vs. Bonus Depreciation – Key Differences & 2026 Rules — Section179.org, published June 10, 2026
- Maximizing your deductions: Section 179 and Bonus Depreciation — U.S. Bank, date unknown