For business property placed in service in 2026, bonus depreciation is 100%. The One Big Beautiful Bill Act, signed on July 4, 2025, restored full first-year expensing for qualifying property acquired after January 19, 2025, and made it permanent.1Internal Revenue Service. One, Big, Beautiful Bill Provisions Buy a qualifying asset in 2026, put it into service that year, and you can deduct the entire cost on your 2026 return.
What the OBBBA Changed
Under the Tax Cuts and Jobs Act, bonus depreciation was scheduled to keep shrinking: 60% in 2024, 40% in 2025, 20% in 2026, and gone by 2027.2Internal Revenue Service. Tax Cuts and Jobs Act: A Comparison for Businesses The OBBBA scrapped that phase-down and set the deduction at a permanent 100% for qualified property acquired after January 19, 2025.3Internal Revenue Service. Notice 2026-11 – Interim Guidance on Additional First Year Depreciation Deduction under Section 168(k) There is no scheduled sunset.
The 100% deduction applies to the adjusted basis of the property, which is generally what you paid including sales tax and delivery. At 100%, there is no basis left to depreciate in later years. The entire cost hits your 2026 return.
What Property Qualifies in 2026
Bonus depreciation covers property depreciated under the Modified Accelerated Cost Recovery System with a recovery period of 20 years or less.4Internal Revenue Service. Additional First Year Depreciation Deduction (Bonus) – FAQ In practice, that reaches most tangible assets a business would buy:
- Machinery and equipment
- Computers and office technology
- Furniture and specialized tools
- Land improvements such as fences and parking lots (15-year recovery)
- Qualified improvement property: interior upgrades to non-residential buildings, including new lighting, HVAC, and plumbing installed after the building was first placed in service
Structural changes like building expansions or enlargements do not qualify, because they carry longer recovery lives. Buildings themselves are outside the 20-year threshold and are not eligible.
Used equipment counts, with two conditions: you must acquire it from an unrelated party, and it must be the first time you have used that specific asset in your business.4Internal Revenue Service. Additional First Year Depreciation Deduction (Bonus) – FAQ A secondhand machine from another company works. Shifting equipment between related entities you already own does not.
The More-Than-50% Business Use Rule
The asset must be used more than 50% for qualified business purposes in the year it is placed in service. The rule matters most for listed property, which includes passenger vehicles, business aircraft, and property used for entertainment or recreation.5Internal Revenue Service. Publication 946 (2024), How To Depreciate Property If business use never reaches that threshold, the asset qualifies for neither bonus depreciation nor Section 179.
The exposure continues after year one. If business use drops to 50% or below in any later year during the recovery period, you switch to straight-line depreciation for that year and recapture the excess depreciation you claimed earlier, reporting the difference as ordinary income.5Internal Revenue Service. Publication 946 (2024), How To Depreciate Property A truck used 60% for business the year you buy it, then mostly for personal driving the next year, will trigger a recalculation and a tax bill.
Vehicle Limits for 2026
Passenger vehicles run into a hard cap under Section 280F regardless of how much you paid. For cars and light trucks placed in service in 2026, the maximum first-year depreciation deduction, including bonus, is $20,300. Without bonus depreciation, the first-year cap drops to $12,300.
Heavy vehicles are treated differently. SUVs, vans, and pickups with a gross vehicle weight rating above 6,000 pounds but no more than 14,000 pounds sit outside the passenger auto caps. Section 179 on one of these vehicles is capped at $32,000 for 2026, but bonus depreciation has no such dollar cap on heavy vehicles. A qualifying $80,000 SUV over 6,000 pounds GVWR placed in service in 2026 can be fully expensed through bonus depreciation.
Vehicles above 14,000 pounds GVWR, such as commercial trucks and heavy-duty work vehicles, are exempt from both the passenger auto limits and the SUV cap. They qualify for full bonus depreciation under the standard rules.
Bonus Depreciation and Section 179 Together
Section 179 and bonus depreciation both let you write off equipment upfront, and most businesses use them together. The order matters: you claim Section 179 first, apply bonus depreciation to whatever basis remains, and then calculate regular MACRS depreciation on anything left.6Internal Revenue Service. Topic No. 704, Depreciation
For 2026, the Section 179 deduction limit is $2,560,000, with a phase-out that begins once qualifying purchases exceed $4,090,000 and ends completely at $6,650,000. Section 179 also has an income limitation that bonus depreciation does not: your Section 179 deduction cannot exceed your taxable income from active business operations for the year, and unused amounts carry forward.7eCFR. 26 CFR 1.179-2 – Limitations on Amount Subject to Section 179 Election
Bonus depreciation has no annual dollar cap and no income limitation. It can create or increase a net operating loss; Section 179 cannot. For a business buying under $2.5 million in equipment, both routes usually get you to a full year-one deduction. The distinction matters most when purchases are large or business income is low relative to what you are buying.
What Happens When You Sell the Asset
Taking 100% bonus depreciation drops the asset’s adjusted basis to zero in year one. When you later sell, the sale price up to your original cost is recaptured as ordinary income under Section 1245, taxed at your regular rate rather than capital gains rates. For individuals, that can reach 37%.
This is not a reason to avoid bonus depreciation, but it changes the arithmetic on assets you plan to resell before they wear out. A $200,000 piece of equipment fully expensed in 2026 and sold two years later for $120,000 produces $120,000 of ordinary income. The benefit is the deferral: you had use of the tax savings in the meantime. For assets you will run into the ground, recapture never comes into play.
When to Elect Out
Bonus depreciation is not mandatory. You can elect out and instead depreciate the property over its normal recovery period, which some businesses prefer when they expect higher tax brackets in future years or want to avoid generating a net operating loss. The election applies to every asset in the same class placed in service that year; you cannot pick individual assets within a class.4Internal Revenue Service. Additional First Year Depreciation Deduction (Bonus) – FAQ
The election is made by filing a statement with Form 4562 by the due date of your return, including extensions, for the year the property was placed in service. A transitional election under Section 168(k)(10) allowed 40% instead of 100% for the first tax year ending after January 19, 2025, but that middle-ground option applied only to that single transition year.3Internal Revenue Service. Notice 2026-11 – Interim Guidance on Additional First Year Depreciation Deduction under Section 168(k) For property placed in service in 2026, the choice is 100% or elect out entirely.
State Tax Conformity
Your federal bonus depreciation deduction does not automatically flow through to your state return. Every state that taxes income starts from the federal code, but many decouple from specific provisions, and bonus depreciation is one of the most common areas where state law diverges. Roughly 15 states allow the same first-year expensing as the federal government, and several others require partial or full add-backs on the state return.
States with rolling conformity, about 20 for individual income tax and 26 for corporate, automatically pick up federal changes, so the OBBBA’s permanent 100% expensing flows through without separate state legislation. States with static conformity are pinned to the federal code as of a specific date and will not reflect the OBBBA until their legislatures update that date. If your state requires an add-back, you claim the full deduction federally and add some or all of it back as income on your state return, recovering it through regular depreciation over subsequent years. Check your state’s current conformity position before assuming the two returns will match.
How to Claim It on Form 4562
Bonus depreciation is reported on IRS Form 4562, Depreciation and Amortization.8Internal Revenue Service. About Form 4562, Depreciation and Amortization (Including Information on Listed Property) For each asset you need a description of the property, the date it was placed in service, and your cost basis. Multiply the basis by the bonus percentage, which is 100% for anything acquired after January 19, 2025, and enter the result on the correct line.
Form 4562 attaches to whichever return your business files. Sole proprietors include it with Form 1040; C corporations attach it to Form 1120.9Internal Revenue Service. 2025 Instructions for Form 4562 Depreciation and Amortization Most tax software populates the form once you enter the asset details. Keep purchase invoices, freight bills, and installation receipts; the IRS checks that the basis you report matches your records, and errors in the placed-in-service date can push your deduction into the wrong tax year.
Electronically filed returns are generally processed within 21 days, while paper returns take significantly longer given the current backlog.10Internal Revenue Service. Processing Status for Tax Forms If your documentation is clean, e-filing is worth the minor effort.