No, bonus depreciation is not going away. The One Big Beautiful Bill Act, signed into law on July 4, 2025, permanently restored the 100 percent first-year depreciation deduction for qualifying business property acquired after January 19, 2025.1Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One Big Beautiful Bill The scheduled phase-out that had already dropped the deduction to 60 percent in 2024 and would have zeroed it out in 2027 is gone for property acquired on or after that date. Older acquisitions still follow the old declining schedule, so the answer for any given asset depends on when you bought it.
What Permanent Means Under the New Law
The OBBB Act eliminated the annual step-down that had been reducing bonus depreciation by 20 points each year since 2023.1Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One Big Beautiful Bill There is no new sunset date. For property acquired after January 19, 2025, you can deduct 100 percent of the cost in the first year the asset is placed in service, indefinitely.
The trigger is the acquisition date, not the placed-in-service date. If your business entered into a binding contract to buy equipment before January 20, 2025, that property follows the old TCJA percentages regardless of when you actually start using it.2Internal Revenue Service. Notice 2026-11 – Interim Guidance on Additional First Year Depreciation Deduction Under Section 168(k) Property acquired after that date gets the full 100 percent. This catches people off guard because the old TCJA schedule was built around placed-in-service dates.
Used property still qualifies. As long as the asset is new to your business and you didn’t buy it from a related party, it can be pre-owned and still receive 100 percent bonus depreciation.
The Old Phase-Out Schedule for Earlier Acquisitions
For property acquired before January 20, 2025, the TCJA’s declining percentages still control, keyed to the year the asset was placed in service:
- Before January 1, 2023: 100 percent
- 2023: 80 percent
- 2024: 60 percent
- 2025: 40 percent
- 2026: 20 percent
- 2027 and after: 0 percent
These rates apply only to property acquired under the old rules.2Internal Revenue Service. Notice 2026-11 – Interim Guidance on Additional First Year Depreciation Deduction Under Section 168(k) If you signed a binding purchase contract in December 2024 but didn’t place the equipment in service until 2025, that asset receives only the 40 percent deduction. An identical piece of equipment acquired in February 2025 and placed in service the same month gets 100 percent. The exact timing of the purchase agreement is what decides it.
Long Production Period Property and Certain Aircraft
Assets with production periods exceeding the normal timeline, along with certain non-commercial aircraft, follow a slightly different track. Under the OBBB Act, taxpayers who acquired this type of property after January 19, 2025, and placed it in service during their first tax year ending after that date may elect a reduced 60 percent deduction instead of the full 100 percent.2Internal Revenue Service. Notice 2026-11 – Interim Guidance on Additional First Year Depreciation Deduction Under Section 168(k) To qualify as long production period property, an asset generally must have a recovery period of at least 10 years and be subject to the uniform capitalization rules with an extended production timeline.3Office of the Law Revision Counsel. 26 USC 168 – Accelerated Cost Recovery System
What Property Still Qualifies
Bonus depreciation applies to tangible business property depreciated under the Modified Accelerated Cost Recovery System with a recovery period of 20 years or less.3Office of the Law Revision Counsel. 26 USC 168 – Accelerated Cost Recovery System That covers a broad swath of business assets: computers, machinery, office furniture, manufacturing equipment, and most tangible personal property used in a trade or business. Qualified improvement property also qualifies, covering interior renovations to nonresidential buildings as long as the work doesn’t involve enlarging the building, installing elevators or escalators, or modifying the internal structural framework.
Several categories are specifically excluded. Public utility property that doesn’t use normalization accounting cannot claim bonus depreciation. Property used primarily in certain businesses described under the business interest limitation rules is also excluded, as is property financed with floor plan financing where the interest was deducted under those same rules.3Office of the Law Revision Counsel. 26 USC 168 – Accelerated Cost Recovery System The asset has to be used in a trade or business or for the production of income.
Passenger Vehicles Are Still Capped
The “deduct the full cost” promise has one big exception people miss. Federal law caps the first-year depreciation deduction for cars, trucks, and vans rated at 6,000 pounds gross vehicle weight or less, regardless of the bonus depreciation percentage in effect.4Internal Revenue Service. 2025 Instructions for Form 4562 (Draft) For 2026, the first-year cap is $20,300 when bonus depreciation applies and $12,300 when it does not. The remaining cost is spread over later years, subject to annual caps of $19,800 in year two, $11,900 in year three, and $7,160 for each year after that.
Heavier vehicles work differently. SUVs and trucks with a gross vehicle weight rating above 6,000 pounds are not classified as passenger automobiles, so the annual dollar caps don’t apply, and they can receive full bonus depreciation on their entire cost. If you claim a Section 179 deduction on the same vehicle, a separate $31,300 cap applies to the Section 179 portion for SUVs weighing between 6,001 and 14,000 pounds.4Internal Revenue Service. 2025 Instructions for Form 4562 (Draft) Any remaining cost above that amount can still be claimed through bonus depreciation or regular MACRS depreciation.
Federal Permanence Does Not Mean State Permanence
Restoring federal bonus depreciation permanently doesn’t guarantee the same deduction on your state return. States handle conformity with federal tax law in different ways: some adopt federal changes automatically, some lock to the Internal Revenue Code as of a specific date, and others pick and choose which provisions to follow. A significant number of states have explicitly decoupled from the OBBB Act’s bonus depreciation restoration, requiring businesses to add back some or all of the federal deduction when calculating state taxable income. California, Colorado, Delaware, Illinois, Michigan, and the District of Columbia are among the jurisdictions that have limited or blocked the federal bonus depreciation deduction for state purposes. Check your state’s current conformity status before assuming the federal deduction reduces your state tax bill by the same proportion.