Is Bonus Depreciation Going Away? No: 100% Is Back and Permanent (2026 Update)
Updated October 2026. We first wrote this in 2023, when bonus depreciation was phasing down to zero. That phase-down is over. The One Big Beautiful Bill Act (Public Law 119-21, signed July 4, 2025) permanently restored 100% bonus depreciation for qualified property acquired after January 19, 2025. The IRS calls these provisions the “Working Families Tax Cuts.”
The short answer
- No, bonus depreciation isn’t going away. Qualified property acquired after January 19, 2025 is eligible for 100% bonus depreciation, with no scheduled end date.[1][3]
- The acquisition date matters. Property acquired before January 20, 2025, including property bought under a written binding contract signed before that date, stays on the old phase-down: 40% if placed in service in 2025.[2][10]
- You can still choose less. You can elect out of bonus depreciation by class of property. For your first tax year ending after January 19, 2025, you can also elect 40% (60% for certain longer-production property) instead of 100%.[1][6]
- Buildings still don’t qualify. Residential rental buildings (27.5 years) and commercial buildings (39 years) are depreciated over more than 20 years. Cost segregation is still how real estate investors get bonus depreciation on parts of a property.[6][8]
How we got here
| When the property was acquired or placed in service | Bonus depreciation |
|---|---|
| Acquired after September 27, 2017, placed in service through 2022 | 100% (Tax Cuts and Jobs Act) |
| Placed in service in 2023 | 80% |
| Placed in service in 2024 | 60% |
| Acquired before January 20, 2025 and placed in service in 2025 | 40% |
| Acquired after January 19, 2025 | 100%, permanent (One Big Beautiful Bill Act) |
Sources: IRS Notice 2026-11 and IR-2026-06.[1][2] Longer-production property and certain aircraft had their own schedule.
What is bonus depreciation?
Bonus depreciation (officially the “additional first year depreciation deduction” in Internal Revenue Code section 168(k)) lets a business deduct a percentage of a qualifying asset’s cost in the year it’s placed in service, instead of spreading it over 5, 7, 15 or 20 years. It was first introduced in 2002 to encourage business investment.
At 100%, you can write off the full cost of qualifying property in year one.
What qualifies for bonus depreciation?
Generally, property with a recovery period of 20 years or less, plus certain computer software.[6] Common examples:
- Equipment and machinery
- Computers and off-the-shelf software
- Furniture and fixtures
- Vehicles (passenger cars are subject to annual dollar caps)[8]
- Land improvements such as parking lots, fencing and landscaping (15-year property)
- Qualified improvement property: interior improvements to a nonresidential building made after the building was first placed in service (15-year property)[8]
Used property can qualify too, as long as you didn’t use it before and didn’t buy it from a related party.[6][8]
How do real estate investors use bonus depreciation?
A building itself doesn’t qualify, but a cost segregation study can split a property into components with shorter lives, such as 5- and 7-year personal property and 15-year land improvements. If you acquired the property after January 19, 2025, those components can qualify for 100% bonus depreciation.
Investors with large passive income streams can use those deductions to offset other passive income.
If you qualify for Real Estate Professional Status (REPS) or use the short-term rental (STR) exception, your rental may be treated as non-passive. That can let you deduct losses against other non-passive income, such as your business or W-2 income.
A note on the new “qualified production property” rule. The 2025 law also added a separate, elective 100% write-off (section 168(n)) for parts of nonresidential buildings used in manufacturing, production or refining. Construction has to begin after January 19, 2025 and before January 1, 2029, and the property has to be placed in service before January 1, 2031. Property you lease to someone else doesn’t count, so it generally won’t help landlords.[5]
Is there a difference between Section 179 and bonus depreciation?
Both let you accelerate depreciation into the year an asset is placed in service, and they can be used together. There are three main differences:
- How the deduction is set. Section 179 is an election to expense up to a dollar limit; bonus depreciation is a percentage of cost.
- Annual limits. The 2025 law raised the Section 179 limit to $2.5 million, reduced dollar for dollar once qualifying purchases exceed $4 million, for tax years beginning after 2024. For tax years beginning in 2026, the inflation-adjusted figures are $2,560,000 and $4,090,000.[3][4] Bonus depreciation has no annual dollar cap.
- Income limit. Section 179 can’t exceed your taxable income from active trades or businesses (the excess carries forward). Bonus depreciation can create or increase a loss.[7]
Section 179 can also cover certain improvements to nonresidential buildings: roofs, HVAC, fire protection and alarm systems, security systems, and qualified improvement property.[7]
Is taking 100% always the right move?
Not always. Tax savings come with diminishing returns: your first dollar of deduction could save tax at 37%, while your last dollar might save it at 10%. Sometimes spreading the deduction over a few years saves more in total.
State taxes matter too. Not every state follows federal bonus depreciation, so your state return may treat the same purchase differently.[10] The elections above (elect out by class, or 40% in the first tax year ending after January 19, 2025) give you room to plan.
Buying a business? Bonus depreciation changes your taxes, not your EBITDA
In an asset purchase, the price is allocated across asset classes and reported on Form 8594.[9] The part allocated to equipment may qualify for 100% bonus depreciation as used property, while goodwill is amortized over 15 years.[11] That allocation is worth modeling with your tax advisor before you sign.
Keep tax benefits separate from earnings when you value a deal. A Quality of Earnings analysis tests the sustainable earnings you’re paying for. Bonus depreciation lowers your tax bill; it doesn’t change those earnings.
What does this mean for your business?
- Document acquisition dates. For property near the January 2025 cutoff, the date you signed a binding contract can decide whether you get 100% or the old phase-down rate.
- Model before you elect. Compare 100% bonus, Section 179 and slower depreciation against your bracket this year and next, and your state rules.
- Get it into the return. Our monthly accounting packages include your business tax return. See our pricing, or book a free call to talk through your situation.
Sources
- IRS news release IR-2026-06, “Treasury, IRS issue guidance on the additional first year depreciation deduction amended as part of the One, Big, Beautiful Bill” (January 14, 2026). https://www.irs.gov/newsroom/treasury-irs-issue-guidance-on-the-additional-first-year-depreciation-deduction-amended-as-part-of-the-one-big-beautiful-bill
- IRS Notice 2026-11, “Interim Guidance on Additional First Year Depreciation Deduction under § 168(k)”. https://www.irs.gov/pub/irs-drop/n-26-11.pdf
- IRS, “Working Families Tax Cuts – Businesses” (OBBBA sections 70301 and 70306). https://www.irs.gov/newsroom/working-families-tax-cuts-businesses
- IRS Revenue Procedure 2025-32, 2026 inflation adjustments (section 4.24, Section 179 limits). https://www.irs.gov/pub/irs-drop/rp-25-32.pdf
- IRS Notice 2026-16, “Interim Guidance on Special Depreciation Allowance for Qualified Production Property”. https://www.irs.gov/pub/irs-drop/n-26-16.pdf
- 26 U.S.C. § 168, Accelerated cost recovery system (Cornell Law School LII). https://www.law.cornell.edu/uscode/text/26/168
- 26 U.S.C. § 179, Election to expense certain depreciable business assets (Cornell Law School LII). https://www.law.cornell.edu/uscode/text/26/179
- IRS Publication 946, How To Depreciate Property. https://www.irs.gov/publications/p946
- IRS, About Form 8594, Asset Acquisition Statement Under Section 1060. https://www.irs.gov/forms-pubs/about-form-8594
- RSM US, “Restored 100% bonus depreciation: IRS interim guidance helps clarify OBBBA rules” (January 28, 2026). https://rsmus.com/insights/tax-alerts/2026/restored-bonus-depreciation-irs-interim-guidance-obbba-rules.html
- 26 U.S.C. § 197, Amortization of goodwill and certain other intangibles (Cornell Law School LII). https://www.law.cornell.edu/uscode/text/26/197
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Disclaimer
The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting, or investment advice. You should consult a qualified legal or tax professional regarding your specific situation.