Bonus Depreciation in 2026: 100% Restored by OBBBA

100%. OBBBA-2025 (P.L. 119-21) Section 70301 amended IRC Section 168(k) to restore 100% first-year bonus depreciation for qualified property acquired after January 19, 2025. The test is the acquisition date, not the placed-in-service date, and property is not treated as acquired after that date if a written binding contract for it was in effect before January 20, 2025. This is a big deal because bonus depreciation had been phasing down under the original TCJA schedule — it dropped to 80% for property placed in service in 2023, 60% in 2024, and 40% in 2025. Without OBBBA, the rate would have fallen to 20% in 2026 and disappeared entirely in 2027, and it still does for the shrinking pool of property that was acquired before the cutoff.

Now, with 100% bonus depreciation restored and made permanent (no sunset date this time), businesses can write off the full cost of qualifying assets in the year they’re placed in service. This applies to both new and used property, as long as the property is new to the taxpayer and meets the definition of qualified property under Section 168(k).

What counts as qualified property? Tangible personal property with a recovery period of 20 years or less under MACRS. That includes most business equipment, furniture, machinery, computers, vehicles (subject to luxury auto limits under Section 280F), and off-the-shelf software. It also includes certain improvements to nonresidential real property known as qualified improvement property (QIP), which covers interior improvements to existing commercial buildings — things like HVAC systems, electrical upgrades, interior walls, and flooring (but not building enlargements, elevators, or the internal structural framework).

The practical impact is significant for any business that buys equipment or makes capital improvements. If your construction company purchases a $350,000 excavator in March 2026, you deduct the entire $350,000 on your 2026 tax return rather than spreading the deduction over 5 or 7 years using regular MACRS depreciation. At a 37% marginal tax rate, that accelerates $129,500 in tax savings into the current year.

There are some assets that don’t qualify for bonus depreciation. Property with a recovery period longer than 20 years (like commercial buildings at 39 years, or residential rental buildings at 27.5 years) doesn’t qualify for bonus depreciation — those assets must be depreciated under regular MACRS schedules or claimed under Section 179 if eligible. Land improvements with a 15-year recovery period (fencing, parking lots, landscaping) do qualify for bonus depreciation, which is an often-overlooked benefit.

Listed property — assets that can be used for both business and personal purposes, like vehicles and computers — qualifies for bonus depreciation only to the extent of business use. If you buy a $60,000 SUV and use it 70% for business, you can claim bonus depreciation on $42,000 (70% of the purchase price). The luxury auto limits under Section 280F apply to passenger vehicles: for 2026, Rev. Proc. 2026-15 sets the first-year depreciation cap at $20,300 for a vehicle eligible for bonus depreciation and $12,300 for one that is not. Heavy vehicles over 6,000 pounds GVWR — like full-size SUVs and pickup trucks — are not subject to the luxury auto limits and can be fully expensed.

For businesses with pass-through income (S-corps, partnerships, sole proprietorships), bonus depreciation can create or increase a net operating loss, which can then be carried forward to offset income in future years. This is particularly useful for businesses making large capital purchases in years with lower income. Note that bonus depreciation is mandatory unless you elect out — if you want to spread the deduction over the asset’s normal recovery period instead, you must attach a statement to your tax return making the election. The election applies to all assets in the same class placed in service during the year, not individual assets.

For planning purposes, the permanence of 100% bonus depreciation under OBBBA removes the timing pressure that existed under the TCJA phasedown. You no longer need to rush purchases into the current year to capture a higher rate. But the tax benefit of accelerated deductions is still valuable — a dollar of tax savings today is worth more than a dollar spread over five or seven years, due to the time value of money. If you’re planning significant equipment purchases, talk to your CPA about how bonus depreciation interacts with your overall tax situation, including the qualified business income deduction under Section 199A and any state conformity issues. Reach out to our team for a depreciation planning analysis.

To put real numbers on this: say your business buys a $200,000 piece of manufacturing equipment and places it in service in 2026. Under the restored 100% bonus depreciation, you deduct the full $200,000 in the year of purchase. If your combined federal and state marginal tax rate is 37%, that deduction saves you $74,000 in taxes in year one. Compare that to what would have happened under the original TCJA phase-down schedule — in 2026, bonus depreciation would have been just 20%, allowing a first-year deduction of only $40,000 and saving you $14,800 in taxes. The remaining $160,000 would be spread across the asset’s MACRS recovery period (typically 5 or 7 years for equipment), delaying your tax benefit significantly.

The timing benefit of 100% bonus depreciation is enormous even though the total deduction over the asset’s life is the same either way. A $74,000 tax savings today is worth far more than the same savings spread over seven years, thanks to the time value of money. Businesses with large capital expenditure plans no longer need to accelerate purchases to beat a deadline: OBBBA made the 100% rate permanent, with no scheduled step-down and no sunset. A future Congress could amend the statute, but nothing on the books today takes the rate away.

One wrinkle that catches people off guard: not all states conform to the federal bonus depreciation rules. States like California, New York, and Pennsylvania have historically decoupled from federal bonus depreciation, meaning your state tax return might require you to add back the bonus depreciation deduction and use regular MACRS instead. If you operate in one of these non-conforming states, the effective first-year benefit is lower than the federal math suggests. Check your state’s current conformity status before making major purchase decisions based solely on the federal deduction. For New York State, the current add-back requirement means you lose the state-level benefit of bonus depreciation entirely, though you still get the federal deduction.

Yes — you have two primary tools for full first-year expensing in 2026, and they work together. The first is 100% bonus depreciation under IRC Section 168(k), which OBBBA restored and made permanent. The second is Section 179 expensing, which lets you elect to deduct the cost of qualifying property in the year it’s placed in service, subject to annual dollar limits and an income limitation.

Here’s how they compare. Bonus depreciation has no dollar cap — you can deduct $50,000 or $5 million of equipment in a single year. Section 179 has an annual dollar limit that OBBBA adjusted (indexed for inflation from now on). For 2026, Rev. Proc. 2025-32 sets the Section 179 deduction limit at $2,560,000, and it begins to phase out when total equipment purchases exceed $4,090,000 (the investment limitation threshold).

The other big difference: Section 179 is limited to your taxable income from active business operations. If your business income is $200,000 and you purchase $300,000 in equipment, Section 179 caps your deduction at $200,000. The unused $100,000 carries forward to the following year. Bonus depreciation doesn’t have this limitation — it can create or increase a net operating loss, giving you more flexibility in high-investment, low-income years.

So when would you use Section 179 instead of bonus depreciation? There are a few situations. First, Section 179 lets you choose which specific assets to expense, while bonus depreciation applies to an entire class of assets placed in service during the year (unless you elect out of the whole class). If you bought five trucks in 2026 and want to expense three of them while depreciating two over five years for state tax purposes, Section 179 gives you that asset-by-asset flexibility.

Second, some states conform to Section 179 but don’t conform to bonus depreciation. This is a big deal. If your state hasn’t adopted the OBBBA changes to Section 168(k), claiming bonus depreciation on your federal return means you’ll need a separate state depreciation schedule that adds back the bonus depreciation and substitutes regular MACRS depreciation. That creates a permanent difference between your federal and state tax books that you’ll track for the life of the asset. Section 179, by contrast, is more widely accepted at the state level — though some states have their own dollar limits.

Third, Section 179 can be used for certain types of property that don’t qualify for bonus depreciation. For example, Section 179 applies to certain real property improvements (roofing, HVAC, fire suppression, security systems) that were brought into Section 179 eligibility by the TCJA. While qualified improvement property also qualifies for bonus depreciation, there are edge cases where Section 179 provides a cleaner path.

In practice, most businesses with qualifying equipment purchases should first claim Section 179 on the specific assets where they want the flexibility, then let bonus depreciation sweep up the remaining qualifying assets. Your CPA can model both approaches to determine which combination produces the best tax result.

For vehicles, the interaction gets more specific. If you purchase a heavy SUV (over 6,000 pounds GVWR) for business use, you can use Section 179 to deduct up to $32,000 of the cost for 2026 (the SUV-specific Section 179 cap) and then claim bonus depreciation on the remaining cost. For passenger vehicles under the luxury auto limits, the 2026 first-year deduction cap of $20,300 applies regardless of whether you use Section 179, bonus depreciation, or both.

One more planning consideration: if you’re on the border of a lower tax bracket, it may not make sense to expense everything in the current year. Deductions are worth more when they offset income taxed at higher rates. If you’re in the 24% bracket this year but expect to be in the 37% bracket next year (because of a large project or asset sale), you might strategically defer some depreciation deductions to the higher-rate year by electing out of bonus depreciation and not claiming Section 179 on certain assets. This is the kind of multi-year planning where a CPA’s advice pays for itself many times over. Contact our team for equipment purchase planning.

Here is a practical example of how this works in real life. A construction company needs a new excavator costing $350,000. Under 100% bonus depreciation in 2026, the company deducts the full $350,000 in the year of purchase. At a 24% tax bracket, that generates $84,000 in tax savings in year one. If the company finances the purchase with a five-year loan at 7% interest, the annual loan payments are roughly $69,300. The first-year tax savings of $84,000 more than cover the entire first year of loan payments — meaning the tax benefit effectively makes the first year of the equipment “free” from a cash flow perspective.

Section 179 is the other tool for first-year expensing, and it works alongside bonus depreciation but with different rules. For 2026, the Section 179 deduction limit is $2,560,000 (it adjusts for inflation annually), with a phase-out threshold of $4,090,000 in total equipment purchases. Unlike bonus depreciation, Section 179 cannot create or increase a net operating loss — you can only deduct up to the amount of your taxable business income. Bonus depreciation has no such income limitation, which makes it more flexible for businesses that are investing heavily during a lower-income year.

The interaction between Section 179 and bonus depreciation creates a layered strategy. You can apply Section 179 to specific assets up to the dollar limit, then apply bonus depreciation to the remaining cost of those assets and to additional assets that exceed the 179 cap. For most small to mid-size businesses, using both provisions together results in a full first-year deduction of all qualifying equipment purchases. The key is tracking which assets get which treatment, because the recapture rules differ and you need accurate records if the asset is sold or disposed of before the end of its recovery period. If you dispose of an asset that received bonus depreciation within the first year after purchase, the depreciation recapture rules require you to report the recaptured amount as ordinary income on your return.

Yes. One of the most significant changes the Tax Cuts and Jobs Act made to bonus depreciation — which OBBBA preserved — was extending eligibility to used property that is “new to the taxpayer.” Before the TCJA, bonus depreciation was limited to brand-new assets. That meant if you bought a used forklift from another company, you couldn’t claim bonus depreciation — you had to depreciate it over its regular MACRS recovery period. The TCJA changed that rule starting in 2018, and OBBBA kept it in place.

The “new to the taxpayer” standard means the asset can’t have been used by you or a predecessor before. If you owned a piece of equipment, sold it, and bought it back, bonus depreciation wouldn’t apply on the second purchase because the property isn’t new to you. But if you buy used equipment from an unrelated third party — say you purchase a $200,000 CNC machine from a manufacturing company that’s upgrading — you can deduct the full $200,000 in the year you place it in service, just as if it were brand new.

This rule has enormous practical implications for small businesses that buy used equipment. A landscaping company can purchase a used $80,000 dump truck and write off the full cost in year one. A restaurant can buy used kitchen equipment for $45,000 and expense it immediately. A construction firm can pick up a used excavator for $250,000 and deduct it all. The savings are the same as buying new, which means businesses can stretch their capital further by shopping the secondary market.

There are some limitations to keep in mind. First, the used property rules don’t apply to property acquired from a related party. If you buy equipment from a company owned by your spouse, your parents, or another entity you control, bonus depreciation on the used asset is disallowed. The related party rules under IRC Section 179(d)(2) cross-reference Sections 267 and 707(b), which define “related” broadly — covering family members, controlled entities, and certain fiduciary relationships.

Second, the property must be acquired by purchase. Assets received as gifts, inherited property, or property transferred in certain tax-free transactions (like a Section 351 contribution to a corporation) don’t qualify for bonus depreciation because they weren’t “purchased.” The acquisition has to be an arm’s-length purchase from an unrelated seller.

Third, the property must not have been used by you or a related party at any point before the acquisition. If your LLC leased equipment from another company and then purchased that same equipment when the lease ended, there’s a question about whether the property is “new to the taxpayer” since you were the lessee. The regulations under Treasury Regulation 1.168(k)-2 address this — generally, if you used the property as a lessee and then purchased it, bonus depreciation applies as long as the property wasn’t previously owned by you.

For vehicles, the used property rule is particularly valuable. A business owner can purchase a used heavy SUV (over 6,000 pounds GVWR) for $65,000, put it in service for 100% business use, and deduct the entire $65,000 in year one. That’s a tax savings of $24,050 at the 37% rate. Buying used instead of new can save $20,000 to $30,000 on the vehicle purchase price while providing the exact same tax benefit.

The used property rule also applies to certain building improvements. If you purchase an existing commercial property and a cost segregation study identifies components with recovery periods of 20 years or less — HVAC systems, specialized electrical, floor coverings, parking lots, landscaping — those components can be separated from the building structure and claimed as bonus depreciation in the year of purchase, even though the building itself is used. Cost segregation studies on used building purchases are one of the most effective tax planning strategies in commercial real estate.

One planning tip: if you’re considering a major equipment purchase, compare the after-tax cost of buying new versus used. With 100% bonus depreciation available on both, the tax benefit is proportional to the purchase price. A $100,000 used machine gives you a $100,000 deduction. A $150,000 new machine gives you a $150,000 deduction. The question becomes whether the new machine’s additional features, warranty coverage, and expected useful life justify the $50,000 price premium after accounting for the tax benefit. In many cases, buying used and deducting the full cost is the better financial move. Our team can help you model equipment purchase decisions with the tax impact included.

Let’s say you’re a dentist opening a second office and you buy used dental chairs, X-ray equipment, and sterilization systems from a retiring practitioner for $180,000 total. Under the TCJA rules (maintained by OBBBA), all of this used equipment qualifies for 100% bonus depreciation in 2026 because it is new to you — even though it has been used before. At a 35% marginal tax rate, you deduct the full $180,000 and save $63,000 in taxes in the first year. Before 2018, you would have been limited to regular MACRS depreciation on this used equipment, spreading the deduction over 5 or 7 years.

The “new to the taxpayer” requirement is the key rule. The equipment cannot have been previously used by you, your spouse, or a related party (as defined under IRC Section 179(d)(2)). If you sell equipment from one business you own to another business you own, it doesn’t qualify because you’ve already used it. But buying used equipment from an unrelated seller at auction, from a dealer, or from another business owner is perfectly fine.

Vehicles deserve special mention because they have their own depreciation limits. Passenger vehicles weighing under 6,000 pounds are subject to the luxury auto depreciation caps — for 2026, $20,300 for the first year with bonus depreciation and $12,300 without it. Vehicles over 6,000 pounds gross vehicle weight rating (like full-size SUVs, pickup trucks, and vans) are not subject to these limits and can qualify for full bonus depreciation. A $75,000 used Ford F-250 bought for business use in 2026 can be fully deducted in year one if business use exceeds 50%.

Start with the rule, because it is not the one most people expect. OBBBA sec. 70301 keys the restored 100% rate to when property was acquired, not to when it was placed in service. The 100% rate applies to qualified property acquired after January 19, 2025, and property is not treated as acquired after that date if a written binding contract for the acquisition was in effect before January 20, 2025. Anything that fails that test stays on the old TCJA phase-down schedule — 40% for a 2025 placed-in-service date, 20% for 2026 — no matter how late the asset actually went into service. One point of confusion worth clearing up: OBBBA was signed on July 4, 2025. January 19, 2025 is the acquisition cutoff Congress wrote into the effective-date provision, not the date of enactment.

Let’s walk through the timeline to make it clear. Under the original TCJA phasedown, bonus depreciation rates were: 100% for property placed in service from September 28, 2017, through December 31, 2022; 80% for 2023; 60% for 2024; 40% for 2025; 20% for 2026. And 0% for 2027 and beyond. OBBBA restored 100% bonus depreciation for property acquired after January 19, 2025, and made it permanent from that point forward. That old schedule was not deleted. It survives for property acquired on or before January 19, 2025, which is why a 2026 return can still show a 20% bonus rate on a machine bought under a 2024 contract.

So if your business bought a $100,000 piece of equipment on January 10, 2025, your bonus depreciation deduction is $40,000 (40% rate) — and it is $40,000 whether the machine went into service that week or the following December. Regular MACRS depreciation on the remaining $60,000 applies over the asset’s recovery period. But if you acquired identical equipment on January 25, 2025 with no earlier binding contract, your bonus depreciation deduction is $100,000 (100% rate). Fifteen days’ difference in the purchase date, $60,000 difference in first-year deductions.

For property placed in service during 2024, the rate was 60% — and OBBBA did not retroactively fix that. If you purchased $500,000 in equipment in 2024, you received $300,000 in bonus depreciation (60%) and the remaining $200,000 is depreciated over the asset’s recovery period. Some taxpayers were hoping OBBBA would retroactively restore 100% for 2024, but the final legislation drew the line at property acquired after January 19, 2025.

The acquisition cutoff has practical implications for 2025 returns, and they cut both ways. If you filed a 2025 return before OBBBA was enacted on July 4, 2025 and used the 40% rate on an asset you actually acquired after January 19, 2025, that asset was entitled to 100% and the return can be corrected. But if you used the 40% rate on an asset acquired on or before January 19, 2025 — or under a contract signed before January 20, 2025 — then 40% was the correct rate and there is nothing to amend. Sort the assets by acquisition date before you touch the return, because the two groups get opposite answers.

The transition matters most for property with long lead times, and here the intuition runs the wrong way. If you signed a binding purchase contract for equipment in November 2024 and it wasn’t delivered and placed in service until February 2025, you do not get the 100% rate. The written binding contract was in effect before January 20, 2025, so the property counts as acquired before the cutoff and takes 40% — the 2025 rate under the old schedule. The placed-in-service date still matters, but only to fix which year’s old-schedule rate applies once the acquisition test has already been failed. “Placed in service” means the asset is in a condition or state of readiness and availability for a specifically assigned function — not when it arrives at your loading dock, but when it’s set up and ready for use.

For businesses holding property that failed the acquisition test — bought on or before January 19, 2025, or under an earlier binding contract — there’s an option to elect out of bonus depreciation altogether and instead depreciate the asset under regular MACRS. Why would you do this? If you expect to be in a higher tax bracket in future years, spreading the deduction over the recovery period might produce a better after-tax result than taking 40% up front. But this is an unusual situation — most businesses prefer the front-loaded deduction.

Going forward the transition question fades, because 100% bonus depreciation is permanent under OBBBA. There’s no phasedown schedule and no sunset for anything you buy now. Every dollar of qualifying property acquired after January 19, 2025 gets the full 100% deduction, and the only assets still carrying the old rates are the ones acquired before that date. This permanence is actually more valuable than the 100% rate itself, because it removes the planning uncertainty that characterized the TCJA years. Businesses can now make multi-year capital investment plans knowing the depreciation rules won’t change.

One exception to watch: Congress can always change the law again. The permanence is statutory, not constitutional — a future Congress could reinstate a phasedown or reduce the rate. But absent new legislation, 100% bonus depreciation is the law of the land indefinitely. Contact our team if you need help sorting out the transition rules for assets acquired around the January 19, 2025 cutoff.

Here is a real-world scenario, and it is the one people get wrong. A restaurant owner signed a written contract to purchase $120,000 in kitchen equipment in November 2024 and placed it in service on January 8, 2025. Because a binding contract was in effect before January 20, 2025, the equipment is treated as acquired before the cutoff, so OBBBA’s 100% rate does not reach it. The old schedule governs, and the rate under that schedule for a 2025 placed-in-service date is 40%. The owner claimed a first-year deduction of $48,000 (40% of $120,000) and depreciates the remaining $72,000 over the rest of the 5-year MACRS schedule.

That $48,000 is the right answer, and it stays the right answer. The owner may not amend the 2025 return to claim the full $120,000, and may not reach the same place through a Form 3115 accounting-method change either — the additional $72,000 is not a deduction OBBBA gave this taxpayer. An amended return chasing that $72,000 at a 32% rate would claim $23,040 of tax the owner is not entitled to, and it would come back with interest. Change one fact and the answer flips: had the same owner ordered the equipment in February 2025 with no earlier contract, the property would be acquired after the cutoff and the full $120,000 would be deductible in the year it was placed in service.

Where an asset does clear the acquisition test, the mechanics depend on whether you’ve already filed the return for that year. If you haven’t filed yet, simply claim 100% bonus depreciation on the original return. If you already filed at a lower rate on property acquired after January 19, 2025, you have two options: file an amended return (Form 1040-X for individuals, or Form 1120-X for corporations), or file a Form 3115 to change your depreciation method. The Form 3115 approach is often simpler because it can be done on a current-year return with a catch-up adjustment, avoiding the need for a full amended return. Neither route is open for property that failed the acquisition test — there is no correction to make. Talk to your CPA about which approach works best based on your filing status and timeline.

The key takeaway for 2025 assets is this: pull the acquisition date, not just the in-service date. If you claimed 40% on property you acquired after January 19, 2025, you are leaving money on the table, and depending on the dollars and your bracket the correction could be worth thousands or tens of thousands. If you claimed 40% on property acquired on or before January 19, 2025, or under a contract signed before January 20, 2025, your return is already right and amending it would be claiming a deduction you don’t have. The two cases look identical on a depreciation schedule and are told apart only by the purchase documents, so start there. Where a correction is warranted, the amendment or 3115 filing should happen before the applicable statute of limitations closes.

OBBBA made targeted adjustments to Section 179 expensing, though the changes were less dramatic than the bonus depreciation restoration. The basic mechanics of Section 179 remain the same: you elect to expense the cost of qualifying property in the year it’s placed in service, subject to an annual dollar limit and an investment limitation phase-out. The election is made on an asset-by-asset basis (unlike bonus depreciation, which applies class-wide), and the deduction can’t exceed your taxable income from active trade or business during the year.

What OBBBA changed was primarily the dollar amounts. The Section 179 deduction limit was increased and indexed for inflation from now on. For 2026, Rev. Proc. 2025-32 sets the limit at $2,560,000. The investment limitation — the total amount of qualifying property placed in service during the year at which the Section 179 deduction begins to phase out dollar-for-dollar — is $4,090,000. Once your total qualifying purchases exceed that threshold, the Section 179 deduction is reduced dollar-for-dollar by the excess, reaching zero when purchases hit $6,650,000.

OBBBA also confirmed the expanded list of property eligible for Section 179 expensing that was introduced by the TCJA. This includes tangible personal property (equipment, machinery, furniture, computers), off-the-shelf software, and certain real property improvements. The real property categories eligible for Section 179 are: qualified improvement property (interior improvements to existing commercial buildings), roofing, HVAC systems, fire protection and alarm systems, and security systems. Before the TCJA, real property was generally not eligible for Section 179 expensing (except for limited categories), so this expansion remains significant.

One important thing OBBBA did not change: the income limitation on Section 179. Your Section 179 deduction can’t exceed the taxable income derived from the active conduct of your trade or business. If your business has $800,000 in qualifying purchases but only $500,000 in taxable business income, your Section 179 deduction is capped at $500,000 for the year. The remaining $300,000 carries forward to the next year and can be deducted when income allows. This income limitation is the main practical difference between Section 179 and bonus depreciation — bonus depreciation has no income cap and can create or increase a net operating loss.

For most small and mid-size businesses, the practical question is which tool to use — Section 179, bonus depreciation, or some combination. Here’s the general framework. Use Section 179 when you want to choose specific assets to expense (rather than applying the deduction to all assets in a class). Use Section 179 when your state conforms to Section 179 but not to federal bonus depreciation. Use Section 179 for real property improvements that might not qualify for bonus depreciation under your state’s rules. Use bonus depreciation for everything else, especially when total qualifying purchases are below the Section 179 investment limitation.

In practice, many businesses use both. You might claim Section 179 on a $50,000 delivery van (giving you asset-level flexibility for state tax purposes) and let bonus depreciation handle the remaining $200,000 in equipment purchases. The combination approach makes the most of both federal and state deductions while maintaining clean records for states that require separate depreciation schedules.

OBBBA also preserved the special rules for heavy SUVs under Section 179. For 2026 the SUV limitation caps the Section 179 deduction at $32,000 (adjusted for inflation) for vehicles over 6,000 pounds GVWR that are classified as SUVs rather than trucks or vans. Any cost above the $32,000 cap can still be claimed through bonus depreciation, so a $75,000 heavy SUV used 100% for business would get $32,000 under Section 179 plus $43,000 under bonus depreciation, totaling the full $75,000 in first-year deductions.

For businesses considering large capital investments, the interaction between Section 179 and bonus depreciation should be part of a broader tax planning conversation that includes the qualified business income deduction under Section 199A, the effect on self-employment tax (for pass-through entities), and state conformity issues. The dollar amounts are large enough that getting the improvement right — or wrong — can swing your tax bill by tens of thousands of dollars. Our team handles depreciation planning for businesses across a range of industries and can help you structure your purchases for maximum tax benefit.

The real power of combining Section 179 and bonus depreciation becomes clear with a concrete example. Suppose a technology consulting firm purchases $500,000 in computer equipment and office furniture in 2026. The firm could apply Section 179 to the first $500,000 (well under the $2,560,000 cap), deducting the full amount and reducing taxable income dollar-for-dollar. If the firm’s taxable income before the deduction was only $300,000, they could apply Section 179 up to $300,000 (since 179 can’t create a loss) and then apply bonus depreciation to the remaining $200,000 — which can create or increase a loss. If the firm had no other income, that $200,000 in bonus depreciation would create a net operating loss that can be carried forward to offset future income.

Another change worth noting: OBBBA clarified the treatment of qualified improvement property (QIP) — improvements made to the interior of nonresidential buildings. QIP has been eligible for bonus depreciation since the CARES Act corrected the so-called “retail glitch” from the original TCJA. Under the restored 100% rate, a restaurant that spends $400,000 renovating its dining room in 2026 can deduct the entire amount in year one rather than spreading it over the 15-year recovery period. For businesses planning significant tenant improvements or build-outs, the timing advantage of doing the work while 100% bonus depreciation is available matters a lot.

Sector-specific applications are worth considering too. Real estate investors can use cost segregation studies to reclassify building components (electrical systems, plumbing, flooring, cabinetry) from 27.5-year or 39-year property into 5-year, 7-year, or 15-year property that qualifies for bonus depreciation. A $2 million commercial building might have $400,000 to $600,000 in components that can be reclassified and immediately deducted. That front-loaded deduction can dramatically change the after-tax return on a real estate investment.

Sources & References

One Big Beautiful Bill Act, P.L. 119-21 (Congress.gov)

26 U.S.C. § 168(k) — Bonus Depreciation Allowance (Cornell)

26 U.S.C. § 179 — Election to Expense Certain Depreciable Assets (Cornell)

IRS Publication 946 — How to Depreciate Property

IRS — Luxury Automobile Depreciation Limits for 2026 (Rev. Proc. 2026-15)

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