Bonus depreciation in 2026 is back at 100% for most qualifying property. The One Big Beautiful Bill Act (OBBBA) permanently restored the full first-year deduction under Section 168(k) for property acquired after January 19, 2025, reversing a scheduled phase-down that would have reduced the rate to 20% in 2026 and eliminated it entirely in 2027. The rate is now 100% with no expiration date under current law.
TL;DR
- The OBBBA made 100% bonus depreciation permanent for qualifying property acquired after January 19, 2025 — the acquisition date matters as much as the placed-in-service date.
- Machinery, equipment, office furniture, computers, certain vehicles, Qualified Improvement Property, and cost-seg components can all qualify; land and most building structures do not.
- Bonus depreciation can create a net operating loss (Section 179 cannot), but it also triggers recapture on sale — so the timing decision is a planning call, not a mechanical default.
What changed with bonus depreciation 2026 under the OBBBA?
Before the OBBBA, bonus depreciation was on a legislated glide path to zero: 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and nothing in 2027. The OBBBA stopped that schedule entirely and restored the 100% rate on a permanent basis for qualifying property acquired and placed in service after January 19, 2025, according to IRS guidance on the amended first-year depreciation deduction.
Property placed in service after December 31, 2024 but before January 20, 2025 generally remains under the old rules — 40% for most qualifying property and 60% for certain long-production-period property and aircraft. That narrow window is exactly where mismatches happen when a purchase straddles year-end.
If you have clients who bought equipment in late 2024 or signed contracts that closed in early January 2025, you need to verify both the acquisition date and the placed-in-service date before assuming they get the full deduction on their 2025 or 2026 return.
What does IRS Notice 2026-11 actually say?
IRS Notice 2026-11, issued January 14, 2026, is the key interim guidance document that explains how to apply the restored 100% rate in practice. Taxpayers may continue relying on the existing Section 168(k) regulations but substitute 100% for whatever percentage would otherwise apply to qualifying property acquired after January 19, 2025, per the full text of Notice 2026-11.
The notice also confirms a transition election for the first taxable year ending after January 19, 2025. Taxpayers can elect to claim 40% instead of 100% for most qualifying property, or 60% instead of 100% for certain long-production-period property and aircraft. That election matters when a client does not want to accelerate the entire deduction into a single year — for example, if they expect significantly higher income in future years and want to preserve the deductions for when they are worth more.
One practical detail the notice addresses for real estate: the component election. Even if a larger self-constructed project began before January 20, 2025, individual components placed in service after that date can qualify for 100% bonus depreciation separately. That is relevant for phased renovations, multi-building developments, or any project where portions come online at different times. Keeping component-level records — purchase dates, substantial work start dates, placed-in-service dates — is how you support that election if you use it.
What property qualifies for 100% bonus depreciation in 2026?
Qualifying property generally means depreciable assets with a recovery period of 20 years or less under MACRS, plus specific categories the tax code calls out by name. In plain terms, that covers most business personal property: machinery, equipment, computers, office furniture, and certain vehicles. It also covers certain computer software, water utility property, specified plants, and — importantly for real estate clients — Qualified Improvement Property.
Qualified Improvement Property
Qualified Improvement Property (QIP) is any improvement made by the taxpayer to the interior of a nonresidential building after the building was first placed in service. It excludes enlargements, elevators, escalators, and the internal structural framework. QIP is treated as 15-year property under MACRS, which puts it inside the 20-year threshold and makes it generally eligible for bonus depreciation. Interior renovations on commercial properties — tenant finish-out work, lighting upgrades, flooring replacements — are often the biggest QIP opportunity for clients who own or lease nonresidential real estate.
Used property
Used property can qualify, and that remains one of the most underused parts of the rule. The property just has to be new to the taxpayer. Equipment bought from an unrelated seller, a used vehicle purchased at a dealership, or a piece of machinery acquired at auction can all qualify — as long as the taxpayer has not used the property before and did not acquire it from a related party or in a transaction that carried over the seller's basis.
What does not qualify
Land is not depreciable and never qualifies. Most buildings do not qualify under standard bonus depreciation because they are 27.5-year or 39-year property, well above the 20-year ceiling. The building structure itself is generally out even when shorter-life components inside it qualify. Property used predominantly outside the United States and most property acquired in related-party transactions are also excluded. For residential rental, the building does not qualify but cost segregation can still carve out shorter-life components that do.
How does bonus depreciation compare to Section 179 in 2026?
Both tools accelerate first-year deductions, but they work differently enough that the choice between them — or the decision to use both — depends on the client's specific situation. The table below shows the key differences for 2026.
| Feature | Bonus Depreciation | Section 179 |
|---|---|---|
| 2026 deduction limit | No cap | $2,560,000 (per Rev. Proc. 2025-32) |
| Phase-out threshold | None | Begins at $4,090,000 of qualifying property placed in service |
| Taxable income limit | None — can create or increase an NOL | Cannot exceed business taxable income |
| How it applies | Automatically, unless you elect out by asset class | Elected asset by asset — you choose which property |
| Used property | Qualifies if new to taxpayer | Qualifies |
| State conformity | Many states decouple or only partially conform | Generally more consistent state conformity |
| NOL creation | Yes | No |
The most common approach is to elect Section 179 first on priority assets — especially where you want surgical control over the deduction amount — then let bonus depreciation apply automatically to the remaining eligible basis. For a client placing $3.5 million of equipment in service in 2026, that might mean using Section 179 on $2,560,000 and bonus depreciation on the remaining $940,000, assuming the income and phase-out math works out.
Bonus depreciation is generally the better tool when the client wants the largest possible immediate deduction regardless of income, or when the purchase volume exceeds the Section 179 phase-out threshold. Section 179 is usually better when you need item-level control or when the client does not want to generate an NOL. See our related post on which accounting tasks to automate first for the workflow side of managing these planning projects efficiently.
When is 100% bonus depreciation not the right call?
A 100% deduction sounds like the obvious choice, but there are real situations where front-loading is not optimal. If a client expects significantly higher income in coming years, preserving depreciation for those years may produce a better overall tax result than burning it now at a lower-value year. The deduction is not free — it is a timing decision, and timing decisions depend on rate expectations, entity structure, and the client's income trajectory.
Recapture is the other consideration that often gets glossed over. When property on which bonus depreciation was claimed is later sold, the accelerated deductions come back as ordinary income through depreciation recapture under Section 1245 (for personal property) or Section 1250 (for real property). A client who plans to sell equipment or a renovated property within a few years should model the full transaction, including the recapture cost, not just the year-one deduction benefit.
There is also the question of passive activity rules. For investors in partnerships or LLCs, passive activity limitations can defer the benefit of bonus depreciation even when the deduction is technically claimed. The deduction exists on paper but may not produce current-year tax savings if the investor's loss is suspended by passive activity rules.
How do you claim bonus depreciation on a 2026 return?
Bonus depreciation is reported on IRS Form 4562, Depreciation and Amortization, filed by the due date of the return including extensions, for the tax year in which the qualifying property is placed in service. The mechanical reporting is straightforward; the work is in getting the underlying facts right before any numbers hit the form.
The four questions that determine the result
- What was the acquisition date? Property must be acquired after January 19, 2025 to get 100%. Contracts, invoices, and closing documents establish this date — not the payment date or the installation date alone.
- When was it placed in service? Placed in service means ready and available for its intended use. A piece of equipment sitting in a warehouse waiting for installation is not yet placed in service, regardless of when it was purchased.
- Does it fall into a qualifying category? MACRS property with a 20-year or shorter recovery period, QIP, certain software, and other named categories qualify. The building structure, land, and most long-lived real property do not.
- What elections are being made? Electing out of bonus depreciation applies by asset class, not item by item. If you elect out for five-year property, you elect out for all five-year property placed in service that year. Know before filing.
Documentation the IRS expects
For large deductions, the file should tell the full story without requiring anyone to reconstruct it later. That means purchase agreements, invoices, delivery records, installation logs, and placed-in-service confirmation for each asset. For cost segregation studies, the full study report and the engineer's methodology should be retained. For the component election on self-constructed property, you need records showing when substantial physical work began or when the 10% safe harbor was reached for each component.
This is the kind of per-client detail work that adds up quickly across a busy tax season. A free CloseRadar operations audit can show you exactly where AI assistants can remove the repetitive data-gathering steps — document collection, fixed asset schedule reconciliation, client follow-up — so your team spends time on the planning judgment, not the paper chase.
What about state tax conformity?
State conformity to federal bonus depreciation varies significantly and can materially change the result for clients in non-conforming states. Some states, including Colorado, Kansas, and Louisiana, conform to the current IRC. Others, including Illinois, New Jersey, New York, and Pennsylvania, have decoupled from federal bonus depreciation provisions and require addbacks or separate depreciation schedules, according to Thomson Reuters' bonus depreciation overview (updated September 2025). Still others allow partial conformity or conform only for specific tax years.
A client in a decoupling state who claims a large federal bonus depreciation deduction may still owe significant state tax in the same year. Modeling both the federal and state returns separately — before the client makes the asset purchase decision — is the only way to give accurate advice. Never assume the state result mirrors the federal result.
For clients in states with complex conformity rules, the state return often requires a depreciation addback in year one and a subtraction spread over future years as the state's regular depreciation schedule plays out. That multi-year state tracking adds compliance work that should be factored into the engagement scope. See our post on best practice management software for accountants in 2026 for tools that help manage multi-year tracking across a client roster. And if you're keeping an eye on other 2026 regulatory changes affecting your clients, our BOI report requirements guide for 2026 covers another significant compliance area firms are fielding questions on this year.