Bonus Depreciation in 2026: How OBBBA Restored 100% Expensing

Bonus depreciation is back to 100%, permanently under the One Big Beautiful Bill Act (OBBBA). For SMBs planning equipment purchases, vehicle upgrades, or fixed-asset investments, that changes the math on whether to buy now, buy later, or spread costs over years. Here's what you need to know about bonus depreciation under OBBBA in 2026.

Summary Overview

• OBBBA permanently restore 100% bonus depreciation for qualifying property placed in service in 2025 and beyond.

• Bonus depreciation lets you deduct the full cost of qualifying tangible property in the year it's placed in service.

• Most tangible property with a recovery period under 20 years qualifies.

• Used property qualifies if you didn't previously own it, no more "new only" rule.

• Bonus depreciation and Section 179 are different tools. Sometimes it's smarter to use both.

What is bonus depreciation?

Bonus is depreciation is an accelerated tax deduction that lets you deduct the full cost of qualifying business property in the year you place in it service, rather than spreading the cost over the property's useful life.

Before OBBBA, the TCJA had bonus depreciation phasing down: 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and 0% in 2027. OBBBA reversed the phase-down and made 100% depreciation permanent for tax years starting in 2025.

Bonus depreciation is codified in IRC§168(k). The election is claimed on Form 4562.

Did OBBBA restore 100% bonus depreciation?

Yes. OBBBA's biggest business-tax move is the permanent restoration of 100% bonus deprication.

Under the new rules:

• 100% bonus depreciation applies to property placed in service in 2025 and beyond.

• The provision is permanent (no scheduled phase-down or sunset).

• Applies to both new and used property (as long as the buyer didn't previously own it).

The material tailwind for capital-intensive businesses: construction, agriculture, manufacturing, transportation, and any SMB planning equipment or vehicle purchases.

What property qualifies for bonus depreciation?

Most tangible business property with a MACRS recovery period of 20 years or less qualifies.

Common examples:

• Machinery, equipment, and tools

• Business vehicles (subject to luxury-auto limits for cars)

• Furniture and fixtures

• Off-the-shelf computer software

• Qualified Improvement Property (QIP)

What doesn't qualify: land (never depreciable), building themselves (39-year recovery), and property you already owned that you're moving into a new business.

Used property qualifies as long as the buyer didn't previously own it; the "new to you" rule matters for anyone buying used equipment.

How is bonus depreciation different from Section 179?

Bonus depreciation and Section 179 are two different tools that both accelerate depreciation. Key differences:

• Section 179 has a dollar cap (indexed annually check the current year's limit). Bonus depreciation has no cap.

• Section 179 requires an election and is limited to positive business income. Bonus depreciation applies automatically and can create a loss.

• Section 179 covers some real property improvements (certain HVAC, roofs, alarm systems); bonus depreciation coverage varies

Rule of thumb: use Section 179 first for smaller purchases to preserve bonus depreciation for larger or later placements. Model both your CPA can run the math.

When does bonus depreciation phase out again?

Under OBBBA, it doesn't. Bonus depreciation is now permanent at 100%. This is the biggest structural difference from the TCJA-era rules, which had a scheduled phase-down.

That said: "permanent" in tax law means "until Congress changes it." A future Congress could adjust or repeal the provision. Plan for the current law, but keep an eye on legislative movement each year.

How much can bonus depreciation actually save?

Consider a construction SMB that buys $200,000 of qualifying equipment in 2026:

• Under the old TCJA phase-down (20% bonus in 2026): $40,000 deducted year one, $160,000 amoritized over 5-7 years.

• Under OBBBA (100% bonus): $200,000 deducted in year one.

For a business in the 24% marginal bracket, that's roughly $38,000 more in year-one tax savings. In the 37% bracket, closer to $59,000. Real cash, not paper, because it lands in the current-year return.

The catch: bonus depreciation is a timing benefit, not a permanent one. You're accelerating a deduction you'd get eventually. The value comes from time value of money and marginal-rate arbitrage. Model both scenarios before deciding.

What to do next

100% bonus depreciation is a powerful tool but not a magic wand. The businesses that capture the most value are the ones that model each purchase against the actual cash-flow picture before signing the invoice.

If you'd like a tax specialist to help you model 2026 bonus depreciation strategy for your business, our team can help.