For several years, business owners and real estate investors watched bonus depreciation shrink toward zero. That trend has reversed. Under the One Big Beautiful Bill Act, 100% bonus depreciation is back and, for the first time, permanent. If you buy equipment, vehicles, or qualifying property for a business or a rental, you can once again deduct the full cost in the year the asset is placed in service, rather than spreading it across many years. This guide explains what changed, what qualifies, how the deduction compares to Section 179, and how high earners can plan around it before year end.
What 100% bonus depreciation means now
Bonus depreciation is an accelerated write-off under Section 168(k) of the tax code. Normally, when a business buys a long-lived asset, it deducts the cost gradually over the asset’s recovery period. Bonus depreciation lets you deduct a large share of that cost immediately instead. At 100%, the entire cost of a qualifying purchase can be written off in year one.
The new law fixes the rate at 100% and removes the sunset that used to hang over it. In practice, that means a company buying $200,000 of qualifying equipment may deduct the full $200,000 against income in the same year, subject to qualification and the limits described below. The certainty is the real story. Because the provision is now permanent rather than temporary, you can plan multi-year purchases without racing a deadline.
How the rules changed under the new law
To see why this matters, it helps to remember where the deduction was heading. The 2017 tax law allowed a full 100% write-off, then set it to phase down over time. That schedule was already well underway.
The phase-down that almost erased the deduction
Under the prior schedule, the bonus rate fell each year: 80% in 2023, 60% in 2024, and 40% in 2025, on its way to nothing. A business that bought $500,000 of equipment in 2025 could have deducted only $200,000 up front under the old 40% rate, with the rest depreciated slowly. The One Big Beautiful Bill Act, signed in 2025, reversed course. It restored the rate to 100% for qualifying property acquired and placed in service after January 19, 2025, and made that rate permanent. Our overview of the OBBBA 2026 tax changes covers how this fits alongside the other provisions the law preserved.
The date matters. Property placed in service on or before January 19, 2025, generally follows the older phase-down percentages, while property placed in service after that date can qualify for the full 100%. Because the rules turn on when an asset is actually placed in service, not just purchased, timing is worth confirming with a licensed tax professional in any borderline case.
What property qualifies for 100% bonus depreciation
Not everything you buy is eligible. The deduction generally applies to tangible property with a recovery period of 20 years or less under the modified accelerated cost recovery system, plus certain other categories. That covers a wide range of assets that businesses buy every year.
- Machinery and equipment used in a trade or business, from manufacturing tools to medical and dental equipment.
- Business vehicles that meet the weight and use tests, though passenger autos face separate luxury-auto limits.
- Computers, servers, and off-the-shelf software used in operations.
- Furniture and fixtures for offices and commercial spaces.
- Qualified improvement property, meaning many interior improvements to nonresidential buildings, which carries a 15-year life and is therefore eligible.
- Certain used property, as long as the asset is new to you and was not acquired from a related party.
Real property itself, such as the building shell and land, does not qualify, because it has a much longer recovery period. That distinction is exactly why cost segregation, discussed below, is so useful to investors. Land is never depreciable at all.
Bonus depreciation vs Section 179 expensing
People often confuse bonus depreciation with the Section 179 deduction. Both let you write off assets faster, but they work differently, and the differences decide which one fits a given situation. The table below lays out the main contrasts.
| Feature | 100% bonus depreciation (§168(k)) | Section 179 expensing |
|---|---|---|
| Annual dollar cap | No dollar cap | Capped, with a phase-out once purchases exceed a set threshold |
| Can it create a loss? | Yes, it can push taxable income below zero | No, it is limited to business income |
| Election | Applies automatically unless you elect out, by asset class | Elected asset by asset |
| Used property | Eligible if new to you | Eligible |
| Flexibility | All or nothing within a class | Can expense a partial amount |
In many cases the two are used together. A business might apply Section 179 to a specific asset for precise control, then let bonus depreciation sweep up the rest. Because bonus depreciation can create a net operating loss while Section 179 cannot, bonus is often the stronger tool for a year with heavy capital spending. The right mix depends on your income, your entity, and your other deductions.
A worked example for a growing business
Numbers make the benefit concrete. Consider a business owner who buys $300,000 of qualifying equipment and places it in service during the year. The figures below are illustrative and simplified to show the mechanics, not a promise of any particular result. Your outcome would depend on your income, your state, and many other factors.
Under the old 40% bonus rate, the owner could have deducted $120,000 immediately, with the remaining $180,000 depreciated over the asset’s life. Under the restored 100% rate, the same owner deducts the full $300,000 in year one. If that owner sits in a combined marginal bracket of roughly 35%, the difference in first-year deduction is $180,000, which could translate into a meaningful reduction in current tax, subject to qualification. The cash freed up in year one is often what lets a business reinvest sooner. That said, a larger deduction now generally means a smaller one later, so the benefit is partly a matter of timing rather than a permanent windfall.
How real estate investors use 100% bonus depreciation
Real estate is where this deduction can be most powerful, even though the building itself does not qualify. The reason is cost segregation. A cost segregation study breaks a property into its components and reclassifies items such as flooring, cabinetry, specialized wiring, and land improvements into shorter recovery periods of 5, 7, or 15 years. Those shorter-life components are eligible for bonus depreciation.
When 100% bonus depreciation is available, an investor can pair it with a study to accelerate a large share of a building’s cost into the first year of ownership. On a property with significant qualifying components, that can create sizable paper losses. Whether those losses offset your other income depends on the passive activity rules and your status, which is a separate and important question. Our guide to cost segregation and 100% bonus depreciation walks through how the two work together and who tends to benefit most.
A new category: qualified production property
The new law also created a fresh opportunity that goes beyond the usual short-life assets. It introduced a temporary 100% deduction for certain nonresidential real property used in qualified production activities, such as manufacturing, production, or refining. This is notable because it reaches part of the building itself, which normally would depreciate over 39 years.
The provision comes with specific timing and use requirements, and it is aimed at a narrow set of taxpayers who build or improve production facilities. If you operate in manufacturing or a similar field and are planning a facility, this is worth raising with your advisor early, because eligibility depends on when construction begins and when the property is placed in service. As with any new provision, the details are still settling through guidance, so treat the general description here as a prompt to look closer rather than a final rule.
What to watch for before you claim it
A large deduction is attractive, yet bonus depreciation carries trade-offs that deserve attention before you commit. A few points come up repeatedly in planning.
- Depreciation recapture. When you sell an asset you depreciated, the tax code may recapture part of that benefit as ordinary income or at special rates. The deduction is not free; it can shift tax to the year of sale.
- State conformity. Not every state follows federal bonus depreciation. Some require you to add the deduction back for state purposes, which narrows the benefit.
- The passenger-auto limits. Vehicles that are not heavy enough face annual caps, so the full write-off may not apply to a typical car.
- Timing of income. Accelerating deductions into a low-income year, or away from a high-income year, can waste part of the benefit. The value depends on your bracket in the year you claim it.
Because of these factors, the biggest deduction is not always the best decision. In some years, electing out of bonus for a class of assets and depreciating them normally produces a better long-term result. This is a judgment call that rewards planning ahead of the tax year.
Planning moves to consider for 2026
The deduction only helps if you use it deliberately. A short review while the year is still open generally beats a scramble at filing time. The steps below are a starting framework, not a prescription.
- Coordinate large purchases with your income. If you expect a high-income year, placing qualifying assets in service before year end may capture more value.
- Confirm the placed-in-service date. Ordering an asset is not enough; it generally must be ready and available for use to qualify.
- Pair property purchases with a cost segregation study when the numbers justify the cost of the study.
- Model the sale. If you plan to sell an asset soon, weigh the year-one deduction against likely recapture at exit.
- Check your state. Confirm whether your state conforms, so the plan reflects your true combined benefit.
The bottom line
Making 100% bonus depreciation permanent removes years of uncertainty for anyone who invests in equipment or property. For business owners, it restores a full first-year write-off on a broad range of assets. For real estate investors, it turns a cost segregation study into an even sharper tool. The deduction is powerful, but it is a timing decision with real trade-offs, so the households that plan it into a coordinated strategy will generally capture more of the value than those who treat it as an afterthought at filing time.
If you want a structured starting point, download our free guide to the top five tax strategies for high-income earners, then go deeper with the ETS Playbook of 100+ tax strategies to see how depreciation fits into a complete plan. For primary sources, review the IRS bonus depreciation FAQs and Publication 946 on how to depreciate property before you act.
Frequently asked questions
Is 100% bonus depreciation really permanent now?
The One Big Beautiful Bill Act restored the 100% rate and removed the scheduled phase-out for qualifying property placed in service after January 19, 2025. Permanent in tax law means until Congress changes it, so it is durable but not beyond future legislation. Confirm the current rules with a licensed tax professional before you plan around them.
Can bonus depreciation create a tax loss?
Yes. Unlike Section 179, which is limited to business income, bonus depreciation can push taxable income below zero and create a net operating loss. Whether that loss offsets your other income depends on rules such as the passive activity limits, which is why the details matter.
Does bonus depreciation apply to real estate?
The building shell and land do not qualify, because their recovery period is too long. However, shorter-life components identified through a cost segregation study can qualify, which is how real estate investors capture the benefit on a property purchase.
The strategies described here are general educational information about the U.S. tax code. Individual results vary based on income, entity structure, state law, and other factors, and the provisions of the One Big Beautiful Bill Act are subject to future guidance and legislative change. This is not personalized tax, legal, or financial advice. Consult a licensed tax professional before implementing any strategy.
