What Is Bonus Depreciation and How Does It Work in 2026?
Sam's List Editorial | 2026-07-16
What Is Bonus Depreciation and How Does It Work in 2026? Bonus depreciation lets a business deduct a large percentage of the cost of qualifying assets in the year they are placed in service, instead of spreading that deduction out over years. For 2026, the headline is that the rate is back to 100% for most qualifying property, following the One Big Beautiful Bill Act, though a timing rule and some tradeoffs decide whether it actually helps you. Here is what changed, how it works, and when it is worth using. The 2026 Rate, and the Catch in the Timing The One Big Beautiful Bill Act, enacted in 2025, permanently restored 100% bonus depreciation under Section 168(k) for qualifying property both acquired and placed in service after January 19, 2025. The IRS issued interim guidance on the permanent rules in Notice 2026-11 in January 2026. There is an important transition detail. For property you acquired on or before January 19, 2025, the older phase-down schedule from the Tax Cuts and Jobs Act still applies based on when the property is placed in service, which means 40% for 2025, 20% for 2026, and 0% thereafter. So two businesses buying similar equipment can face very different rates depending on when the asset was acquired. Because the acquisition and placed-in-service dates both matter, this is a detail worth confirming for each purchase rather than assuming 100% always applies. What Actually Qualifies Bonus depreciation generally applies to tangible property with a recovery period of 20 years or less, which covers a lot of what businesses buy: equipment, machinery, computers, furniture, and many vehicles. It can also apply to certain improvements to non-residential buildings, and, unlike some incentives, it can be used for both new and used property as long as the property is new to you. What it does not cover is as important as what it does. Land does not depreciate, and buildings themselves have much longer recovery periods, so the structure of a real estate purchase does not simply get expensed in year one. Real estate investors often reach bonus depreciation through a cost segregation study, which identifies shorter-lived components of a property, and that is a technical exercise vetted done with a professional. Bonus Depreciation vs. Section 179 Bonus depreciation is often confused with Section 179 expensing, and while both let you deduct asset costs up front, they work differently. Section 179 lets you choose how much to expense, up to annual dollar limits, and it phases out for businesses that buy above a spending cap. It also cannot create or...
