What Is Bonus Depreciation and How Does It Work in 2026?
Sam's List Editorial | 2026-07-16
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 best 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 increase a business loss. Bonus depreciation, by contrast, has no dollar cap, applies automatically unless you elect out, and can create a loss.
In practice, many businesses use them together, applying Section 179 selectively first and letting bonus depreciation handle the rest. Which combination is best depends on your income, your other deductions, and your plans, so this is a planning question, not a default setting.
The Tradeoffs Worth Knowing
A big first-year deduction sounds like an easy win, but it is not always the right move, and it is not free.
First, a deduction is only valuable against income. Taking a large deduction in a low-income year can waste it, when spreading it out might have saved more tax overall. Second, when you sell the asset, depreciation you claimed is generally subject to recapture, meaning part of your gain is taxed as ordinary income. Accelerating depreciation can accelerate that future tax. Third, state conformity varies. Many states do not follow federal bonus depreciation, so you may claim it federally and add it back on your state return, which complicates your books and your planning.
None of these make bonus depreciation bad. They make it a decision, with timing and future consequences, rather than a reflex.
When It Helps and When to Get Advice
Bonus depreciation tends to help most when you have real income to shelter, when you expect your tax rate to be the same or lower in future years, and when the cash-flow benefit of a big deduction now outweighs the cost of a smaller one later. It tends to help less in a low-income year, when you plan to sell the asset soon, or when your state's non-conformity eats much of the benefit.
Because the interaction of bonus depreciation, Section 179, recapture, and state rules is genuinely complex, this is an area where a good accountant earns their fee. You can compare firms that handle this kind of planning in the Sam's List accountant directory or among Sam's List fractional CFOs.
Frequently Asked Questions
What is the bonus depreciation rate for 2026? For property both acquired and placed in service after January 19, 2025, the One Big Beautiful Bill Act restored a permanent 100% bonus depreciation rate under Section 168(k). Property acquired on or before that date follows the older phase-down and is generally at 20% for 2026, so the acquisition date matters as much as the year.
How is bonus depreciation different from Section 179? Section 179 lets you choose how much to expense up to annual limits, phases out above a spending cap, and cannot create a loss. Bonus depreciation has no dollar cap, applies automatically unless you elect out, and can create a loss. Many businesses use both together, with the right mix depending on their income and plans.
Does bonus depreciation apply to real estate? Not to land or the building structure itself, which has a long recovery period. Investors typically reach bonus depreciation on shorter-lived components identified through a cost segregation study. That is a technical process, so it is best handled with an accountant who knows real estate.
Is taking bonus depreciation always a good idea? No. A deduction only helps against income, claimed depreciation can be recaptured as ordinary income when you sell, and many states do not conform to the federal rule. Whether to take it, elect out, or combine it with Section 179 is a planning decision worth discussing with a professional before you file.
Kimberly Green is the cofounder of Sam's List, where business owners and high earners find vetted CPAs, financial advisors, and fractional CFOs. She's met one-on-one with 400+ financial professionals and writes from the real data behind thousands of client-advisor matches. Ask her anything about finding an accountant - she's heard it all, including the questions people are afraid to ask.