Bonus Depreciation Guide for 2026

Bonus Depreciation Rate History (2022-2027)

Under the Tax Cuts and Jobs Act, 100% bonus depreciation was available from 2018 through 2022. Beginning in 2023, the rate began declining by 20 percentage points per year. However, the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, permanently restored 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025. The table below shows the complete rate history including the OBBBA restoration.

With the OBBBA restoration, 100% bonus depreciation is now permanent for property acquired after January 19, 2025. A $100,000 equipment purchase in 2026 generates $100,000 in bonus depreciation on any cost remaining after Section 179. Combined with the increased Section 179 limit of $2,560,000, businesses can fully expense virtually any equipment purchase in the year it is placed in service. Note that property acquired before January 20, 2025 remains subject to the original TCJA phase-down schedule.

Impact of Bonus Rates on Equipment Purchases

The following table illustrates how the bonus depreciation rate has changed over recent years and its effect on the first-year deduction for a $200,000 equipment purchase (7-year MACRS property) when using only bonus depreciation and regular MACRS (no Section 179 applied).

With the OBBBA restoration, 2025 and 2026 return to 100% bonus depreciation for qualifying property, meaning businesses can write off the full cost of equipment in the first year through bonus depreciation alone. Combined with the expanded Section 179 limit of $2,560,000, virtually any equipment purchase can be fully expensed in the year it is placed in service.

Section 179 vs Bonus Depreciation: Detailed Comparison

Section 179 and bonus depreciation are complementary provisions that work together to maximize first-year deductions. However, they have important differences that affect which provision is more beneficial in specific situations. Understanding these differences is essential for optimal tax planning.

Optimal Strategy: Combining Section 179 and Bonus Depreciation

For most businesses, the optimal approach is to apply Section 179 first (up to the annual limit of $2,560,000), then apply bonus depreciation to the remaining cost, and finally use regular MACRS depreciation on any residual amount. This three-layer approach maximizes the first-year deduction while respecting the limitations of each provision.

There are specific situations where it may be advantageous to skip or reduce the Section 179 election:

• When business income is low: Since Section 179 cannot create a net operating loss, businesses with limited taxable income may benefit from relying more on bonus depreciation, which can create an NOL that carries forward to future higher-income years.
• When future rates will be higher: If you expect to be in a higher tax bracket in future years, carrying forward some Section 179 deduction could provide greater tax savings later. However, this must be weighed against the time value of money.
• When approaching the phase-out: If total qualifying purchases are near the $4,090,000 threshold, the Section 179 deduction may be partially or fully phased out. In that case, bonus depreciation (which has no phase-out) carries more of the deduction load automatically.

Our Section 179 Calculator automatically applies both deductions in the optimal order, showing you the combined benefit of Section 179, bonus depreciation, and MACRS for your specific purchase.

Property That Qualifies for Bonus Depreciation

Bonus depreciation applies to a broad range of business property. Qualifying property includes MACRS property with a recovery period of 20 years or less (which encompasses virtually all equipment, vehicles, computers, furniture, and machinery), certain computer software, water utility property, and qualified improvement property. The property can be new or used, as long as it is new to the taxpayer (you did not use it before acquiring it).

Property that does not qualify for bonus depreciation includes real property with recovery periods exceeding 20 years (such as commercial buildings with a 39-year life), property acquired from related parties, property acquired in certain tax-free transactions, and property for which the taxpayer elected out of bonus depreciation. Certain regulated utility property is also excluded. Listed property (such as vehicles) qualifies for bonus depreciation but may be subject to additional limitations like luxury auto caps.

One important note: if you elect out of bonus depreciation, the election applies to all property in the same class (same recovery period) placed in service during that tax year. You cannot selectively apply bonus depreciation to some assets and not others within the same class. This election is made on a class-by-class basis on your tax return and is generally irrevocable for that tax year.

Frequently Asked Questions