By Income Tax Service Editorial — Reviewed by Diyan Yap, EA (IRS Enrolled Agent) — Updated July 19, 2026
Quick answer: The One Big Beautiful Bill Act restored 100% first-year bonus depreciation — permanently — for qualified property acquired and placed in service after January 19, 2025. Businesses can again write off the full cost of equipment, software, used assets, and qualified improvement property in year one. Buildings themselves still don’t qualify, which is exactly why cost segregation is valuable again.
Key facts:
- 100% first-year deduction for qualified property acquired AND placed in service after January 19, 2025 — no scheduled phaseout, made permanent
- Replaces the old phase-down (40% in 2025, 20% in 2026, 0% in 2027 under prior law)
- Trap: property placed in service January 1–19, 2025 falls under the old 40% rate
- Qualifies: tangible property with a recovery period of 20 years or less, off-the-shelf software, qualified improvement property, and used property bought arm’s-length
- Doesn’t qualify: buildings themselves, property used outside the U.S.
- Separate new §168(n) deduction covers qualified production (manufacturing) property under its own tests
What is 100% bonus depreciation?
Bonus depreciation (IRC §168(k)) lets a business deduct the entire cost of qualifying assets in the year they go into service, instead of spreading deductions over 5, 7, or 15 years. Buy a $180,000 excavator in 2026, put it to work, deduct $180,000 against 2026 income. Done.
Under prior law this benefit was disappearing — 80% in 2023, 60% in 2024, 40% in 2025, headed to zero. The One Big Beautiful Bill Act reversed course entirely: 100%, permanently, for property acquired and placed in service after January 19, 2025. For capital-intensive businesses and real estate investors, this is the single most valuable business provision in the law.
What property qualifies (and what’s the date trap)?
Qualifies for 100% bonus:
- Tangible personal property with a MACRS recovery period of 20 years or less — machinery, equipment, vehicles, furniture, tools, computers
- Off-the-shelf computer software
- Qualified improvement property (QIP) — interior improvements to nonresidential buildings (not enlargements, elevators, or structural framework)
- Used property, if acquired in a genuine arm’s-length purchase (not from a related party)
- Certain plants bearing fruits and nuts
Doesn’t qualify: the building itself (residential or commercial structures), land, property used predominantly outside the U.S., and tax-exempt-use property.
The January 19 trap: the 100% rate requires the property to be acquired and placed in service after January 19, 2025. Assets placed in service January 1–19, 2025 sit under the old 40% rate. If you have early-2025 purchases in your fixed-asset ledger, confirm the placed-in-service dates before filing — the difference on a large asset is enormous. (IRS interim guidance: Notice 2026-11.)
How does cost segregation multiply the benefit? (worked example)
Buildings don’t get bonus depreciation — but buildings aren’t one asset. A cost segregation study breaks a purchase into components: 5-year property (carpet, appliances, specialty electrical), 7-year, 15-year (land improvements — parking, landscaping, fencing), and the 39-year (or 27.5-year residential) structure.
Everything in the 5/7/15-year buckets qualifies for 100% bonus. That’s the game:
- Investor buys a $1,000,000 rental property in 2026
- Cost segregation identifies $250,000 of short-life components
- With the study: $250,000 deducted in year one via bonus depreciation
- Without it: straight-line on the whole building yields roughly $36,000 a year (27.5-year residential schedule)
- Year-one difference: ~$214,000 of additional deductions — at a 32% marginal rate, roughly $68,000 of tax deferred into year one
The study costs a few thousand dollars and routinely returns ten to fifty times its fee on properties of meaningful size. With 100% bonus permanent, every significant property acquisition should at least price one out — details in our real estate investor guide.
Bonus depreciation vs Section 179 — which one, when?
They overlap but behave differently:
| Feature | Bonus depreciation (§168(k)) | Section 179 |
|---|---|---|
| 2026 limit | Unlimited | $2,560,000 cap, phase-out from $4,090,000 of purchases |
| Can it create a loss? | Yes | No — limited to business income |
| Election style | Applies by class unless you elect out | Asset-by-asset choice |
| Some building systems (roofs, HVAC on nonresidential) | No | Yes |
| Used property | Yes (arm’s-length) | Yes |
Common sequencing: use Section 179 for surgical asset-by-asset choices and the building systems it uniquely covers, then let bonus depreciation sweep the rest — including into a loss year when that’s the strategy.
One caution before you race to a giant deduction: a massive year-one write-off isn’t automatically optimal. If it crushes taxable income below the brackets you’ll face later — or below the income needed to use your QBI deduction — spreading deductions (electing out of bonus for a class, or straight-line) can beat the max-deduction reflex. Model both paths.
What about the new manufacturing deduction (§168(n))?
OBBBA also created a separate 100% first-year deduction for Qualified Production Property — machinery, certain plants, and other production assets for manufacturing-type activities, for purchases placed in service after January 19, 2025. It is not bonus depreciation: eligibility tests and election treatment differ. Manufacturers should evaluate both provisions; until full regulations land, IRS interim guidance (Notice 2026-11) is the roadmap.
What should you do now?
- Audit early-2025 placed-in-service dates — anything in the January 1–19 window is at 40%, not 100%; anything after is full write-off.
- Planning equipment purchases? The permanent 100% rate removes the “buy before year-end or lose the rate” panic — buy when the business needs it, deduct in full.
- Buying real estate in 2026? Get a cost segregation quote during due diligence, not after closing.
- Model the deduction, don’t just take it. Bonus vs 179 vs electing out interacts with QBI, loss limits, and future brackets — an IRS Enrolled Agent can run the scenarios before the return locks the choice in.
FAQ
Is 100% bonus depreciation permanent or does it phase out again? Permanent. OBBBA removed the phase-down schedule entirely — there is no scheduled reduction after 2025’s restoration.
Does used equipment qualify? Yes — used property qualifies if you acquired it in a genuine arm’s-length transaction (not from a related party) and it’s new to you.
Can bonus depreciation create a tax loss? Yes — unlike Section 179, bonus deductions can drive taxable income below zero, subject to the loss-limitation rules. That’s a feature or a bug depending on your plan — model it.
Does my rental building qualify for bonus depreciation? The building itself doesn’t. The short-life components inside it (identified by a cost segregation study) and qualifying land improvements do — that’s why the study matters.
I placed equipment in service on January 10, 2025 — what rate? 40%, under the old phase-down. The 100% rate requires acquisition and placed-in-service after January 19, 2025.
Is Section 179 obsolete now? No — 179 still uniquely covers certain nonresidential roofs/HVAC and offers asset-by-asset control that bonus’s class-wide treatment doesn’t. Most businesses use both deliberately.
Sources
- IRS: One Big Beautiful Bill provisions for individuals and workers
- IRS: Tax inflation adjustments for tax year 2026
- Section179.org — 2026 limits and comparisons
This article is for educational purposes only and is not tax, legal, or financial advice. Tax rules change and individual situations vary — consult a qualified tax professional about your specific circumstances.