100% bonus depreciation is back — permanently. The One Big Beautiful Bill Act (OBBBA) reversed the scheduled phase-down of bonus depreciation and locked in full first-year expensing for qualifying business property. For small businesses investing in equipment, vehicles, and technology, this is one of the most impactful provisions in the entire bill.
What Changed Under OBBBA
Under the original Tax Cuts and Jobs Act (TCJA) of 2017, 100% bonus depreciation was available for property placed in service between September 27, 2017 and December 31, 2022. After that, it was phasing down:
| Tax Year | Bonus Depreciation Rate (Pre-OBBBA) | Rate Under OBBBA |
|---|---|---|
| 2022 | 100% | 100% |
| 2023 | 80% | 100% (retroactive) |
| 2024 | 60% | 100% (retroactive) |
| 2025 | 40% | 100% |
| 2026 | 20% | 100% (permanent) |
| 2027+ | 0% | 100% (permanent) |
The OBBBA restored 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025 — and made it permanent. No more sunset dates, no more phase-downs.
What Is Bonus Depreciation?
Bonus depreciation (also called “first-year bonus depreciation” or “full expensing”) allows businesses to deduct the entire cost of qualifying assets in the year they’re placed in service, rather than spreading the deduction over the asset’s recovery period (typically 5, 7, or 15 years).
Without bonus depreciation: A $100,000 piece of 5-year equipment yields ~$20,000 in depreciation deductions per year for 5 years.
With 100% bonus depreciation: That same $100,000 equipment is fully deducted in Year 1. You get the entire tax benefit immediately.
What Property Qualifies?
Eligible Property
- Tangible personal property with a recovery period of 20 years or less (MACRS) — machinery, equipment, computers, furniture, tools
- Certain computer software
- Water utility property
- Qualified film, television, and live theatrical productions
- Qualified improvement property (QIP) — interior improvements to nonresidential buildings (15-year recovery period)
- Used property — as long as it’s the first time YOU use it (doesn’t need to be brand new)
Property That Does NOT Qualify
- Property with a recovery period longer than 20 years
- Buildings and structural components (except QIP)
- Land
- Property acquired from a related party
- Property you previously used (if you sell an asset and buy it back, it doesn’t qualify)
- Property required to use the alternative depreciation system (ADS)
- Certain regulated utility property
Bonus Depreciation vs. Section 179: Key Differences
Both provisions let you deduct the full cost of assets in Year 1, but they work differently. Here’s when to use each:
| Feature | Bonus Depreciation | Section 179 |
|---|---|---|
| Dollar limit | None | $2.56 million (2026) |
| Can create a business loss? | Yes | No — limited to business income |
| Automatic or elected? | Automatic (opt out if unwanted) | Must elect on tax return |
| Phase-out based on total purchases | No | Yes — begins at $4.09M |
| Used property eligible? | Yes (first use by you) | Yes |
| Real property improvements | QIP (interior improvements) | Roofs, HVAC, fire, security |
| Unused deduction | Creates/increases net operating loss (NOL) | Carries forward as Sec. 179 carryover |
Strategic Approach
Use Section 179 first — it gives you control over which assets to expense and keeps your deduction within business income. Then let bonus depreciation handle the rest — it automatically applies to remaining qualifying property and can create a loss if needed.
For most small businesses, the combination of Section 179 + bonus depreciation means virtually every business asset purchase is fully deductible in Year 1.
The 40% Election Option
The OBBBA introduced a one-time option: for the first tax year ending after January 19, 2025, taxpayers can elect 40% bonus depreciation instead of 100%.
Why would you choose less?
- If you expect higher income in future years and want to preserve depreciation deductions for when they’re more valuable
- If you’re in a low tax bracket this year and want to spread deductions to higher-bracket years
- If taking 100% would create a large NOL that takes years to use up
- If you’re managing income for QBI phase-out thresholds
This is a one-time election for one specific tax year — not an ongoing choice. After that year, it’s 100% or nothing (you can always opt out of bonus depreciation entirely on a class-by-class basis).
Bonus Depreciation for Vehicles
Business vehicles qualify for bonus depreciation, but passenger vehicles have special limits:
Passenger Vehicles (Under 6,000 lbs GVWR)
| Year | With Bonus Depreciation | Without Bonus Depreciation |
|---|---|---|
| Year 1 | ~$20,400 | ~$12,400 |
| Year 2 | ~$19,800 | ~$19,800 |
| Year 3 | ~$11,900 | ~$11,900 |
| Year 4+ | ~$7,160/year | ~$7,160/year |
*2026 estimated limits. Exact amounts published annually by the IRS.
Heavy Vehicles (Over 6,000 lbs GVWR)
- Heavy SUVs: Section 179 up to $32,000, then bonus depreciation on the remainder — potentially deducting the full cost
- Heavy trucks and vans: No luxury auto limits — full bonus depreciation available on entire cost
Track your business mileage to document the business use percentage. A mileage tracking app creates the documentation you need if the IRS asks.
Retroactive Application and Prior-Year Adjustments
Because the OBBBA retroactively restored 100% bonus depreciation for property placed in service after January 19, 2025, businesses that already filed 2024 or 2025 returns using the phased-down rates (60% and 40%) may be able to:
- File amended returns to claim the full 100% deduction
- File a Form 3115 (Application for Change in Accounting Method) for an automatic adjustment
- Consult with a tax professional to determine which approach is most beneficial
This could result in significant refunds for businesses that made large equipment purchases in 2023 or 2024 and only claimed partial bonus depreciation.
Common Bonus Depreciation Scenarios
Scenario 1: Freelance Videographer
Buys a $45,000 camera package and $15,000 in editing equipment. Total: $60,000.
- 100% bonus depreciation: $60,000 deduction in 2026
- At 24% bracket + SE tax: saves approximately $23,580
- Without bonus depreciation (5-year MACRS): only $12,000 deduction in Year 1
Scenario 2: Restaurant Owner
Renovates interior ($200,000 QIP) and buys new kitchen equipment ($150,000).
- QIP qualifies for bonus depreciation (15-year property, but 100% in Year 1)
- Equipment qualifies for bonus depreciation (5 or 7-year property)
- Total Year 1 deduction: $350,000
- At 32% bracket: saves approximately $112,000 in Year 1 vs. spreading over 5-15 years
Scenario 3: Tech Startup
Buys $500,000 in servers, networking equipment, and office buildout.
- Section 179 doesn’t help — the startup has no business income yet (Section 179 is capped at business income)
- Bonus depreciation creates a $500,000 business loss that carries forward as an NOL
- The NOL offsets up to 80% of taxable income in future profitable years
Record-Keeping for Bonus Depreciation
Proper documentation is essential for every asset claiming bonus depreciation:
- Purchase invoice or receipt — date, vendor, description, cost
- Date placed in service — when the asset was first ready for business use
- Asset class and recovery period — determines eligibility
- Business use percentage — must be documented annually
- Acquisition date — confirms property was acquired after January 19, 2025 for full 100% treatment
Scan purchase receipts for all business assets immediately. For large purchases, also store the full invoice, financing agreement, and any delivery/installation documentation. Having organized records means your accountant can maximize your depreciation deductions without spending billable hours hunting for paperwork.
Frequently Asked Questions
Is bonus depreciation automatic?
Yes. Unlike Section 179 (which requires an election), bonus depreciation applies automatically to all qualifying property unless you opt out. You can elect out on a class-by-class basis (e.g., opt out for 5-year property but keep it for 7-year property) by attaching a statement to your tax return.
Can bonus depreciation create a net operating loss?
Yes — this is one of the key differences from Section 179. If bonus depreciation deductions exceed your business income, the excess creates a net operating loss (NOL) that can be carried forward to offset up to 80% of taxable income in future years. There’s no carryback period under current law.
Does used equipment qualify?
Yes, as long as it’s the first time you’re using the property. If you buy a used machine from another business, it qualifies for bonus depreciation. The “used property” rule was added by the TCJA and continued by the OBBBA. The property just can’t be acquired from a related party.
What about leasehold improvements?
Qualified improvement property (QIP) — interior improvements to nonresidential buildings — qualifies for bonus depreciation at 100%. This includes renovations to office space, retail stores, restaurants, and warehouses. Improvements to the building’s structural framework (enlargements, elevators, escalators, internal structural framework) do not qualify.
Should I take bonus depreciation or spread it out?
For most small businesses, taking 100% bonus depreciation makes sense — you get the full tax benefit immediately, improving cash flow. The main exception is if you expect to be in a significantly higher tax bracket in future years, in which case spreading deductions may save more overall. Discuss with your accountant based on your specific situation.
Bottom Line
The permanent restoration of 100% bonus depreciation is one of the OBBBA’s most business-friendly provisions. Combined with the expanded Section 179 deduction, small businesses can deduct the full cost of virtually any business asset purchase in the year it’s made — with no dollar limit.
The key to maximizing this benefit is documentation. Every asset needs a receipt, a placed-in-service date, and a business use record. Start tracking your business asset purchases with SparkReceipt to keep everything organized and audit-ready.
