100% Bonus Depreciation: Current 2026 Rules

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Contents

What 100% bonus depreciation does
The January 19, 2025 line controls the current rule
Which assets can be qualified property
Business use and statutory exclusions still matter
Section 179 and bonus depreciation are separate
Two elections can change the default result
Records connect the legal tests to the asset
Federal depreciation does not answer every state question
Sources

Key Facts

Federal level: Current federal law generally provides 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025.
Federal level: Qualifying property commonly includes MACRS property with a recovery period of 20 years or less, certain computer software, water utility property, and specified productions.
Federal level: Eligible used property can qualify, but statutory related-party and prior-use restrictions apply.
Federal level: Property acquired before January 20, 2025 generally remains under the earlier phase-down rules even if it was placed in service later in 2025.
Federal level: A taxpayer may elect out of bonus depreciation for an entire class of qualified property placed in service during the tax year.
Federal level: The Section 179 deduction is applied before bonus depreciation, and regular MACRS depreciation applies to the remaining basis.

What 100% bonus depreciation does

Bonus depreciation is an additional first-year deduction under section 168(k) of the Internal Revenue Code. For qualifying property within the current rule, it can deduct 100% of the adjusted depreciable basis in the taxable year the property is placed in service.

“Placed in service” generally means the asset is ready and available for its assigned business or income-producing use. Buying or paying for an asset does not by itself establish that date.

The deduction accelerates cost recovery; it does not create additional basis. Claiming the allowance reduces the asset’s remaining basis, and a later taxable disposition may trigger depreciation recapture.

The January 19, 2025 line controls the current rule

Public Law 119-21 restored a permanent 100% rate for qualified property acquired after January 19, 2025. IRS guidance applies the rule to qualifying property acquired and placed in service after that date.

The acquisition date and placed-in-service date therefore answer different questions. A qualifying machine acquired on February 1, 2025 but not ready for use until 2026 generally enters the 100% regime when placed in service in 2026.

Property acquired before January 20, 2025 does not become 100% property merely because it was placed in service after that date. For property acquired during the prior-law window and placed in service in 2025, the general phase-down rate is 40%, or 60% for specified long-production-period property and certain aircraft.

This is why current law should not be confused with the 2020 bonus depreciation rules. The percentage may be the same, but the statutes, acquisition windows, and transition provisions are not.

Which assets can be qualified property

The principal category is tangible property depreciated under MACRS with a recovery period of 20 years or less. Common examples can include machinery, equipment, furniture, and certain vehicles when all other requirements are met.

The statute also includes specified computer software, water utility property, and qualified film, television, live theatrical, and sound-recording productions under their respective rules. Qualified improvement property can fit the 20-year-or-less category, but a building itself generally does not.

Certain used property may qualify when its acquisition satisfies the statutory prior-use, related-party, and carryover-basis restrictions. The rule is broader than an original-use-only system, but it does not make every secondhand purchase eligible.

Business use and statutory exclusions still matter

An asset must be depreciable and used in a trade or business or for producing income. Personal-use property does not qualify merely because it falls within an asset class that ordinarily has a short recovery period.

Property required to use the alternative depreciation system can be ineligible for bonus depreciation. Section 168(k) also excludes property used in specified utility businesses and certain businesses with floor plan financing indebtedness when the statutory conditions apply.

Listed property, including passenger automobiles, can face business-use tests and annual deduction limits. A 100% bonus rate therefore does not necessarily mean the entire purchase price of every vehicle is deductible in the first year.

Section 179 and bonus depreciation are separate

The Section 179 deduction is elective and has its own eligible-property rules, dollar limits, investment phaseout, and taxable-income limitation. Bonus depreciation is a separate additional first-year allowance under section 168(k).

When both apply, the section 179 deduction is calculated first. Bonus depreciation is then calculated on the remaining basis, followed by regular MACRS depreciation on any basis still left.

The choice can affect taxable income, future depreciation deductions, and the amount potentially subject to recapture. The fact that 100% bonus depreciation is available does not require the maximum deduction to be claimed.

Two elections can change the default result

A taxpayer may elect out of bonus depreciation for one or more classes of qualified property placed in service during a taxable year. The election applies to all qualified property in the selected class for that year and generally requires a statement with a timely filed federal return.

A separate transition election applies to qualified property placed in service during the first taxable year ending after January 19, 2025. That election substitutes a 40% allowance, or 60% for specified long-production-period property and certain aircraft, for the restored 100% allowance.

These elections are not asset-by-asset choices within the same class. Their timing, class definitions, and revocation rules are governed by section 168(k), Form 4562 instructions, and current IRS guidance.

Records connect the legal tests to the asset

Relevant records include the purchase agreement, binding-contract date, invoices, delivery and installation records, acceptance testing, the date business use became available, basis calculations, and the property’s MACRS class. Used-property acquisitions also require facts about prior use and relationships between the parties.

Form 4562 reports the special depreciation allowance. Entity-level ownership matters because a partnership or S corporation, rather than its owners, generally makes the election for property owned by the entity.

Federal depreciation does not answer every state question

This article addresses the federal section 168(k) allowance. States may decouple from federal bonus depreciation or require additions, subtractions, or different depreciation schedules, so the federal deduction does not establish a state return result.