Business tax
Bonus depreciation in 2026: 100% is back
Business equipment, vehicles, software and other property with a recovery period of 20 years or less can be written off in full in the year you start using it, if you acquired it after January 19, 2025. The July 2025 tax law made that 100% bonus depreciation permanent. Property acquired before January 20, 2025 still follows the old phase-down: 40% if placed in service in 2025.
Bonus depreciation rate by date
What decides the rate is when you acquired the property (usually when you signed a binding contract) and when you placed it in service.
| Acquired | Placed in service | Bonus rate |
|---|---|---|
| After January 19, 2025 | 2025, 2026 or later | 100% (you can elect 40% for the first tax year ending after Jan. 19, 2025) |
| After Sept. 27, 2017, before Jan. 20, 2025 | During 2025 | 40% |
What qualifies
Property can be new or used.
- Tangible property depreciated under MACRS with a recovery period of 20 years or less: machinery, computers, furniture, tools, trucks and most business vehicles.
- Off-the-shelf computer software.
- Land improvements such as fences, driveways and parking lots (15-year property).
- Used property can qualify too, with conditions: for example, you cannot have used it before or bought it from a related party.
- Not buildings: residential rental buildings (27.5 years) and commercial buildings (39 years) are too long-lived. Parts of them that fall into shorter classes can qualify.
Example
A contractor buys $40,000 of equipment in March 2026. It is 7-year property.
With 100% bonus depreciation, all $40,000 is deducted on the 2026 return. Without it, the normal first-year deduction for 7-year property is 14.29%, about $5,716, with the rest spread over the next seven years. The total deduction is the same; bonus moves it into the first year.
Bonus depreciation vs Section 179
Both let you deduct the cost up front, and you can use them together. The differences:
| Bonus depreciation | Section 179 | |
|---|---|---|
| Dollar limit | None | $2,560,000 for 2026 |
| Can create a loss | Yes | No, limited to business income |
| Applies by default | Yes, unless you elect out | Only if you elect it |
| Choose asset by asset | No, by class of property | Yes |
Electing out, and when that makes sense
You do not have to take it.
- Bonus depreciation is automatic. To skip it, attach an election to a timely filed return, by class of property (all 5-year property, for example).
- Electing out can make sense if you expect higher income in later years, want to keep deductions for a year when your bracket is higher, or would otherwise waste the deduction on a loss you cannot use.
- Selling the property later brings the deduction back: gain up to the depreciation taken is taxed as ordinary income (depreciation recapture).
Rental property owners
The rental building itself does not qualify. But appliances, carpeting and furniture in a residential rental are 5-year property, and fences, driveways and landscaping are 15-year property, so those can be written off in full. A cost segregation study splits a building purchase into these shorter classes; it is worth the fee mostly on larger properties.
Your state may not follow
Some states do not allow federal bonus depreciation and make you add it back, then depreciate the property over its normal life on the state return. Check your state before counting on the full deduction there.
Bought equipment or a vehicle this year?
USTAXX decides between bonus depreciation and Section 179 for each purchase, files Form 4562 and plans around depreciation recapture. In Naperville, IL, or remotely.
Questions people ask
What is the bonus depreciation rate for 2026?
100% for qualified property acquired after January 19, 2025. The July 2025 tax law made it permanent, so it does not phase down again.
What was bonus depreciation in 2025?
100% for property acquired after January 19, 2025, and 40% for property acquired earlier but placed in service in 2025.
Does bonus depreciation apply to used equipment?
It can, with conditions: for example, you cannot have used it before or bought it from a related party.
Can I take bonus depreciation on a rental house?
Not on the building, which is 27.5-year property. Appliances, carpets, furniture and land improvements in or around it can qualify.
Is bonus depreciation better than Section 179?
Bonus has no dollar cap and can create a loss; Section 179 lets you pick individual assets but cannot exceed business income. Many businesses use both.
Where these rules come from
- IRS Publication 946: How to depreciate property
- IRS: Instructions for Form 4562
- IRS Notice 2026-11 (Internal Revenue Bulletin 2026-6)
- IRS Rev. Proc. 2025-32: 2026 inflation adjustments (PDF)
General information, current when written, not advice about your situation. Fees and forms change; the official pages above are the authority.
