Bonus Depreciation Rules for 2026: What Business Owners Need to Know
Bonus depreciation remains one of the most valuable tax-saving opportunities available to businesses in 2026. However, the amount you can deduct depends largely on when the property was acquired.
Following changes to the tax law, most qualified business property acquired after January 19, 2025 may qualify for 100% bonus depreciation. Property acquired before that date generally follows the older phase-down schedule.
Understanding these rules can help you maximize deductions and make smarter purchasing decisions.
What Is Bonus Depreciation?
Bonus depreciation allows businesses to immediately deduct a significant portion—or even all—of the cost of qualifying business property in the year it is placed into service instead of depreciating it over several years.
This accelerated deduction can improve cash flow and reduce taxable income during the year of purchase.
100% Bonus Depreciation for Newer Acquisitions
For qualified property acquired after January 19, 2025 and placed in service during 2026, businesses generally qualify for:
- 100% first-year bonus depreciation.
This means the entire cost of eligible property may generally be deducted in the first year, subject to IRS rules.
Property Acquired Before January 20, 2025
If qualified property was acquired before January 20, 2025, the previous phase-down schedule generally continues to apply.
For most property placed in service during 2026, the bonus depreciation rate is generally:
- 20% bonus depreciation.
Some long-production-period property and certain aircraft may qualify for different transition percentages depending on the applicable rules.
What Property Qualifies?
Eligible property generally includes:
- Business equipment.
- Machinery.
- Computers and technology equipment.
- Certain software.
- Property with a MACRS recovery period of 20 years or less.
- Qualified film, television, theatrical, and certain sound recording productions.
- Certain water utility property.
Not all business assets qualify, so it’s important to review eligibility before claiming the deduction.
Ordering Rules Matter
When calculating depreciation, the IRS requires deductions to be applied in a specific order:
- Section 179 deduction.
- Bonus depreciation under Section 168(k).
- Regular MACRS depreciation on any remaining basis.
This ordering can significantly affect the amount deducted in the current year and future years.
Can You Elect Out of Bonus Depreciation?
Yes.
Businesses may elect out of bonus depreciation for an entire class of qualifying property if doing so better supports their long-term tax planning strategy.
This election applies to all eligible property within that asset class placed in service during the tax year.
Property That Generally Does Not Qualify
Bonus depreciation is generally unavailable for:
- Property required to use the Alternative Depreciation System (ADS).
- Property placed in service and disposed of during the same year.
- Property converted from business to personal use during the year of acquisition.
- Property for which the taxpayer elects out of bonus depreciation.
- Certain specifically excluded property under the Internal Revenue Code.
Special Rule for Qualified Production Property
Businesses involved in qualified production activities may also benefit from a separate 100% depreciation allowance for certain nonresidential production property under Section 168(n), provided all statutory requirements are satisfied.
This provision is separate from the traditional bonus depreciation rules and may create additional tax-saving opportunities for qualifying businesses.
Final Thoughts
For most businesses, the biggest takeaway for 2026 is simple:
- Property acquired after January 19, 2025 generally qualifies for 100% bonus depreciation.
- Property acquired before January 20, 2025 generally follows the older phase-down rules, with most qualifying for only 20% bonus depreciation when placed in service during 2026.
Because acquisition dates, elections, and property classifications all affect eligibility, careful planning is essential before making major business purchases.
Need Help Maximizing Your Depreciation Deductions?
As a CPA firm, we help businesses determine the most tax-efficient way to expense equipment purchases, apply Section 179 deductions, and maximize bonus depreciation under current IRS rules.
Whether you’re purchasing equipment, expanding operations, or planning year-end tax strategies, our experienced CPA team can help you maximize available deductions while remaining fully compliant.
Contact our CPA team today to schedule a consultation and build a proactive tax strategy for your business in 2026 and beyond.
Strategic depreciation planning today can generate substantial tax savings and improve your business’s cash flow for years to come.
