On July 4, 2025, President Trump signed the One Big Beautiful Bill Act into law. Tucked inside the sprawling legislation was a provision that tax professionals had been lobbying for since 2023: the permanent restoration of 100% first-year bonus depreciation under Internal Revenue Code Section 168(k). For any business that buys qualifying equipment, machinery, or software and places it in service after January 19, 2025, the entire purchase price can now be written off in the year of acquisition, with no sunset date attached.
The practical impact is immediate. A construction firm that spends $200,000 on an excavator this summer can deduct the full amount on its 2026 federal return. At the 21% corporate tax rate, that translates to roughly $42,000 in first-year federal tax savings. Without bonus depreciation, the same asset would be spread across five years under the standard MACRS schedule, producing only about $8,400 in tax relief in year one. The difference is real cash that stays in the business.
For companies that watched the old bonus depreciation allowance erode year after year, the reversal is significant. Under the 2017 Tax Cuts and Jobs Act, the first-year percentage dropped from 100% to 80% in 2023, then to 60% in 2024, and was headed to 40% for 2025 before the OBBBA intervened. That phase-down had already started to reshape capital spending decisions, with some businesses accelerating purchases into earlier years and others simply absorbing higher tax bills.
How the restored deduction works
The enacted text of H.R. 1 (119th Congress), signed as Public Law 119-21, amends Section 168(k) to reinstate the 100% additional first-year depreciation deduction on a permanent basis. There is no new expiration date. The critical requirement: both the acquisition date and the placed-in-service date must fall after January 19, 2025. Equipment that entered use before that cutoff remains subject to the old declining percentages.
The categories of eligible property have not changed. Tangible personal property with a MACRS recovery period of 20 years or less, certain computer software, water utility property, and qualified film, television, and live theatrical productions all qualify. Used property is eligible too, provided the taxpayer had not previously used the asset. The underlying MACRS framework still governs depreciation mechanics; the bonus deduction simply collapses the entire cost into a single year.
Treasury and the IRS formalized the implementation details in Notice 2026-11, released earlier this year. The notice instructs taxpayers to apply existing Section 168(k) regulations but substitute the new January 19, 2025, effective date wherever the old rules referenced the phase-down schedule. That approach preserves years of established guidance on placed-in-service determinations, component-level treatment for larger projects, and coordination between bonus depreciation and regular MACRS recovery periods.
Businesses can still opt out
Full expensing is not mandatory. IRS Publication 946 (2025) confirms that taxpayers may elect out of bonus depreciation for any class of property, or choose a reduced special depreciation allowance. The election is made on a class-by-class, year-by-year basis.
Turning down a bigger deduction sounds counterintuitive, but several situations make it the smarter move. A company already projecting a net operating loss might prefer to spread deductions into future years when it expects higher taxable income. A pass-through entity whose owners sit in lower brackets today but anticipate rate increases could benefit from deferring write-offs. And some businesses find that massive first-year deductions distort financial statements in ways that trigger loan covenant violations or complicate investor reporting. The flexibility to opt out, asset class by asset class, gives tax advisers room to tailor the strategy to each client’s circumstances.
The math behind the $42,000 figure
The arithmetic is straightforward, but the real-world benefit depends on the taxpayer’s profile. A C corporation that spends $200,000 on a qualifying five-year MACRS asset and claims 100% bonus depreciation deducts the full $200,000 in year one. At the flat 21% corporate rate, that yields $42,000 in immediate federal tax savings. Without bonus depreciation, the same asset would generate a first-year MACRS deduction of roughly $40,000 (using the 200% declining balance method with the half-year convention), producing only $8,400 in tax relief that year. The gap in first-year cash flow is $33,600.
For pass-through businesses taxed at individual rates, the dollar savings can be larger still. An owner in the 37% bracket claiming the same $200,000 deduction would see a first-year federal tax reduction of about $74,000. That figure comes with caveats: the qualified business income deduction under Section 199A, passive activity rules, and other individual-level provisions can all reshape the final number. The headline estimate of “about $40,000” is pegged to the corporate rate, but the principle scales across entity types and brackets.
One nuance worth noting: Section 179 expensing remains available alongside bonus depreciation. Businesses that qualify for both can choose the combination that best fits their tax position, though the two provisions have different eligibility thresholds and phase-out rules. For most mid-size capital purchases, bonus depreciation under Section 168(k) will be the simpler and more broadly available tool.
Gray areas the IRS has not yet resolved
The January 19, 2025, cutoff creates transitional questions that Notice 2026-11 does not fully answer. The most common: what happens when a business signed a binding contract for equipment before the cutoff but did not receive or place the asset in service until afterward? The notice directs taxpayers to existing regulations, which contain rules on when property is considered “acquired” and when self-constructed property qualifies. But those rules were drafted for earlier iterations of bonus depreciation, and mapping them onto the new effective date requires careful analysis of contract terms, progress payments, and delivery timelines.
Long-lead assets pose the sharpest questions. A manufacturer that ordered a custom CNC machine in late 2024 with a mid-2025 delivery date, or a developer whose leasehold improvements straddled the cutoff, will need to document acquisition and placed-in-service dates with precision. Tax advisers working with these clients are largely relying on general principles from prior Treasury regulations until the IRS issues more targeted examples or a dedicated revenue procedure.
Another open question involves passenger vehicles. Section 280F imposes annual dollar caps on depreciation for cars and light trucks used in business, and those caps apply on top of bonus depreciation. The IRS has not yet published updated Section 280F limits reflecting the restored 100% allowance for vehicles placed in service after January 19, 2025. Until those figures are released, taxpayers claiming bonus depreciation on vehicles will need to work from the existing cap structure and adjust once final guidance arrives.
The Congressional Research Service, in Report R48550, has reviewed the law and confirmed its basic structure and timing. However, as of July 2026, CRS has not published a scored budget estimate for the permanent extension or projected its effect on aggregate capital investment. That gap matters because it leaves policymakers and analysts without an official measure of the annual revenue cost, making it harder to evaluate the provision’s long-term fiscal impact.
State-level complications worth watching
Federal bonus depreciation does not automatically carry over to state tax returns. As of mid-2026, several states either decouple from Section 168(k) entirely or cap the bonus percentage below 100%. California has historically disallowed bonus depreciation for both its corporate and personal income taxes, meaning a business operating there would claim the full federal deduction but add back the difference on its California return. New York limits bonus depreciation for certain property, and a handful of other states conform to the Internal Revenue Code only as of a fixed date, meaning they may not yet recognize the OBBBA amendments.
For multistate businesses, the gap between federal and state treatment can meaningfully reduce the net tax benefit. A company expecting $42,000 in federal savings may find that state add-backs cut into the combined benefit, or that the timing of state deductions diverges from the federal schedule. Checking each filing state’s conformity status before finalizing depreciation elections is a step that tax professionals across the country are flagging as essential during the current filing season.
Steps to take before the end of 2026
The permanent nature of the restored deduction removes the deadline pressure that characterized earlier bonus depreciation windows, when businesses raced to place assets in service before a sunset date. But several practical steps still matter.
First, any asset purchased and placed in service between January 20, 2025, and the July 4, 2025, signing date qualifies retroactively. Businesses that already filed returns covering that period should review whether amended filings or accounting-method changes could capture the deduction they missed.
Second, companies planning significant capital expenditures should coordinate purchase timing with their overall tax position. Claiming 100% bonus depreciation in a year with strong taxable income maximizes the immediate cash-flow benefit. Claiming it in a loss year may simply increase a net operating loss carryforward, which retains value but delivers it more slowly.
Third, documentation matters more than usual for assets near the January 19, 2025, boundary. Purchase orders, delivery receipts, installation records, and evidence of when equipment was “ready and available for its specifically assigned function” (the IRS standard for placed-in-service status) should be organized now, not reconstructed during an audit years later. For businesses spending six or seven figures on capital equipment, the few hours spent on recordkeeping could protect tens of thousands of dollars in deductions.
Warren Cohen is a finance writer based in Phoenix, Arizona, covering personal finance topics including credit, banking, and beginner investing. He earned his degree in business administration from Arizona State University and began his career working in consumer finance, where he gained direct experience with lending and credit systems. He now writes for personal finance websites and fintech platforms, focusing on clear, practical content that helps readers make informed financial decisions.
