Bonus depreciation—also known as special depreciation allowance—allows businesses to deduct a significant percentage of the cost of qualified business property in the year it is placed in service.
📌 What Is Bonus Depreciation?
Bonus depreciation allows an immediate, accelerated deduction on qualifying business property to reduce taxable income in the year the asset is placed in service. It applies automatically unless the taxpayer elects out.
📈 Pre‑OBBBA Phase‑Down Rates (TCJA Rules)
These rates applied before OBBBA changes:
| Tax Year | Bonus Depreciation % |
|---|---|
| 2023 | 80% |
| 2024 | 60% |
These rates are now superseded for most assets placed in service after January 19, 2025 due to OBBBA.
🏷️ Property That Qualifies
- Tangible property with a 20‑year MACRS recovery period or less
- Certain computer software
- Water utility property
- Qualified improvement property (QIP)
- New and used property, if not previously used by the taxpayer
🚫 Property That Does Not Qualify
- Real estate (unless QIP)
- Property received as a gift or inheritance
- Property converted from personal to business use
- Listed property with <50% business use
🏛️ OBBBA Changes: Major 2025–2026 Bonus Depreciation Updates
The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, made sweeping, permanent changes to bonus depreciation rules.
⭐ 1. Permanent Restoration of 100% Bonus Depreciation
OBBBA restores 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025.
This fully reverses the TCJA phase‑down.
What this means
- The scheduled drop to 40% in 2025 and eventual elimination in 2027 no longer apply.
- All qualifying property placed in service after Jan. 19, 2025, receives full expensing in year one.
⭐ 2. Applies Broadly — No New Property Restrictions
OBBBA did not narrow eligibility.
Qualifying property still includes:
- Tangible personal property with a MACRS life ≤ 20 years
- Computer software
- Vehicles, machinery, equipment
- Qualified improvement property
- New or used assets (if acquisition rules are met)
⭐ 3. Updated Acquisition Date Rules
To qualify for 100% bonus depreciation:
- Asset must be acquired after Jan. 19, 2025
- Acquisition date generally depends on when a binding written contract was executed
⭐ 4. Transitional Rules Still Apply to Assets Acquired Before Jan. 19, 2025
Assets acquired before Jan. 19, 2025, but placed in service afterwards, remain subject to the old phase‑down (40% in 2025, 20% in 2026).
⭐ 5. Special Categories Expanded (New Under OBBBA)
OBBBA adds additional eligible categories:
🎵 Qualified Sound Recording Productions
Newly eligible for 100% bonus depreciation.
🌱 Specified Plants
Farming businesses retain the ability to elect 100% bonus depreciation for plants when planted or grafted.
⭐ 6. Major Section 179 Enhancements (Related but Separate)
While not technically bonus depreciation, OBBBA also:
- Increases Section 179 deduction limit to $2.5M
- Expands phase‑out threshold to $4M–$5M+ depending on source
This helps when assets don’t qualify for bonus depreciation.
🧮 Example (Post‑OBBBA)
A business buys equipment for $50,000 on March 1, 2025 and places it in service immediately.
Because the asset was acquired and placed in service after Jan. 19, 2025, bonus depreciation =
100% × $50,000 = $50,000 immediate deduction
🛠️ How to Claim in Tax Software
- Navigate to your business activity (Schedule C, E, or F).
- Go to Depreciation / Assets.
- Enter cost, description, service date, business‑use %.
- System automatically applies 100% bonus depreciation, unless you choose to opt out
🧠 FAQs
Does bonus depreciation now stay at 100% permanently?
Yes—for property acquired/placed in service after Jan. 19, 2025, the 100% rate is permanently restored under OBBBA.
Can I still elect out of bonus depreciation?
Yes.
Do I still need to track acquisition date?
Absolutely. A binding contract executed before Jan. 19, 2025 pushes the asset into transitional phase‑down rates.]