100% bonus depreciation can give businesses a valuable tax break. It allows many qualifying assets to be fully deducted in the year they are placed in service.
That can make taking the full deduction seem like an easy decision.
But the biggest deduction today isn't always the best tax decision.
A client's current income, future income, state tax rules, other deductions, and long-term plans can all affect the decision.
For tax professionals, the question isn't only:
Can my client take 100% bonus depreciation?
It's also:
Should they?
What Is 100% Bonus Depreciation?
100% bonus depreciation allows businesses to immediately deduct the full cost of many qualifying assets.
Under current federal law, the 100% deduction applies to certain qualifying property acquired and placed in service after January 19, 2025.
Normally, a business deducts the cost of an asset over several years. With bonus depreciation, the business may be able to deduct the full cost in the year the asset is placed in service.
Qualifying property generally includes depreciable business property with a MACRS recovery period of 20 years or less, such as:
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Machinery and equipment
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Computers and certain technology
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Furniture
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Certain vehicles
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Certain improvements
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Other qualifying business property
Both new and certain used property can qualify.
Residential rental buildings and nonresidential buildings generally do not qualify under the standard rule because their recovery periods are longer than 20 years.
Why Wouldn't You Take 100% Bonus Depreciation?
A large immediate deduction can be attractive. But depreciation is also about when a deduction provides the greatest tax benefit.
Consider a business that purchases $100,000 of qualifying equipment.
With 100% bonus depreciation, the business may be able to deduct the entire $100,000 right away.
Without bonus depreciation, the business generally deducts the cost over the asset's MACRS recovery period.
One option provides a larger deduction today. The other preserves deductions for future years.
The better choice depends on the taxpayer.
1. The Business Already Has a Tax Loss
A business may already have a significant tax loss.
Taking a large bonus depreciation deduction could increase that loss.
Other tax rules determine how the loss can be used. However, it may be worth considering whether the business needs the additional deduction now.
In some cases, deductions in future profitable years may be more useful.
2. The Business Expects Higher Income Later
A growing business may have modest taxable income today but expect higher income in the future.
Taking 100% bonus depreciation now means there will be no regular depreciation deductions from that asset in later years.
Using regular MACRS instead can spread deductions over the asset's recovery period.
That may preserve deductions for years when the business has more taxable income.
3. State Tax Rules May Be Different
Federal tax treatment isn't the entire picture.
States do not always follow federal bonus depreciation rules.
A business may receive a large deduction on its federal return but receive different treatment on its state return.
Tax professionals should consider both federal and state rules before deciding how to depreciate an asset.
When Might 100% Bonus Depreciation Not Be the Best Choice?
It may be worth considering other options when:
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The business already has a tax loss.
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Income is expected to increase.
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Future deductions may be more valuable.
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State rules differ from federal rules.
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Section 179 offers more flexibility.
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The business expects to sell the asset in the future.
The right choice depends on the taxpayer's full tax picture.
Bonus Depreciation vs. Section 179
Bonus depreciation isn't the only way to accelerate a deduction.
Section 179 may also allow a business to deduct the cost of qualifying property in the year it is placed in service.
For tax years beginning in 2026:
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The maximum Section 179 deduction is $2,560,000.
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The deduction begins to phase out when Section 179 property placed in service exceeds $4,090,000.
Bonus depreciation and Section 179 work differently.
Bonus depreciation: Can provide an immediate deduction for qualifying property and isn't subject to the same taxable business income limit as Section 179.
Section 179: Can give taxpayers more flexibility when choosing which qualifying assets to expense, but the deduction is generally limited by taxable business income.
Regular MACRS: Spreads depreciation deductions over the asset's applicable recovery period.
A taxpayer may use Section 179, bonus depreciation, regular MACRS, or a combination of these methods.
Can You Elect Out of 100% Bonus Depreciation?
Yes.
Qualifying for 100% bonus depreciation doesn't mean the taxpayer has to take it.
A taxpayer can generally elect not to claim bonus depreciation for a class of qualified property placed in service during the year.
This is an important distinction.
The election generally applies to a class of property, not individual assets within that same class.
Tax professionals should review the election rules before deciding to skip bonus depreciation on qualifying property.
What Happens When a Depreciated Asset Is Sold?
Depreciation doesn't end with the initial deduction.
Depreciation reduces the asset's adjusted basis. That can affect the tax result when the property is sold.
For example:
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Original equipment cost: $25,000
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Depreciation claimed: $20,000
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Adjusted basis: $5,000
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Later selling price: $30,000
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Gain: $25,000
Depending on the applicable rules, previous depreciation deductions can affect how that gain is taxed. Depreciation recapture may also apply.
That's why depreciation decisions should look beyond the current tax year.
The Biggest Deduction Isn't Always the Best Deduction
Taking 100% bonus depreciation can provide a significant tax benefit today.
But tax professionals should also consider what happens in future years.
Before deciding, consider:
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Current taxable income
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Expected future income
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Existing losses
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Asset type and recovery period
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Section 179 eligibility
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Federal and state tax treatment
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Future depreciation needs
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Plans to sell the asset
Sometimes taking 100% bonus depreciation will be the clear choice.
Other times, using Section 179 or preserving depreciation deductions for future years may make more sense.
The goal isn't simply to create the biggest deduction today. It's to choose the approach that best fits the taxpayer's overall situation.
Frequently Asked Questions
Is bonus depreciation 100% in 2026?
Yes, for certain qualifying property. Current federal law provides a permanent 100% additional first-year depreciation deduction for qualifying property acquired and placed in service after January 19, 2025.
Different rules can apply to property acquired before January 20, 2025.
Is 100% bonus depreciation mandatory?
Not necessarily.
Taxpayers can generally elect out of bonus depreciation for a class of qualified property placed in service during the tax year.
The proper election procedures and deadlines must be followed.
Can used equipment qualify for bonus depreciation?
Yes.
Certain used depreciable property can qualify for 100% bonus depreciation when the applicable requirements are met.
Does real estate qualify for 100% bonus depreciation?
Residential rental buildings and nonresidential buildings generally have recovery periods longer than 20 years. As a result, the buildings themselves generally don't qualify under the standard bonus depreciation rule.
However, certain shorter-lived property and qualifying improvements may be eligible.
Is bonus depreciation better than Section 179?
Neither option is automatically better.
Section 179 and bonus depreciation have different rules, limits, and eligibility requirements.
The better choice depends on the taxpayer's assets, taxable business income, current tax situation, and future plans.
Can bonus depreciation create a tax loss?
Potentially.
Bonus depreciation isn't subject to the same taxable business income limitation as Section 179. As a result, it can potentially create or increase a tax loss.
Other tax rules may affect how that loss can ultimately be used.
Go Beyond the Deduction With 2026 Depreciation Essentials
Depreciation is more than entering an asset into tax software.
In 2026 Depreciation Essentials, Jason Dinesen, EA, takes a practical look at the depreciation rules and decisions tax professionals face throughout the life of an asset.
The course covers:
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MACRS and recovery periods
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100% bonus depreciation
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Section 179
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Basis and placed-in-service rules
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Repairs versus improvements
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Vehicle depreciation
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Property sales
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Depreciation recapture
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Planning considerations
Build a stronger understanding of how depreciation works and how today's decisions can affect clients in future years.
Sources
- IRS: Additional First-Year Depreciation Deduction Guidance
- IRS Publication 946: How to Depreciate Property
- IRS: Additional First-Year Depreciation Deduction FAQ
- IRS Topic No. 704: Depreciation
