100% Bonus Depreciation Restored Under Current Law

The phaseout of 100% bonus depreciation has ended. The One Big Beautiful Budget Act (OBBBA), enacted on July 4, 2025, replaced the annual phasedown schedule with a permanent 100% additional first-year depreciation deduction for qualified property acquired and placed in service after January 19, 2025. Business owners planning equipment and technology investments should understand how the restored rules apply and what elections are now available.

Bonus Depreciation Rules Now in Effect

Bonus depreciation allows businesses to deduct the full cost of qualified property in the year it is placed in service, rather than spreading deductions over several years. The Tax Cuts and Jobs Act originally expanded this provision, allowing full expensing for eligible assets placed in service between late 2017 and the end of 2022, after which the deduction began phasing down annually.

That phasedown has now been replaced. Under current law, businesses may claim a permanent 100% bonus depreciation deduction for qualifying assets acquired and placed in service after January 19, 2025. Congress acted before the phasedown reached zero, restoring full immediate expensing as a permanent feature of the tax code.

For the first taxable year ending after January 19, 2025, taxpayers may also elect to claim a reduced deduction of 40% instead of 100%, or 60% for certain longer-production-period property and certain aircraft, if that better fits their planning needs.

The rules apply to assets placed in service during the tax year, not simply purchased. Property must be ready and available for its intended business use before the end of the year to qualify for the deduction.

Property That May Qualify

Eligible assets generally include fixed asset purchases used in active business operations. New and used property may qualify, provided the asset was not previously used by the taxpayer in a trade or business. Common examples include manufacturing equipment, certain types of computer software, and other tangible assets used in day-to-day operations.

To qualify, the asset must meet the definition of qualified property under federal tax rules and be used for business purposes more than 50 percent of the time. Assets acquired from a related party are excluded, and real property such as buildings and land does not qualify for bonus depreciation.

Businesses must also consider acquisition requirements, including ownership rules. Leased property is typically not eligible, and documentation supporting the cost of the property and its service date is essential if the deduction is subject to review.

How Depreciation Is Calculated

After applying the first-year depreciation deduction, the remaining value of the asset — if a reduced election was chosen — is depreciated over time using the Modified Accelerated Cost Recovery System. This system assigns recovery periods based on asset type and determines how deductions are spread across future years.

While bonus depreciation accelerates deductions, it does not increase the total amount that can be depreciated over time. Instead, it shifts deductions forward, which can affect taxable income and tax liabilities in later years. Businesses should assess how this timing change aligns with their broader tax planning strategies, particularly if income levels fluctuate.

What Restored 100% Depreciation Means for Businesses

For many business owners, bonus depreciation has been a tool to improve cash flow by reducing near-term tax bills. With the permanent restoration of the 100% deduction for property acquired after January 19, 2025, the full immediate tax benefit is once again available for qualifying purchases.

Companies considering capital investments can now plan with greater certainty, knowing that full first-year expensing is available under current law. Decisions should still be based on operational needs and long-term planning, but the tax advantage of immediate expensing is no longer subject to a declining percentage schedule.

The Internal Revenue Service has published guidance on the OBBBA changes, including IRS Notice 2026-11, which explains how the restored rules apply and describes available elections for the transition year.

Sources

Internal Revenue Service, IRS Notice 2026-11: Internal Revenue Service, Publication 946: How to Depreciate Property One Big Beautiful Budget Act (Public Law 119-21, 119th Congress) Tax Cuts and Jobs Act (H.R. 1, 115th Congress)

By William Mc Lee, Editor-in-Chief & Tax Expert—Get Tax Relief Now