For 2026, bonus depreciation is 100% for qualified business property you acquire after January 19, 2025 and place in service during the year. The One, Big, Beautiful Bill (P.L. 119-21) made that rate permanent, and it replaced the phase-down schedule that would have cut it to zero. The harder question is no longer whether bonus depreciation exists. It is whether taking all of it this year is the right move for you.
This guide covers what qualifies, how bonus depreciation fits with Section 179, where it fails (passive losses, hobby activity, vehicles), and why your state may not follow the federal rule. It is written for business owners, S corporation shareholders, real estate investors and high-earning professionals, including nurse practitioners with a practice or side business.
TL;DR
- 100% bonus depreciation is the default for qualified property acquired after January 19, 2025 and placed in service in 2026. You must affirmatively elect out if you do not want it.
- Section 179 is the more flexible tool, and it is calculated before bonus depreciation when you use both.
- A large first-year deduction can be wasted in a moderate-income year. Model several years before you buy.
- Bonus depreciation only works for real business use. Passive loss rules, hobby rules and vehicle caps can limit or suspend it.
- States differ. Oregon decoupled in 2026, and Idaho has not conformed, so your state return may look different from your federal one.
Table of Contents
- What changed for 2026
- What qualifies
- Bonus depreciation vs. Section 179
- A worked example
- When to elect out
- Where bonus depreciation breaks down
- Idaho and Oregon: your state return may differ
- Our perspective
- A practical checklist before you buy
- Working with us
- FAQ
- Sources
What changed for 2026
Under prior law, bonus depreciation was phasing down by 20 percentage points a year after 2022, and it was scheduled to reach 0% in 2027. The 2025 legislation reversed that. According to IRS Publication 946, 100% is now the rate for qualified property acquired and placed in service after January 19, 2025.
The IRS followed up in January 2026 with guidance on the amended additional first-year depreciation deduction, and Notice 2026-11 says Treasury intends to issue proposed regulations implementing the change. Until those regulations arrive, the interim guidance is what your preparer relies on.
The acquisition date matters. Property acquired before January 20, 2025 and placed in service in 2026 generally falls under the old phase-down, where the rate is 20%. For anything you buy or contract for now, 100% applies. If you signed a purchase contract before that date, ask your preparer to document it.
What qualifies
Bonus depreciation applies to qualified property under Section 168(k). In practice that usually means:
- Tangible property with a recovery period of 20 years or less, such as machinery, equipment, computers, furniture and fixtures.
- Used property, as long as you did not previously use it and you acquired it from an unrelated party.
- Qualified improvement property to the interior of nonresidential buildings.
- Land improvements such as fencing, parking lots and landscaping, which are usually 15-year property.
It does not apply to land itself, to buildings (27.5 or 39 years), or to property you use outside the business.
Two conditions trip people up. First, the property must be placed in service, meaning ready and available for use, by the end of the tax year. A truck on order in December does not count. Second, the property must be used in a trade or business or for the production of income. Form 4562 instructions walk through the reporting.
Bonus depreciation vs. Section 179
The two tools overlap, but they are not the same.
| Feature | Section 179 | Bonus depreciation |
|---|---|---|
| 2026 dollar cap | $2,560,000, reduced dollar-for-dollar once qualifying purchases exceed $4,090,000 | No cap |
| Choice of assets | You pick which assets and how much | Applies to every asset in a class unless you elect out of that class |
| Income limit | Cannot exceed taxable business income | Can create or increase a loss |
| SUV limit | $32,000 for SUVs placed in service in 2026 | Subject to separate vehicle rules |
The 2026 Section 179 figures come from IRS Publication 946. When you use both, the Section 179 deduction is computed first, and bonus depreciation applies to the remaining basis, per the Form 4562 instructions.
How to choose
Section 179 is usually the first choice when you want precision. You can expense exactly the equipment that matters and leave the rest on regular schedules. Bonus depreciation is the better fit when:
- Your purchases exceed the Section 179 phase-out threshold.
- You want a deduction that creates a net operating loss rather than being capped by income.
- You would rather not track which assets receive which treatment.
Most owners with significant purchases end up using some of each. For more on the vehicle side, see our guide to 100% bonus and the 6,000 lb GVWR rules for Section 179 vehicles.
A worked example
Suppose you run an S corporation with $480,000 of net business income before depreciation, and you buy $150,000 of qualifying equipment and place it in service in 2026. This is an illustration, not a quote or a forecast.
- With 100% bonus depreciation, you deduct the full $150,000 this year. Taxable business income falls from $480,000 to $330,000.
- If you elect out for that asset class, you depreciate it over its recovery period, for example seven years under regular MACRS. The first-year deduction is much smaller, and the rest comes in later years.
The first option is better if your tax rate is likely to be the same or lower later. The second can be better if you expect your income, and so your bracket, to rise. That is why the decision belongs in a projection rather than on a checklist.
When to elect out
Bonus depreciation is the default, not a requirement. You can elect out for any class of property placed in service during the year, and the election applies to the whole class. You make it on Form 4562 with a timely filed return.
There are three common reasons to do it:
- Moderate income this year, higher income expected. A deduction taken in a lower bracket is worth less than the same deduction in a higher one.
- Qualified business income limits. A large depreciation deduction can lower your QBI deduction or push income across a threshold. Our guides on salary modeling and aggregation for S corporation owners and specified service trade rules cover those interactions.
- State differences. If your state adds back bonus depreciation, the federal benefit and the state benefit diverge (see below).
Treat this as a multi-year decision. Taking 100% in a year of moderate income can waste value you would have wanted against a much larger income year later.
Where bonus depreciation breaks down
Passive activity losses
If you do not materially participate in an activity, such as some rental real estate, a depreciation loss may be suspended under Section 469 instead of reducing your other income. The Form 1120-S instructions explain how pass-through activity and passive rules apply to shareholders. The practical mistake is buying equipment or property in December expecting immediate relief, then finding the loss sits unused because participation was too low.
For rental owners, cost segregation is the usual way bonus depreciation enters the picture. See our piece on 100% bonus and cost segregation for U.S. rental owners. If one of your entities rents property to another, the self-rental rules can trap losses too.
Hobbies and side businesses
Bonus depreciation is for business property. It does not turn a hobby into a deduction, and it should not be used to generate a loss that offsets W-2 pay when the activity is not a real business. This matters for nurse practitioners and other W-2 professionals with a side practice, consulting work or a rental. The IRS looks for regular, continuous, profit-motivated activity. Keep a business plan, separate accounts, invoices and mileage or usage logs. Benchmarking your results against industry financial data is one way to show that your numbers behave like those of a genuine operating business. For practice equipment specifically, read what you can and can't write off for medical equipment.
Vehicles
Passenger automobiles stay subject to the Section 280F annual caps even with bonus depreciation. For 2026, Rev. Proc. 2026-15 publishes the limits, including the additional first-year amount of $8,000 that applies to passenger automobiles when business use is more than 50%. Heavier vehicles over 6,000 lbs GVWR are treated differently, and SUVs are capped at $32,000 under Section 179. Our articles on the $32K cap and audit tips and mileage vs. actual expenses go deeper. Keep a contemporaneous mileage log either way.
Idaho and Oregon: your state return may differ
Federal bonus depreciation does not automatically flow to the state return. Two states where we work show how much this varies.
- Idaho. Bloomberg Tax's conformity chart lists Idaho as not conforming to federal bonus depreciation, with an addition required to federal taxable income for the bonus taken. Confirm the current treatment for your entity type with the Idaho State Tax Commission.
- Oregon. Oregon used to conform. RSM reports that Senate Bill 1507, signed April 9, 2026, decouples Oregon from Section 168(k), so taxpayers add back the difference between federal and state depreciation.
The effect is that a big federal deduction may be partly recovered on the state side over later years. You still benefit federally, but the state tax cost of the deduction needs to be in your model. If you operate in several states, run the numbers for each.
Our perspective
Most owners ask us the same thing in the fourth quarter: "What can I buy before year-end?" It is the wrong first question. The right one is what your taxable income looks like this year and the next two or three, and which deductions are worth the most in which year.
We see bonus depreciation used well when it is part of a projection. It works against a high-income year, with real business use, with the passive and state consequences already priced in. We see it used badly when it is a December purchase made to chase a deduction, with no check on participation, state conformity or the entity that owns the asset.
For S corporation owners and multi-entity operators, ownership structure matters as much as the deduction. Which entity buys the asset, which one uses it and how losses flow to your return all change the result. That is why we build depreciation decisions into year-round planning rather than treating them as a filing-season question. Our S corporation planning guide shows how this fits with salary and distribution decisions.
The goal is not the biggest deduction. It is the best after-tax result over several years.
— Melissa
A practical checklist before you buy
- Confirm the business purpose and your level of participation in the activity.
- Check the acquisition and placed-in-service dates. Both matter, and delivery delays can move an asset into the next year.
- Project income for at least three years, federal and state.
- Decide between Section 179, bonus depreciation or a mix, and whether any class should be elected out.
- Check vehicle rules if the purchase is a car, SUV or truck.
- Decide which entity owns the asset.
- Keep records: invoices, proof of payment, in-service date, usage logs.
- Document the election on Form 4562 with your return.
Working with us
If you net between $300,000 and $1,000,000 a year, run more than one entity, or own rental property, depreciation decisions are worth modeling before the purchase, not after. Our year-round advisory plans are Monthly Tax Advisory at $11,997 per year and Quarterly Tax Strategy Sessions at $9,497 per year. If you are an S corporation owner who wants a focused starting point, the S-Corp Tax Strategy Accelerator is $997. You can also see our form-based preparation fees or start at The Tax Refinery.
FAQ
Is 100% bonus depreciation back in 2026?
Yes. The One, Big, Beautiful Bill made 100% bonus depreciation permanent for qualified property acquired and placed in service after January 19, 2025, according to IRS Publication 946. It is no longer scheduled to drop to a lower percentage or to zero.
Do I have to take bonus depreciation?
No. It is the default, but you can elect out by class of property on Form 4562. Electing out makes sense when you expect a higher tax rate in later years or when your state does not follow the federal deduction.
Can I use bonus depreciation against my W-2 income?
Only if the loss is allowed under the business and passive activity rules. A real business in which you materially participate can generate a deductible loss. A hobby, or a passive activity in which you do not materially participate, generally cannot offset W-2 wages.
Does my state allow bonus depreciation?
It depends on the state. Bloomberg Tax lists Idaho as not conforming, and Oregon decoupled in 2026. Check your own state's current rules before you rely on the federal figure.
Which is better, Section 179 or bonus depreciation?
Neither wins every time. Section 179 gives you control over which assets and how much, within the $2,560,000 limit for 2026. Bonus depreciation has no dollar cap and applies automatically. Many owners use a mix, with Section 179 calculated first.
This article is general information, not tax advice for your situation. Talk to a qualified tax professional before you buy or elect.
Sources
- IRS Publication 946, How to Depreciate Property
- IRS: Treasury, IRS issue guidance on the additional first-year depreciation deduction
- IRS Notice 2026-11
- Instructions for Form 4562
- Instructions for Form 1120-S
- IRS Rev. Proc. 2026-15
- Bloomberg Tax: State Conformity to Federal Bonus Depreciation
- RSM: Oregon decouples from federal bonus depreciation