Bonus Depreciation: What It Is and How to Claim It

Updated for tax year 2026.

Being a small business owner can come with valuable tax breaks, but sometimes, navigating the complexity of small business taxes can be tricky. One tax deduction that can be particularly confusing is bonus depreciation. For tax year 2026, qualifying property acquired and placed in service after Jan. 19, 2025, is generally eligible for 100% bonus depreciation.

In this guide, we’ll cover the ins and outs of bonus depreciation rules under the tax code to help you understand this deduction better and ultimately make more informed decisions for your business.

At a glance:

Bonus depreciation lets businesses deduct a fixed percentage of an asset’s cost upfront, reducing taxable income.
The One Big Beautiful Bill (OBBBA) restored 100% bonus depreciation for qualifying property acquired and placed in service after Jan. 19, 2025.
Only certain types of qualified property are eligible for bonus depreciation.
There are important differences between bonus depreciation and Section 179. Sometimes, you can take both deductions in the same year.

What is bonus depreciation for a business?

Bonus depreciation is an accelerated form of depreciation under the Modified Accelerated Cost Recovery System (MACRS) — it allows you to deduct a fixed percentage of an asset’s cost upfront instead of spreading the deduction out over its useful life. This tax strategy lowers taxable income and can help reduce tax liability.

Bonus depreciation rates by year

Bonus depreciation rates depend on when you acquired and placed your qualifying property in service. Here’s a quick look at how the rules apply under current law:

Property timing	General bonus depreciation treatment
Qualified property acquired and placed in service after Jan. 19, 2025	100%
Qualified property acquired before Jan. 20, 2025	Prior-law transition rules may apply
First tax year ending after Jan. 19, 2025	Eligible taxpayers may have a special 40% election instead of 100% OR 60% for certain long-production-period property and aircraft

What is the bonus depreciation rate for 2026?

As you can see from the table above, 100% bonus depreciation remains available for qualifying property acquired and placed in service after Jan. 19, 2025. Here’s how bonus depreciation has changed lately:

For 2024, you could deduct 60% of the cost of qualified assets in the first year.
For example, if you bought a qualified asset worth $100,000 in 2024, you could deduct $60,000 right away as bonus depreciation, instead of spreading the cost over several years.
For assets placed in service between Jan. 1 and Jan. 19, 2025, the bonus depreciation rate is 40%.
Due to a tax provision in the One Big Beautiful Bill, qualifying assets acquired and placed in service after Jan. 19, 2025, are eligible for 100% bonus depreciation (full expensing). That means you can write off the entire purchase amount the same year you place it in service.
For the first tax year ending after Jan. 19, 2025, eligible taxpayers could elect to use 40% bonus depreciation instead of 100% for qualifying property (or 60% for certain long-production-period property and aircraft).

If all these changing percentages sound confusing, we get it. Don’t worry, though — TaxAct® can help you claim the correct deduction amount for any new business purchases you make when you file with us.

Section 179 vs. bonus depreciation

Many first-time small business owners confuse two common forms of depreciation: bonus depreciation and the Section 179 deduction. While they may seem similar on the surface, these two depreciation methods are quite different, and each has its own restrictions.

Under Section 179, you can deduct the cost of an eligible asset up to the deduction limit ($2,560,000 for tax years beginning in 2026) as an immediate business expense on your tax return. This deduction starts to phase out once the total cost of Section 179 property placed in service during the year exceeds $4,090,000.

Unlike bonus depreciation, the Section 179 deduction is typically limited by your business’s taxable income. That means Section 179 can’t be used to create or increase a business tax loss, while bonus depreciation can. Instead, if your Section 179 deduction is limited by taxable income, you may be able to carry the unused amount forward to a future tax year.

You can use both the Section 179 and bonus depreciation deductions in the same tax year. Generally, you apply the Section 179 deduction first, followed by bonus depreciation on any remaining eligible basis.

Here’s a quick comparison of how Section 179 and bonus depreciation differ for 2026:

Feature	Section 179	Bonus depreciation
2026 deduction	Up to $2.56 million	100% of qualifying basis
Business income limit	Limited by business taxable income	Can create or increase a tax loss
Purchase phaseout	Begins above $4.09 million of qualifying property	No comparable dollar-based phaseout
Order applied	Applied first	Usually applied to any amount left over after Section 179

What are the rules for bonus depreciation in 2026?

Tax Cuts and Jobs Act

Before Congress passed the Tax Cuts and Jobs Act (TCJA) of 2017, bonus depreciation rules were much more limited. The TCJA changed that, allowing businesses to immediately write off 100% of the cost of “qualified business property” if it was purchased and placed in service after Sept. 27, 2017, and before Jan. 1, 2023.

However, under the original TCJA rules, bonus depreciation was scheduled to phase down after 2022: 80% for property placed in service in 2023, 60% in 2024, 40% in 2025, and 20% in 2026, then expiring in 2027.

One Big Beautiful Bill Act

In 2025, the OBBBA reinstated 100% bonus depreciation. For qualifying property acquired and placed in service after Jan. 19, 2025, businesses can again deduct 100% of the cost up front moving forward.

Eligibility rules

To qualify for bonus depreciation, you must meet specific criteria set by the IRS. Only purchases of eligible assets qualify for bonus depreciation. Here are some rules to keep in mind and examples of qualifying property:

Useful life: To qualify for bonus depreciation, the asset must have a useful life of 20 years or less. For example, a building wouldn’t be eligible for bonus depreciation, but a vehicle or piece of equipment would be.
Listed property: This type of asset can be used for business and personal purposes. For instance, if you’re a professional photographer using your camera for personal use, you must use the item for business purposes at least 50% of the time to qualify for bonus depreciation.
Qualified improvement property: This includes improvements made to the interior of a commercial (nonresidential) building, as long as the improvements were made after the building opened for business.
Short-term rentals: This includes vacation rental properties where the average stay is seven days or less.
Other costs: The cost of computer software and certain film, TV, live theatrical, and qualified sound recording productions can also qualify for bonus depreciation.
New for manufacturers and producers: The OBBBA also created a separate elective 100% depreciation allowance for certain qualified production property, including qualifying nonresidential real property used in manufacturing, production, or refining. Special timing and eligibility rules apply (see official IRS guidance).

You can only claim bonus depreciation for the year you placed the asset in service (started using it). If you’re unsure whether a business asset qualifies for the additional first-year depreciation deduction, it’s worth reading through the official IRS guidance.

FAQs

Should I take bonus depreciation, or is it better to take Section 179?

Whether you should take the bonus depreciation or the Section 179 deduction depends entirely on your tax situation.

Now that bonus depreciation is back at 100%, many small business owners may benefit from taking this deduction in place of Section 179. On the other hand, Section 179 offers more flexibility, allowing you to choose how much of the asset you want to deduct and when, while bonus depreciation allows you to deduct 100% of the cost of qualifying property acquired and placed in service after Jan. 19, 2025. You can also choose to elect out of bonus depreciation for a class of property if spreading the deduction over several years makes more sense for your business.

Section 179 cannot create a net loss like bonus depreciation can. If your business was not profitable during the year, bonus depreciation may allow you to still write off a business asset, even if its cost exceeds your business income.

Both options can be valuable tax write-offs under the right circumstances. If you’re unsure which deduction is best for you, it may be wise to consult a tax professional.

Is 100% bonus depreciation available in 2026?

Yes! Under the OBBBA passed by President Trump, 100% bonus depreciation is available for qualified business property acquired and placed in service after Jan. 19, 2025.

Is bonus depreciation still being phased out?

Not for qualifying property acquired and placed in service after Jan. 19, 2025. The OBBBA made 100% bonus depreciation permanent for this property, replacing the previous phase-down schedule.

However, property acquired before Jan. 20, 2025, may still fall under the earlier phase-down rules (80% for 2023, 60% for 2024, 40% for early 2025).

How does bonus depreciation affect my business taxes in 2026?

Bonus depreciation can help lower your taxable income by letting you deduct the cost of qualifying property faster. For 2026, qualifying property acquired and placed in service after Jan. 19, 2025, is generally eligible for a 100% first-year deduction.

That can give your business a larger deduction upfront instead of spreading depreciation deductions over several years.

What qualifies for bonus depreciation?

Many types of business property can qualify for bonus depreciation, including equipment, machinery, furniture, certain vehicles, computer software, and qualified improvement property. In general, the property must have a MACRS recovery period of 20 years or less and meet the other bonus depreciation requirements. Both new property and certain used property can qualify.

Can you take bonus depreciation on rental property?

Yes, but usually not on the rental building itself. Residential rental buildings generally don’t qualify because they’re depreciated over more than 20 years.

However, certain items used in the rental property may qualify, such as appliances, furniture, equipment, or some land improvements. If those assets meet the bonus depreciation rules, you may be able to deduct 100% of their qualifying cost in the year they’re placed in service.

Can bonus depreciation create a loss?

Yes. Bonus depreciation can reduce your taxable business income below zero, which means it can create or increase a business tax loss. This is different from Section 179, which is limited by your business’s taxable income. Other tax rules may still affect how much of a loss you can deduct on your return.

How do you calculate bonus depreciation?

Start with the qualifying cost of the property after any Section 179 deduction and other required adjustments. Then multiply that amount by the applicable bonus depreciation rate.

For example, if you buy $20,000 of qualifying equipment in 2026 and the full amount is eligible for 100% bonus depreciation, your bonus depreciation deduction would generally be $20,000.

How do I report bonus depreciation on my tax return?

To claim bonus depreciation on your income tax return, you’ll need to fill out IRS Form 4562, Depreciation and Amortization. To make the tax filing process easier, TaxAct® can help you claim the bonus depreciation deduction when you file with us.

The bottom line

Bonus depreciation and section 179 can both be valuable tax benefits for small business taxpayers. The key to making them work for you is understanding their differences and the unique advantages each offers based on your business’s needs. But remember, tax laws and regulations can change, and staying informed is crucial to making the right financial decisions and optimizing any tax-saving opportunities for your business. When you file your small business taxes with us at TaxAct, our software will walk you through a broad range of business expenses and situations to help identify the deductions that apply to your situation.

This article is for informational purposes only and not legal or financial advice.

All TaxAct offers, products and services are subject to applicable terms and conditions.

The One Big Beautiful Bill (OBBBA) is now also being referred to by lawmakers as the Working Families Tax Cut Act. You may see one or both names used here, but they refer to the same set of tax changes.

Citations

Ponder, Meghen. “Working Families Tax Cut Act (Formerly OBBB): What’s Changing For You.” TaxAct Blog, 8 July 2025.
TaxAct. “Depreciation – MACRS – Definition.” TaxAct Support, n.d.
Internal Revenue Service. “Internal Revenue Bulletin: 2026-11.” IRS.gov, 9 Mar. 2026.
Internal Revenue Service. “Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One, Big, Beautiful Bill.” IRS.gov, 14 Jan. 2026.
Internal Revenue Service. “About Form 4562, Depreciation and Amortization (Including Information on Listed Property).” IRS.gov, 31 Mar. 2026.
TaxAct. “File Business Taxes Online | Business Tax Software.” TaxAct, n.d.

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Tags: Business DeductionsBusiness OwnerIRSOne Big Beautiful Bill ActSmall BusinessTax DeductionsTax ReturnTaxable IncomeUpdated for tax year 2026

Meghen Ponder: Meghen Ponder is an editorial writer for TaxAct who specializes in writing content about finance and taxes. She enjoys decoding the intricacies of the tax world and helping others answer their tax questions.