100% Bonus Depreciation: What Qualifies in 2026?

What is bonus depreciation, and is it 100% in 2026?

Public Law 119-21 replaced the scheduled phase-down with a permanent 100% bonus-depreciation rate under current federal law for qualified property acquired and placed in service after January 19, 2025. Congress can change the law in the future, and the restored rate does not make every purchase immediately deductible.

For ordinary qualified property acquired before January 20, 2025, the prior phase-down can still matter. Property placed in service during 2025 may generally have a 40% rate, while qualifying pre-cutoff property placed in service during 2026 may generally have a 20% rate. Different percentages and dates can apply to certain long-production-period property and aircraft.

The January 19, 2025 cutoff: acquisition, contract, and placed-in-service dates

A payment date, delivery date, acquisition date, and placed-in-service date are not always the same. For the restored 100% rate, qualifying property generally must be acquired and placed in service after January 19, 2025.

Property is generally placed in service when it is ready and available for its intended business or income-producing use. A binding contract can affect the acquisition date, and self-constructed property has additional rules. Keep contracts, invoices, delivery records, installation reports, permits, and evidence showing when the asset became ready for use.

What business and real-estate property qualifies for 100% bonus depreciation?

Common categories include tangible MACRS property with a recovery period of 20 years or less, certain depreciable computer software, water-utility property, qualified improvement property, and certain qualified film, television, live theatrical, and sound-recording productions. New property and certain used property can qualify, but related-party, prior-use, carryover-basis, and other restrictions can disqualify used property. Listed property, including many passenger vehicles, remains subject to separate business-use, recordkeeping, and deduction-limit rules.

• Machinery, equipment, furniture, computers, and many shorter-life business assets
• Certain land improvements and qualified improvement property
• Certain used property that is new to the taxpayer and meets the acquisition rules
• Qualifying assets identified through a supportable real-estate cost-segregation analysis

How bonus depreciation works for rental and commercial real estate

Bonus depreciation does not ordinarily write off land or an entire 27.5-year residential rental building or 39-year commercial building. A supportable cost-segregation analysis may identify separately depreciable shorter-life components, and qualified improvement property may be eligible when its requirements are met. Classification can accelerate deductions; it does not make the whole purchase price eligible or override loss-limit rules.

For nonresidential buildings, qualified improvement property generally means a qualifying interior improvement placed in service after the building was first placed in service. Building enlargements, elevators or escalators, and internal structural framework are excluded from that category.

Can real-estate bonus depreciation offset W-2 income?

Not automatically. Rental activity is generally passive unless an exception applies, so accelerated depreciation can create a loss that is suspended instead of used against wages. Active-participation, real-estate-professional, short-term-rental, basis, at-risk, and excess-business-loss rules are separate tests.

The amount shown on a depreciation schedule is therefore not the same as the amount that will reduce current taxable income. Review ownership, participation, rental periods, other activities, income, and carryforwards before projecting a cash-tax result.

Bonus depreciation compared with Section 179

Qualified production property is a separate Section 168(n) election

The law also created an elective allowance for certain qualified production property under Section 168(n). It is not a general commercial-building deduction. It generally concerns qualifying nonresidential real property used as an integral part of specified production activities and has its own construction, acquisition, placed-in-service, location, and election requirements.

Why a 100% federal deduction may not reduce this year's tax

Bonus depreciation generally applies to qualified property unless the taxpayer makes a valid election out for a class of property. Immediate expensing can reduce current federal taxable income, but the deduction may be limited or deferred under other rules and can reduce basis for a future sale.

• Compare current and expected future tax rates
• Test passive-activity, basis, at-risk, interest, and excess-business-loss limits
• Review Section 179 ordering and any alternative-depreciation-system requirement
• Consider state conformity and depreciation recapture on a later sale
• Coordinate entity-level elections for partnership or S-Corporation property

Records to gather before the return is filed

• Signed contracts, written-binding-contract and acquisition dates, invoices, and detailed asset descriptions
• Delivery, installation, and ready-for-use dates
• Business-use percentages and related-party or prior-ownership information
• Cost-segregation or valuation support when real-estate components are involved
• Existing Section 163(j)(7), Section 179, ADS, and bonus-depreciation elections
• Every state where the owner or property may have a filing connection
• Federal and state projections showing the multi-year effect