Entity Setup
Entity Setup Strategies in Light of the New First-Year Depreciation Rules
The One, Big, Beautiful Bill permanently restores 100% first-year bonus depreciation for eligible business assets acquired after January 19, 2025 — which shifts how small businesses and new entities should plan investments.
By NomadicTax Research Team • 5-8 min read • April 18, 2026
## What Changed with Bonus Depreciation under OBBB
Prior to the One, Big, Beautiful Bill (Public Law 119-21), bonus depreciation under **§ 168(k)** phased down gradually — mainly due to restrictions introduced in the Tax Cuts and Jobs Act. Under OBBB:
- For property acquired and placed in service after **January 19, 2025**, bonus depreciation reverts to **100%**, permanently. ([irs.gov](https://www.irs.gov/irb/2026-06_IRB?utm_source=openai))
- The requirement that property had to be placed into service before Jan 1, 2027 (or later for long production period property or aircraft) has been removed. ([irs.gov](https://www.irs.gov/irb/2026-06_IRB?utm_source=openai))
- Interim guidance (Notice 2026-11) provides detailed instructions and elections that businesses can apply while waiting for final regulations. ([irs.gov](https://www.irs.gov/irb/2026-06_IRB?utm_source=openai))
## Why This Matters for Entity Formation and Asset Purchases
Entities — especially startups, LLCs, and small corporations — should rethink how they plan capital purchases. With 100% bonus depreciation, purchasing qualifying business property now yields maximum immediate tax benefit. Delaying purchases or mis-structuring entities could cost tax savings.
## Strategic Entity Setup Tips
- **Selecting Entity Type**: For sole proprietorships or single-member LLCs, deductions flow through directly. Corporations or partnerships may need to ensure asset purchases are structured to allow them to claim § 168(k) benefits.
- **Acquisition & Service Dates**: To qualify, property must be *acquired* and *placed in service* after January 19, 2025. For long production period property or certain aircraft, earlier acquisition dates requirements are removed. Ensure your purchase contracts align accordingly.
- **Component Elections**: For larger self-constructed property, taxpayers may choose to allocate “components” of a larger property separately if that yields earlier depreciation eligibility. The interim guidance describes how to make component elections. ([irs.gov](https://www.irs.gov/irb/2026-06_IRB?utm_source=openai))
- **Form 4562 Planning**: Attach required statements when filing for elections, such as § 168(k)(5), (10), and component elections. Missing elections may force use of default depreciation schedules later.
- **Tax-Planning in First Year of Entity**: If forming an entity that will purchase lots of equipment or property, plan timing to align purchases in the first taxable year that begins after Jan 19, 2025. Early purchases may face transitional ambiguity.
## Example Scenario
_SmartTech LLC_, formed in February 2026, plans to buy $500,000 worth of machinery and computer hardware to start operations. Since all assets are acquired and placed in service after Jan 19, 2025, SmartTech may elect to take **100% bonus depreciation** on those assets in 2026, immediately reducing taxable income. Alternatively, if some assets are long-production period property, review whether they meet the “specified property” definitions and whether component elections are beneficial.
## Risks to Watch Out For
- Buying property too early (before Jan 19, 2025 acquisition) or placing into service late in the year may complicate eligibility.
- Failure to make required elections or attach statements to returns (especially under § 168(k)(5) & (10)).
- Overreliance on bonus depreciation might distort taxable earnings, affect debt covenants or financial reporting.
- Changes in business use could disqualify requirement for bonus depreciation if property use shifts. Interim guidance includes “placed in service” and use-change provisions. ([irs.gov](https://www.irs.gov/irb/2026-06_IRB?utm_source=openai))
## Action Steps Before Setting Up an Entity or Expanding
1. Map out **capital asset acquisition schedule** post-Jan 19, 2025 to maximize immediate deductions.
2. Consult with tax advisor to determine which entity structure best captures depreciation advantages.
3. Keep detailed records: dates of acquisition, use, contracts, invoices.
4. Monitor final proposed/final regulations following interim guidance to ensure compliance.
Leveraging the return of full bonus depreciation under the OBBB provides a major up-front tax incentive for entities that invest in property. Proper entity setup and informed timing can unlock maximum savings while staying compliant.