What’s New: Permanent 100% Bonus Depreciation
The One, Big, Beautiful Bill (OBBB Act) has replaced the phased-down bonus depreciation schedule with a permanent 100% additional first-year depreciation deduction for qualified property acquired after January 19, 2025. (irs.gov) Property previously subject to partial depreciation rates must now meet new eligibility rules under section 168(k). (irs.gov)
What Qualifies as ‘Qualified Property’?
- Business, trade, or income-producing property placed in service after Jan. 19, 2025. (irs.gov)
- Specified plants planted or grafted after that date. (irs.gov)
- Used property may qualify if it satisfies certain original use and other requirements. (irs.gov)
- Qualified sound recording productions begin in taxable years ending after July 4, 2025, are now eligible. (irs.gov)
Elections and Alternatives
OBBB provides flexibility: taxpayers may elect out of 100% depreciation in some cases.
- They can choose 40% (or 60% for longer-lived property/aircraft) for property placed in service during the first taxable year ending after January 19, 2025. (irs.gov)
- Sound recording producers can opt out of bonus depreciation under § 168(k)(7). (irs.gov)
- Self-constructed property components and specified plants each have separate election rules. (irs.gov)
Depreciation Recapture and Changes in Use
- If property designated as qualified production property stops being used as such, there's depreciation recapture: its basis gets adjusted and gains may be treated as ordinary income. (irs.gov)
- Intermediate guidance exists until final regulations are issued; taxpayers may rely in good faith on interim guidance provided in Notice 2026-16. (irs.gov)
Real-World Scenarios: How Businesses Can Benefit
| Business Type | Example | Key Takeaway |
|---|---|---|
| Manufacturer acquiring machines | Acquires new machining equipment in March 2026; can expense full cost immediately instead of depreciating over years | |
| Film studio producing a sound recording released in 2025 | Investment becomes eligible for bonus depreciation; important to track commencement vs. release dates | |
| Agricultural business planting new fruit trees | Specified plants planted after Jan. 19, 2025, are eligible—opt to deduct rather than capitalize |
Actionable Insights
- Review current and upcoming acquisitions to ensure they qualify for 100% depreciation.
- Decide early whether to make elective opt-outs to lower % if beneficial for tax planning or to smooth out income.
- Document sound recording production start dates and release dates to ensure eligibility.
- Consult with your CPA or tax counsel before making changes, especially for property going out of qualified use or for tax-sensitive entities.
OBBB’s permanent 100% bonus depreciation can deliver major tax savings in the year assets are placed in service. Proper qualification and timely elections are essential to make the most of it.