Tax Planning
Maximize Depreciation Under the New First-Year Rule: What Businesses Need to Know
The One, Big, Beautiful Bill Act permanently restores a **100% additional first-year depreciation** deduction for qualified property—learn how to qualify, make elections, and avoid missteps.
By NomadicTax Research Team • 6 min read • March 3, 2026
## What Changed With Depreciation
In Notice 2026-11, issued January 14, 2026, the **Treasury Department and IRS** provided interim guidance implementing changes from the *One, Big, Beautiful Bill Act* (OBBB Act). Under the new law, qualified property acquired and placed in service **after January 19, 2025** is eligible for a permanent **100% additional first-year depreciation deduction** under Internal Revenue Code § 168(k), eliminating prior phase-downs. ([irs.gov](https://www.irs.gov/irb/2026-06_IRB?utm_source=openai))
Qualifying property also includes “specified plants planted or grafted” after January 19, 2025. Additionally, “qualified sound recording productions” that commence in taxable years ending after July 4, 2025, are now eligible. ([irs.gov](https://www.irs.gov/irb/2026-06_IRB?utm_source=openai))
## How To Make Elections and Utilize the New Guidance
To take advantage, businesses should be aware of elections and timings:
- **§ 168(k)(10) election**: For property placed in service during the first taxable year ending after January 19, 2025, businesses may elect to take **40%**, rather than full 100%, under certain conditions (e.g., long-production-period property or aircraft). ([irs.gov](https://www.irs.gov/irb/2026-06_IRB?utm_source=openai))
- **Election process**: Attach required statements to the timely filed tax return (including extensions) for the year in which the property is placed in service or plants planted/grafted. Form 4562 is generally where such elections are indicated. ([irs.gov](https://www.irs.gov/irb/2026-06_IRB?utm_source=openai))
- **Interim guidance reliance**: Taxpayers may rely on the existing regulations as modified by the interim guidance until proposed regulations are published. The new rules under Notice 2026-11 are usable and must be followed carefully. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-guidance-on-the-additional-first-year-depreciation-deduction-amended-as-part-of-the-one-big-beautiful-bill?utm_source=openai))
## Practical Examples
- A manufacturing business purchases a new machine on **February 1, 2026**, placing it in service immediately. Because this property is acquired and placed in service after January 19, 2025, it qualifies for a **100% additional first-year depreciation**, so the full cost can be depreciated in the first year. No phase-down applies.
- An entertainment firm begins production of a sound recording in tax year ending **August 2025**, with initial release after that date. That sound recording is eligible as “qualified sound recording production.” If the firm wants, it may elect **not** to deduct the additional first-year depreciation for that production. Useful if anticipating large recapture or lower rates in future years. ([irs.gov](https://www.irs.gov/irb/2026-06_IRB?utm_source=openai))
## Key Considerations & Caveats
- **Recapture risks**: If a property stops qualifying or is sold/disposed, depreciation may need to be recaptured under IRS rules. Check Notice 2026-16, for example, for production property depreciation guidance. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-guidance-on-special-depreciation-allowance-for-qualified-production-property-announce-upcoming-proposed-regulations-under-the-one-big-beautiful-bill?utm_source=openai))
- **Timing of acquisition vs. placed in service**: Just acquiring isn't enough; property must also be **placed in service** within qualifying dates. For clean energy tax credits, this distinction is critical. While depreciation provisions are more straightforward, confirm all eligibility dates. ([irs.gov](https://www.irs.gov/newsroom/faqs-for-modification-of-sections-25c-25d-25e-30c-30d-45l-45w-and-179d-under-public-law-119-21-139-stat-72-july-4-2025-commonly-known-as-the-one-big-beautiful-bill-act-obbba?_cldee=sg9m8geHa9rdhlmXb4Ydu5wS0OHbcO46Lf7Fnr3TMtcKN6WIDK4wHZuUOyXXyUmI&esid=8a344533-8598-f011-b4cc-0022480b738e&recipientid=contact-d4f5980ae78ceb11a81200224809a3d4-b0b24823ef114b15b178e983a52e458e&utm_campaign=Weekly+Message+Email&utm_medium=email&utm_source=openai))
- **Long-Production-Period Property or Aircraft**: Some property still subject to a higher phase-down threshold if not meeting shorter production period definitions. Election options allow reduced percentages in those cases. ([irs.gov](https://www.irs.gov/irb/2026-06_IRB?utm_source=openai))
## Action Steps
1. **Review your fixed asset acquisitions** since January 19, 2025, and categorize which qualify under § 168(k) with attention to whether they were placed in service properly.
2. **Coordinate with tax preparers** to include necessary elections on Form 4562 or in the corporate/individual return, ensuring accuracy.
3. **Plan ahead** for long-production property tools (e.g., certain aircraft or large industrial assets) to see if electing the reduced deduction is advantageous.
4. **Watch for proposed regulations** that may fine-tune definitions or eligibility—be ready to adapt when those are published.
With the 100% first-year depreciation rule reinstated and made permanent by OBBB, businesses that plan properly can unlock powerful tax savings. Contact your tax advisor to assess which assets you have that qualify and how to maximize your deductions under the new law.