Tax Planning
Smart Moves: Planning Around the Expanded First-Year Depreciation Provision
The One, Big, Beautiful Bill permanently boosts first-year depreciation to **100%**, affecting acquisitions after January 19, 2025. Businesses need to recalibrate asset purchases, budgets, and accounting practices.
By NomadicTax Research Team • 5-8 min read • February 18, 2026
## What’s New with First-Year Depreciation
The One, Big, Beautiful Bill (OBBB), signed into law on July 4, 2025, enacted sweeping updates to depreciation rules. Among them: **permanent 100% additional first-year depreciation deduction** for eligible depreciable property acquired after **January 19, 2025**, plus new guidance around certain sound recording productions.([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))
The IRS released Notice 2026-11, which offers interim instructions that taxpayers can rely on in the meantime, including how to make magnitude elections and decide whether certain property qualifies—or whether to opt out.([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))
## Key Takeaways for Business Planning
Here are what businesses and entities should consider:
- **Eligibility of property**: Only property acquired after Jan 19, 2025 qualifies. That includes certain specified plants and sound recording productions. Still, property components or self-constructed property may need special treatment.([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))
- **Election to reduce deduction**: Taxpayers may elect—*in limited cases*—to take **40%** (or 60% for certain aircraft and long-production-period property) instead of full 100% deduction for the first year. Good to evaluate cash flow and tax burden to decide.
- **Sound recordings**: These added by OBBB are eligible under certain conditions—you’ll need to check commencement & release dates.([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))
- **Interim reliance allowed**: Until full regulations are issued, you can rely on existing depreciation rules supplemented by the interim guidance. No waiting required to start planning.
## Examples to Illustrate
- A manufacturer buys new production machinery on March 1, 2026, paid in full, uses it for business. Under the new rule, they may take a full 100% deduction in year 1 rather than spreading depreciation over multiple years. If that asset is long-production or certain aircraft, they may be limited to partial percentage per election.
- An artist starts recording a sound album on August 1, 2025, and releases it in mid-2026. Under the rules, the sound recording production is generally “qualified”—eligible first year depreciation deduction—if it commences after July 4, 2025.([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))
## Action Steps
1. **Audit planned capital expenditures**: If you were budgeting depreciation over several years, see whether accelerating to year-1 makes more sense.
2. **Review your 2025-acquired assets**: Ensure that acquisitions after Jan 19, 2025 are tracked separately for potential deduction.
3. **Consult on elections**: Talk with accountants or tax advisors whether to make the election to reduce the deduction where partial percentages apply.
4. **Update your accounting/tax systems** to capture cost basis, acquisition date, and proof of final assembly or release for sound production where relevant.
5. **Watch for final regulations**: While interim guidance applies, formal regulations may shift some rules—being ready will help adapt.
## Risks & Considerations
While this depreciation boost can improve cash flow, be aware of:
- **AMT or other limitations**: Though OBBB seeks to maintain certain marginal rates, some entities subject to rules like AMT may still face complications. Always model worst outcomes.
- **Audit scrutiny**: New deductions often attract examination. Document eligibility carefully—acquisition date, usage, whether the property fits the defined categories.
- **Cash vs tax benefit trade-off**: Accelerated deductions reduce current taxable income, but could limit deductions in future years. Plan accordingly if revenue is expected to rise.
## Who Benefits Most?
- Capital-intensive businesses acquiring new machinery, industrial equipment, or qualifying plants.
- Companies investing in audio and sound productions.
- Smaller businesses seeking to preserve cash early – the deduction improves liquidity immediately.
Taking full advantage of the updated depreciation rules under OBBB can significantly shift annual tax burdens, free up cash, and reshape investment timing. But planning, documentation, and tax-system readiness are key to making the most of this powerful change.