What is 100% Additional First-Year Depreciation?
The One, Big, Beautiful Bill (OBBBA) permanently amended IRC § 168(k) to allow 100% bonus depreciation on qualified property acquired after January 19, 2025, and placed in service after that date. This includes specified plants and even eligible sound recording productions. (irs.gov)
Who Benefits Most?
- Businesses purchasing equipment, machinery, or other tangible qualified property meeting the acquisition/use criteria will see accelerated deductions.
- Projects in the sound recording industry can also benefit if recording commences in taxable years ending after July 4, 2025. (irs.gov)
How to Use It: Actionable Steps
- Identify qualified property you plan to purchase in 2026. It must be acquired and placed in service after Jan. 19, 2025.
- Decide if you want 100% or elect down to 40% (or 60% for long-production period property or aircraft). For first tax year ending after the acquisition date; check IRC § 168(k)(5) and (10). (irs.gov)
- Track sound recording productions: If you’re in music/recording, note when production begins and ensure it aligns with taxable year requirements.
- Consult with your tax advisor to understand impacts on cash flow, AMT exposures, and coordinated depreciation across assets.
Practical Example
Say you’re a manufacturer buying production machinery for $1M in February 2026, and placing it in service immediately. Under OBBBA, you could deduct the full cost in year one, rather than spreading it over 5–7 years. If you instead elect 40% (for any reason), you’d still depreciate the rest over the standard periods.
Warnings & Considerations
- Mixed-use property (used in business and personal capacity) only gets pro-ration for business portion.
- Changing use or later sale may trigger recapture rules—keep clear records.
- Though permanent, eligibility thresholds and election timing are critical. Late-year acquisitions could make paperwork-heavy compliance necessary.
Summary
If you’re planning capital investments, OBBBA’s 100% bonus depreciation is a huge opportunity. With proper planning, you can pull forward deductions, improve cash flow, and reduce taxable income—with fewer complexities than before—but good coordination with tax professionals is essential.