Entity Setup
Using the One, Big, Beautiful Bill to Maximize Depreciation Deductions in Business Setup
Permanent 100% bonus depreciation is now in effect for qualifying business assets acquired or placed in service after Jan. 19, 2025 under the OBBB Act—learn how to use this effectively when setting up or expanding your business.
By NomadicTax Research Team • 5-8 min read • July 9, 2026
## What’s Permanently Changed Under OBBB for Bonus Depreciation
Thanks to Section 70301 of the *One, Big, Beautiful Bill (OBBB)*, **100% additional first-year depreciation deduction** under IRC § 168(k) is now permanent for qualified property acquired **after January 19, 2025**, and placed in service thereafter. ([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))
Before this change, bonus depreciation phased down under TPJ (Tax Cuts and Jobs Act), with reduced percentages for later years. OBBB removes that phase-down. There are no longer schedule reductions (e.g. 80%, 60%, 40%) that would apply to new acquisitions. ([irs.gov](https://www.irs.gov/pub/irs-irbs/irb26-06.pdf?utm_source=openai))
## Types of Property Covered—and Elections
Eligible property includes:
- **Qualified depreciable property** acquired after the date above, used in a trade or business. <br>- **Specified plants** planted or grafted. <br>- **Qualified sound recording productions** which begin recording after July 4, 2025. <br>
Taxpayers **may elect to take 40% (or 60% for certain aircraft/long-production period property)** instead of 100% for property placed in service during the first taxable year ending after January 19, 2025. That election may make sense in certain planning scenarios. ([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))
## When to Use the 100% vs Elect-Out (40%/60%)
You might prefer **electing down** to 40% or 60% in situations like:
- Your business is unlikely to generate enough profit to fully absorb the 100% depreciation, causing unused depreciation to be wasted.
- You anticipate different marginal rates or planning for income smoothing across years.
- For certain property classes (aircraft, long-production period property), default eligibility differs.
## Practical Example
Company ABC buys machinery costing $500,000 on February 1, 2026. Under OBBB’s bonus depreciation:
- If taking **100%**, ABC can deduct $500,000 in the year placed in service under § 168(k).
- If electing 40% (if using the elect-down in first year), it deducts $200,000 this year and depreciates remainder over its MACRS schedule.
If ABC expects large profits in 2026, taking 100% may sharply reduce taxable income; if profits are low, electing down may allow posting losses or reallocating deductions.
## Entity Setup Implications
New or expanding businesses should:
- **Time acquisitions** so that qualifying property is acquired and placed in service **after January 19, 2025**.
- **Consider structuring purchases** for equipment or sound recording projects accordingly to meet the qualified property rules.
- If assets have long production periods or are aircraft, study eligibility under special thresholds.
- Maintain proper documentation of purchase dates, production start, service placement, and elections made.
## Takeaway Tips
- Always consult with your tax advisor before making large capital purchases—timing can affect bonus depreciation significantly.
- Use OBBB provisions to plan out multiple acquisitions across years for best deductibility.
- For entities planning sound recordings or agriculture (plants), ensure compliance with definitions.
By fully leveraging OBBB’s permanency of 100% bonus depreciation, business owners can accelerate deduction, improve cash flow, and plan capital investments more strategically.