Instead | 2026 Bonus depreciation save $1M+ permanently

Historic depreciation provision creates unprecedented planning opportunities

The One Big Beautiful Bill Act fundamentally transforms business equipment and property deductions by permanently restoring 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025, with no scheduled phase‑down or expiration date under current law. For post–January 19, 2025 acquisitions, businesses filing their 2026 tax returns in 2027 can deduct 100% of the cost in the first year, reversing the prior schedule that would have limited bonus depreciation to 40% in 2025 and 20% in 2026.

Under the new permanent rules, businesses can immediately deduct the full cost of qualifying equipment, machinery, and other capital assets rather than depreciate them over multiple years. This represents one of the most significant business tax benefits in recent legislation, creating immediate cash-flow advantages and substantial tax savings for companies making capital investments in 2026 and all future years.

Understanding how to coordinate bonus depreciation with other deductions, including the enhanced Depreciation and amortization provisions and expanded Section 179 limits, ensures businesses capture every available deduction. With proper planning, eligible businesses can reduce their annual tax liability by hundreds of thousands of dollars while supporting operational expansion.

Understanding the permanent bonus depreciation framework

The One Big Beautiful Bill Act establishes a permanent bonus depreciation framework that creates substantial planning opportunities for businesses making capital investments indefinitely into the future.

Permanent 100% bonus depreciation applies to general qualifying property purchased and placed in service after January 19, 2025. Businesses can claim 100% first-year depreciation on eligible assets with no phase-down and no sunset date. This eliminates the previously scheduled reductions that would have dropped bonus depreciation to 40% in 2025, 20% in 2026, and zero thereafter.

Key framework elements include:

• General qualifying property receives permanent 100% bonus depreciation when acquired and placed in service after January 19, 2025
• Long-production-period property must be acquired by December 31, 2030, and placed in service by January 1, 2031
• Specified plants or trees must be planted or grafted by January 1, 2030
• Property under binding contracts executed before January 20, 2025 receives treatment under prior law rules

The permanent provision removes uncertainty that had discouraged significant capital investments, allowing businesses to plan unlimited multi-year equipment upgrades and facility expansions with confidence. Coordination with Late S Corporation elections and Late C Corporation elections can optimize the flow-through treatment of substantial depreciation deductions.

Bonus depreciation timeline comparison

Calculating immediate tax benefits

The permanent 100% bonus depreciation creates substantial immediate tax savings for businesses making qualifying capital investments in 2026 and beyond. Understanding the calculations helps businesses quantify benefits and justify major equipment purchases.

Basic 2026 equipment purchase calculation:

• Qualifying equipment cost: $1,000,000
• Bonus depreciation rate: 100%
• First-year deduction: $1,000,000
• Tax savings at 21% corporate rate: $210,000
• Tax savings at 37% pass-through rate: $370,000

For businesses making multi-million dollar equipment investments, first-year tax savings can exceed $500,000, providing immediate financial benefits that support debt reduction, working capital enhancement, or additional capital investments.

Estimated tax savings by equipment purchase amount

Coordination with Section 179 expensing

The One Big Beautiful Bill Act increases the Section 179 maximum deduction to $2.5 million for tax years beginning after December 31, 2024, with the deduction phasing out once total qualifying purchases exceed $4 million. Businesses can apply Section 179 first, then apply 100% bonus depreciation to remaining qualifying property, allowing companies to immediately expense substantial equipment investments in the same year.

Strategic application example:

• Total qualifying purchases: $4,000,000
• Section 179 deduction: $2,500,000 (maximum annual limit)
• Remaining property for bonus depreciation: $1,500,000
• Bonus depreciation deduction: $1,500,000 (100% of remaining property)
• Total first-year deduction: $4,000,000
• Tax savings at 30% effective rate: $1,200,000

This coordinated approach enables businesses to immediately deduct up to $4 million in equipment purchases in 2026. Strategic timing relative to Vehicle expenses and other deductible business costs can further optimize overall tax benefits.

Qualifying property requirements

The One Big Beautiful Bill Act maintains existing qualifying property definitions while establishing permanent deduction availability. Understanding which assets qualify ensures businesses maximize available benefits while maintaining full compliance.

Property eligible for bonus depreciation includes tangible personal property with MACRS recovery periods of 20 years or less, computer software that qualifies as depreciable property, qualified improvement property for nonresidential buildings, and specific aircraft and transportation equipment.

Manufacturing and production equipment represents the most common qualifying property category. Technology infrastructure purchases, including servers, networking equipment, and telecommunications systems, also qualify when used predominantly for business purposes.

Buildings and structural components generally don't qualify for bonus depreciation, though coordination with Home office deductions can capture some building-related benefits. Qualified improvement property for interior improvements to nonresidential buildings qualifies for immediate expense through bonus depreciation.

Qualifying vs non-qualifying property comparison

Qualified production property special provisions

The One Big Beautiful Bill Act introduces entirely new bonus depreciation provisions for qualified production property used in manufacturing, production, or refining activities. These provisions provide 100% immediate expensing for nonresidential real property used as an integral part of qualifying production activities.

Qualified production property requirements include nonresidential real property used in manufacturing, production, or refining; construction begins after January 19, 2025, and before January 1, 2029; property placed in service before January 1, 2031; original use commences with the taxpayer; and property located in the United States or U.S. possessions.

This provision extends bonus depreciation to buildings and structures used for manufacturing, creating unprecedented tax benefits for businesses constructing new production facilities. Traditional depreciation rules require nonresidential buildings to be depreciated over 39 years, but qualified production property can be expensed immediately under the new provisions.

Manufacturing facility example:

• New production facility construction cost: $10,000,000
• Qualifying production property percentage: 75% (manufacturing areas)
• Immediate expensing available: $7,500,000
• First-year tax savings at 21% rate: $1,575,000

Disqualified property categories include office space, administrative areas, lodging facilities, and areas used for sales, research, or storage. Businesses must carefully document which portions of facilities qualify for immediate expense. Cost segregation studies become essential for maximizing qualified production property benefits, potentially increasing first-year deductions by millions of dollars.

Recapture rules apply if the property ceases to qualify for production use within 10 years. However, property continuously used in qualified production for 10 years is exempt from recapture. Businesses should coordinate qualified production property provisions with AI-driven R&D tax credits for comprehensive tax benefits.

Multi-year planning and purchase timing strategies

Permanent bonus depreciation provisions create opportunities for unlimited multi-year capital investment planning. Strategic timing of major equipment purchases can maximize total tax savings while supporting operational growth objectives.

Property must be placed in service by December 31, 2026, to claim bonus depreciation on the 2026 tax return. Businesses should begin planning major purchases early in the year to ensure delivery and operational readiness. Mid-quarter convention complications arise when more than 40% of annual qualifying property purchases occur during the fourth quarter.

Bonus depreciation provides the most significant benefit in years with high taxable income. Businesses with fluctuating income should time major equipment purchases to coincide with high-income years to maximize the value of immediate deductions.

The permanent bonus depreciation provision enables businesses to implement unlimited multi-phase expansion projects while claiming 100% immediate expense on qualifying property throughout the entire expansion period. Business owners should coordinate major equipment purchases with Traditional 401k and Roth 401k contribution strategies to optimize overall tax benefits.

State tax conformity considerations

While the One Big Beautiful Bill Act addresses federal taxation, businesses must consider how state tax laws interact with permanent bonus depreciation provisions. Many states automatically adopt federal tax law changes, extending permanent bonus depreciation to state income tax calculations. However, some states maintain separate rules or require add-back provisions.

Businesses operating in multiple states must evaluate conformity rules in each jurisdiction and calculate depreciation deductions separately for each state return. Strategic coordination with 2026 State Tax Deadlines can affect planning opportunities and election timing for maximizing available benefits.

Transform your equipment investments with expert guidance

Ready to maximize your business's tax savings through permanent bonus depreciation under the One Big Beautiful Bill Act? The unprecedented permanent extension of 100% bonus depreciation creates unlimited opportunities for capturing substantial immediate tax benefits on qualifying equipment and property investments.

Instead's comprehensive tax platform makes it simple to track your qualifying property purchases, calculate available deductions, and ensure full compliance with the permanent bonus depreciation requirements. Instead's intelligent system automatically identifies optimization opportunities and coordinates bonus depreciation with Section 179 expensing, qualified production property provisions, and other valuable business tax strategies.

Get started with Instead's pricing plan today to maximize your bonus depreciation benefits while building a comprehensive tax strategy that supports your business growth indefinitely under the permanent provisions.

Frequently asked questions

Q: How much can my business save with 100% bonus depreciation in 2026?

A: Your savings depend on your qualifying property purchases and tax rate. Businesses purchasing $1 million in qualifying equipment can save between $210,000 and $370,000 annually, depending on their entity structure and tax bracket. Companies making $5 million in qualifying purchases can save $1 million or more in immediate tax benefits.

Q: Is bonus depreciation really permanent with no expiration date?

A: Yes, for general qualifying property acquired and placed in service after January 19, 2025, the One Big Beautiful Bill Act makes 100% bonus depreciation permanent under current law with no scheduled sunset or phase-down. However, specific provisions for long-production property (deadline January 1, 2031) and qualified production property (construction window ending January 1, 2029) have their own timelines.

Q: Can I combine bonus depreciation with Section 179 expense?

A: Yes, the One Big Beautiful Bill Act allows businesses to use Section 179 first up to the $2.5 million limit, then apply bonus depreciation to remaining qualifying property. This coordination can result in immediate deductions substantially larger than either provision alone, enabling businesses to immediately expense up to $4 million or more in qualifying purchases.

Q: How does the qualified production property provision work?

A: The One Big Beautiful Bill Act provides 100% immediate expensing for nonresidential real property used in manufacturing, production, or refining. Construction must begin between January 20, 2025, and January 1, 2029, with property placed in service before January 1, 2031. This provision extends bonus depreciation to manufacturing buildings, creating unprecedented tax benefits for construction of production facilities.

Q: What documentation does the IRS require for bonus depreciation claims?

A: Businesses must maintain purchase invoices, contracts, placed-in-service documentation, business use records, and asset classification determinations. Form 4562 must be completed and attached to annual tax returns to report Section 179 and bonus depreciation amounts. Electronic filing requirements apply to most business returns, but source documents should be retained for audit support.

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