23 Jan 2026 IRS Clarifies 100% First-Year Bonus Depreciation Rules
The IRS recently issued new guidance clarifying how the permanent 100% bonus depreciation deduction – part of the One Big Beautiful Bill Act (OBBBA) passed in 2025 – will work going forward. The latest IRS update (Notice 2026-11) explains how these rules apply starting with the 2025 tax year and outlines some important options that may help businesses better time and structure their deductions.
But before we get into the latest guidance, let’s review the previous bonus depreciation rules.
Refresher: what is bonus depreciation?
Bonus depreciation is a tax provision that allows businesses to write off the full cost of certain capital assets in the year they’re placed in service, rather than spreading the expense over the asset’s useful life. It’s been around in various forms for years and was most recently expanded under the Tax Cuts and Jobs Act (TCJA) in 2017.
Under the TCJA, businesses could take 100% bonus depreciation on qualified property placed in service from September 27, 2017, through the end of 2022. However, that law included a phase-out schedule that gradually reduced the deduction starting in 2023. By 2027, bonus depreciation was set to disappear entirely.
However, in July 2025, the OBBBA made 100% bonus depreciation permanent for property placed in service after January 19, 2025. So instead of watching bonus depreciation wind down, businesses can continue to take full deductions in the first year.
It’s worth noting that bonus depreciation isn’t the only option for accelerated deductions. Section 179 also allows for immediate expensing of certain capital assets, though it has different limits and rules, including income caps and maximum deduction thresholds. In practice, many businesses use both provisions strategically depending on their needs and eligibility.
What the IRS just clarified
Under the OBBBA, businesses can continue to take 100% first-year depreciation on most new or used business assets with a recovery period of 20 years or less – permanently.
This includes things like:
- Equipment
- Machinery
- Certain vehicles
- Computer systems
- Furniture
- Some leasehold improvements
- Be tangible and depreciable under the Modified Accelerated Cost Recovery System (MACRS)
- Have a recovery period of 20 years or less (most standard business property fits this)
- Be placed in service after January 19, 2025
- Be purchased new or used (with some limitations)
- Electing a reduced first-year deduction (40% instead of 100%)
- Opting out of bonus depreciation altogether for certain classes of property
- Electing to expense specific components of self-constructed property
- For farming and media businesses: electing bonus depreciation on qualified plants or production assets
To qualify, the asset must be acquired and placed in service after January 19, 2025.
IRS confirms which property qualifies
The IRS confirmed that the rules are largely the same as in previous years. To qualify, property generally must:
There are a few new categories of property now eligible under the updated law, including qualified sound recordings, which could be relevant for media, entertainment, and advertising businesses.
Special elections are still available
You’re not locked into taking the full 100% deduction. The IRS continues to allow several elections, including:
For example, if you’re expecting higher income in future years, you might not want to take the full deduction this year. In that case, electing a smaller deduction or opting out could help you smooth out taxable income over time.
These elections are made on your tax return for the year the asset is placed in service, and once made, they are generally irrevocable. So it’s worth discussing this with your CPA before making an election.
Special rules for farming and long-production assets
The IRS also clarified special rules for two categories:
Specified plants for farming businesses – farmers can elect to claim 100% bonus depreciation when specified plants (such as fruit-bearing trees, vines, or nut trees) are planted or grafted, rather than waiting until they’re placed in service.
Long-production-period property and certain aircraft – for property that takes an extended time to construct or manufacture, taxpayers may elect a reduced 60% bonus depreciation rate (instead of 100%) for the first taxable year ending after January 19, 2025.
Planning ahead
Although the IRS calls this “interim guidance,” it provides a reliable framework for this filing season.
If you’re considering large purchases or construction projects, it’s a good time to talk with your tax advisor. The reinstatement of permanent 100% bonus depreciation is a valuable opportunity for businesses of all sizes. But like many tax benefits, how you use it can affect both your current and future tax bills.
If you’re planning capital investments, reach out to discuss the best strategy for your situation. We can help you evaluate whether to take the full deduction now, spread it out over time, or coordinate it with other tax-saving opportunities.
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