Buy a 90,000-dollar machine, place it in service this year, and deduct the full 90,000 dollars from your taxable income on this year's return. Not over five or seven years. This year. That was the deal from 2018 through 2022, then Congress started phasing it down — 80 percent, 60 percent, 40 percent — and every equipment purchase came with a side of schedule-watching. The One Big Beautiful Bill, signed July 4, 2025, ends the phase-down: 100 percent bonus depreciation under Section 168(k) is permanent again for property acquired after January 19, 2025. It also raises Section 179 expensing and creates a brand-new category, qualified production property, that lets manufacturers expense factory buildings. Here is what each piece means for your next purchase.
What Changed, and the One Date That Controls Everything
The core change is simple. For qualified property acquired after January 19, 2025, the bonus depreciation rate is 100 percent, permanently. No phase-down schedule, no sunset to plan around. The Treasury and IRS confirmed the mechanics in Notice 2026-11, issued January 14, 2026, which also says taxpayers may generally keep relying on the existing Section 168(k) regulations while fuller guidance is written.
The date is the whole game, so get it right:
- Acquired after January 19, 2025 means the 100 percent rate. Acquisition date is generally when you take title or when a written binding contract is signed — and the contract rule cuts both ways.
- Property locked in under a written binding contract on or before January 19, 2025 stays on the old phase-down: 40 percent if placed in service in 2025, 20 percent in 2026, zero after that. If you signed a purchase agreement for equipment in early January 2025 and took delivery in March, that equipment is not eligible for 100 percent bonus even though you first used it this year.
- Placed in service still determines the tax year of the deduction. Buying equipment in December and installing it in February puts the write-off on next year's return, not this year's.
One more transition wrinkle worth knowing: for property placed in service in your first tax year ending after January 19, 2025, you may elect to take 40 percent bonus (60 percent for certain longer-production-period property and aircraft) instead of 100 percent. Why would anyone take less? Because a giant first-year deduction is worthless if you have no income to absorb it and better planning means spreading deductions into higher-rate years. The election exists so the transition year does not force a suboptimal result.
What Qualifies: More Than You Think, Including Used Equipment
Qualified property is mostly tangible personal property with a MACRS recovery period of 20 years or less: machinery, equipment, furniture, fixtures, computers, and off-the-shelf software. Qualified improvement property — interior improvements to nonresidential buildings, with its 15-year recovery period — qualifies too, so restaurant, retail, and office build-outs can still be fully expensed in year one.
Three points surprise most owners:
- Used property qualifies. You do not need to buy new. As long as the purchase is arm's-length, the property was not previously used by you, and you acquire it after January 19, 2025, a used machine gets the same 100 percent treatment as a new one. Related-party purchases do not count.
- Land, inventory, and most buildings do not qualify. Bonus depreciation was never available for land or for the goods you sell. Buildings are still generally 27.5- or 39-year property — with one enormous new exception, qualified production property, covered below.
- Listed property has strings attached. Vehicles and other assets that mix business and personal use qualify only if business use exceeds 50 percent, and you need contemporaneous records — a mileage log, not a reconstruction at tax time — to prove it.
Section 179 vs. Bonus Depreciation: How to Stack Them
Section 179 expensing got its own upgrade in the same law: the maximum deduction rises to 2.5 million dollars with phase-out starting at 4 million dollars of equipment placed in service, for 2025, with inflation adjustments from 2026 on (about 2.56 million and 4.09 million dollars for 2026). With both provisions available at full strength, the order of operations matters:
- Take Section 179 first, up to its dollar limit and your taxable income limit.
- Take bonus depreciation on the remaining basis, with no dollar cap.
The two provisions differ in ways that decide which should do the heavy lifting:
- Section 179 cannot create a loss. It is limited to your taxable business income; the excess carries forward. Bonus depreciation can push you into a net operating loss.
- Bonus depreciation is automatic unless you elect out, and the election applies class by class — all 5-year property placed in service that year, for example, not machine by machine. Be deliberate: electing out of a whole class to protect one asset's depreciation schedule is a common footgun.
- Section 179 covers some things bonus does not, notably certain HVAC, roofing, and security improvements to nonresidential real property. Bonus covers some things Section 179 does not, like used property acquired from certain related structures — check both before assuming.
For most profitable small businesses buying ordinary equipment, the practical answer is straightforward: Section 179 up to the income limit, bonus on the rest, and a conversation with your CPA before electing out of anything.
Vehicles: Where the Weight Rating Decides Your Deduction
Vehicles are where owners most often overestimate the write-off. The 100 percent rate applies, but three layers of vehicle-specific caps sit on top of it.
The 50 percent gate. No vehicle qualifies for either Section 179 or bonus unless business use exceeds 50 percent. At 50 percent or below, you are stuck with straight-line depreciation and no first-year expensing at all. A mileage log maintained week by week is the difference between a deduction that survives an audit and one that does not.
Heavy SUVs, pickups, and vans (gross vehicle weight rating over 6,000 pounds). This is the famous work-truck category. Vehicles in the 6,001 to 14,000 pound range qualify for Section 179 only up to a capped amount — 31,300 dollars for 2025, about 32,000 dollars for 2026 — with bonus depreciation available on the remaining basis. Genuine work vehicles escape the cap entirely: pickup trucks with a cargo bed at least six feet long, cargo vans with fully enclosed driver compartments, and anything rated over 14,000 pounds can be fully expensed up to the overall Section 179 limit, plus 100 percent bonus on any excess. Check the weight rating on the manufacturer's label inside the driver's door frame before you assume.
Light passenger vehicles (under 6,000 pounds). The Section 280F luxury-auto caps still apply, and bonus depreciation does not override them. The first-year cap is a low five-figure number — about 12,200 dollars for 2025 — no matter what the sedan cost. A 60,000-dollar car used entirely for business still drips out over six-plus years. If first-year expensing is the goal, the vehicle has to be heavy.
Qualified Production Property: The New Category for Manufacturers
The sleeper provision of the new law is Section 168(n): elective 100 percent expensing for qualified production property. For the first time, certain buildings — not just equipment inside them — can be fully deducted in the year they go into service.
The qualifying shape is specific:
- What: Nonresidential real property, or a portion of it, used as an integral part of a qualified production activity — manufacturing, production, or refining of tangible personal property — in the United States. New factories qualify, and so do qualifying improvements to existing plants and certain other production structures.
- When construction starts: After January 19, 2025 and before January 1, 2029.
- When it goes into service: Before January 1, 2031.
- How much: The portion of the building used in the qualifying activity. Office wings, break rooms, and other non-production space stay on regular 39-year depreciation, so the cost segregation between production and non-production areas is the critical workpaper.
Unlike the permanent Section 168(k) restoration, this window is temporary by design — roughly a four-year construction runway. If you are a manufacturer weighing a plant expansion, the construction-start deadline, not the placed-in-service deadline, is the binding constraint, because permitting and build-out eat calendar fast. Document the start date the way you would a binding contract: it is the fact the whole deduction hangs on.
Five Mistakes That Shrink or Kill the Deduction
Assuming your state follows the federal rules. Many states decouple from bonus depreciation entirely or partially, and several have spent 2025 and 2026 writing their own responses — some conforming, some pointedly not. A 100 percent federal write-off can coexist with a zero percent state write-off, which changes the after-tax math on every purchase. Check your state's conformity before you buy, not after you file.
Confusing purchase date with placed-in-service date. The deduction belongs to the year the asset is ready and available for its assigned function — installed, calibrated, and usable — not the year the invoice was paid. December purchases that sit in crates until February are next year's deduction.
Forgetting the binding-contract trap. A written binding contract signed on or before January 19, 2025 locks the property onto the old 40/20/zero phase-down even if it arrives and goes into service months later. Pull the contract dates on every big-ticket delivery before assuming 100 percent.
Electing out by accident. The Section 168(k)(7) election out applies to an entire class of property, and inattentive software checklists have elected whole classes out for years running. Review the election statement on the filed return, not just the depreciation schedule.
Letting the excess business loss limit strand the deduction. Bonus depreciation can create a large paper loss, but noncorporate taxpayers face the Section 461(l) cap on how much business loss can offset other income each year. A sole proprietor with a big equipment year and modest other income may watch much of the benefit defer into carryforwards. Model the loss limitation before committing to 100 percent in year one — sometimes the 40 percent transition election or a partial Section 179 claim produces more usable tax benefit.
Your Year-End Checklist
- Inventory every 2025 acquisition with three dates each: binding contract, delivery, and placed in service. The first decides your rate; the third decides your year.
- Separate production from non-production space in any manufacturing construction, with a cost breakdown your CPA can defend.
- Verify vehicle weight ratings and business-use percentages now, while mileage logs can still be completed contemporaneously.
- Model Section 179 against bonus under your actual income, including the excess business loss limit — then decide whether to elect out of any class.
- Confirm state conformity for every state where you file before finalizing equipment timing.
- Keep a fixed-asset register that records each asset's class, dates, elections, and federal-versus-state basis. Bonus depreciation doubles the bookkeeping surface of every purchase: each asset now carries a federal story and possibly a different state story for its entire life. A spreadsheet that tracks only purchase price will fail you at sale time, when depreciation recapture is computed asset by asset.
That register is the unglamorous backbone of the whole strategy. Every date, election, and weight rating in this article eventually becomes a row in your books — and clean rows are what let your CPA defend the deduction years later.
Keep Your Fixed Assets Organized From Day One
As you put new equipment, vehicles, or production space into service, maintaining clear records of each asset's cost, class, and placed-in-service date is what turns a tax provision into actual tax savings. Beancount.io provides plain-text accounting that gives you complete transparency and control over your financial data — version-controlled ledgers where every fixed asset and depreciation entry is auditable line by line, with Fava dashboards to review your balances visually. Get started for free and see why developers and finance professionals are switching to plain-text accounting.
