Tax depreciation · Guide

Bonus depreciation in 2025 and 2026: 100%, 40% or 20%?

Published Oct 24, 2026 By Smart Accounting

Bonus depreciationBonus depreciation. The special depreciation allowance under section 168(k): an extra first-year deduction for qualified property (100% for property acquired after January 19, 2025, unless you elect otherwise). Glossary is the IRS’s “special depreciation allowance” under section 168(k): an extra first-year deduction for qualified property. It is taken after any §179 deduction and before regular MACRS, and reported on Form 4562, line 14 (line 25 for listed property such as vehicles) [Form 4562 instr., lines 14, 25].

What changed in 2025?

The 2025 tax law (P.L. 119-21) replaced the scheduled phase-down with a permanent 100% allowance for qualified property acquired after January 19, 2025 [Notice 2026-11, §2.02]. The IRS’s interim guidance, Notice 2026-11, says taxpayers apply the existing bonus regulations with “January 19, 2025” substituted for the old September 27, 2017 date [Notice 2026-11, §3.03].

The 2025 rows are stated in Publication 946 [Pub 946, ch. 3]. The 2026 row is our reading of Notice 2026-11, which describes the old rule as phasing down “by 20 percentage points annually” from 2023 for property placed in service before January 1, 2027 [Notice 2026-11, §2.01]. The 2026 edition of Publication 946 has not been released yet; we will re-check this row when it is. Longer-production-period property and certain aircraft have different percentages.

When is property “acquired”?

The date you acquire property, not the date you pay or place it in service, decides which row applies. For property bought under a written binding contract, the acquisition date is generally the latest of the date the contract was entered into, the date it became enforceable under state law, and the date any cancellation periods ended [Reg. §1.168(k)-2, (b)(5)(ii)(B)]. A machine ordered under a contract signed in December 2024 and delivered in March 2025 can therefore be “acquired before January 20, 2025” and get 40%, not 100%.

What property qualifies?

Qualified property includes tangible property depreciated under MACRS with a recovery period of 20 years or less, certain computer software, water utility property, and qualified film, television, live theatrical and (from 2025) sound recording productions. It can be new or certain used property [Pub 946, ch. 3]. Buildings do not qualify: residential rental property (27.5 years) and nonresidential real property (39 years) are outside the 20-year limit. Qualified improvement property is 15-year property, so it can qualify.

The 40% election and electing out

• Elect 40% instead of 100%: available for property acquired and placed in service after January 19, 2025, in your first tax year ending after that date [Pub 946, ch. 3]. For a calendar-year taxpayer, that is 2025 only.
• Elect out: for any class of property, for all property in that class placed in service that year, by attaching a statement to a timely filed return (or an amended return within 6 months of the original due date). You cannot revoke it without IRS consent [Pub 946, ch. 3].

Worked example: an $80,000 machine placed in service in August 2025

Seven-year property, half-year convention, 100% business use:

MACRS year 1 is 14.29% of what remains after bonus. Try it in the calculator: change the acquisition answer and the bonus election.

Cars: bonus raises the first-year limit

For passenger automobiles, bonus depreciation lifts the first-year depreciation limit. For a car placed in service in 2026 the cap is $20,300 with bonus and $12,300 without [Rev. Proc. 2026-15, §4.01(2)]. With 100% bonus on a car costing more than that, see the calculator’s note on the Rev. Proc. 2019-13 safe harbor.

Selling property you took bonus on

When you sell property on which you claimed bonus depreciation, gain is generally recaptured as ordinary income up to the allowance you claimed [Pub 946, ch. 3]. See depreciation recapture.