New IRS Guidance Clarifies Rules for Permanent 100% Bonus Depreciation

New IRS Guidance Clarifies Rules for Permanent 100% Bonus Depreciation

The IRS has released new guidance on how the permanent 100% bonus depreciation provisions, enacted as part of the One Big Beautiful Bill Act (OBBBA) in 2025, will apply beginning in the 2025 tax year. Notice 2026-11 provides important clarification on eligible property, key elections, and opportunities for taxpayers to strategically time their deductions.

Before reviewing the updates, it’s helpful to revisit the history of bonus depreciation.

A Quick Refresher: What is Bonus Depreciation?

Bonus depreciation allows businesses to immediately deduct the full cost of qualifying capital assets in the year they are placed in service, rather than recovering the cost over the asset’s useful life. This tool has long been used to encourage investment and was significantly expanded under the Tax Cuts and Jobs Act (TCJA) in 2017.

Under the TCJA, 100% bonus depreciation applied to qualified property placed in service between September 27, 2017, and December 31, 2022, with a scheduled phase-out beginning in 2023. Without legislative action, the deduction would have fully phased out by 2027.

The OBBBA reversed that course. Beginning January 19, 2025, the law reinstated and made permanent 100% first-year bonus depreciation for eligible property placed in service after that date.

Bonus depreciation remains distinct from Section 179 expensing, which also offers accelerated deductions but is subject to annual limits, income thresholds, and phase-outs. Many businesses continue to use both provisions as part of their tax planning strategy.

Key Clarifications From the IRS

Under the updated rules, taxpayers may continue to claim a full 100% deduction on most new or used tangible business assets with a recovery period of 20 years or less. This generally includes:

  • Equipment
  • Machinery
  • Certain vehicles
  • Computer and technology systems
  • Furniture
  • Certain leasehold improvements

To qualify, the property must be acquired and placed in service after January 19, 2025.

Confirmation of Eligible Property

The IRS reaffirmed that the definition of qualified property remains consistent with prior years. Eligible assets must:

  • Be depreciable under MACRS
  • Have a recovery period of 20 years or less
  • Be placed in service after January 19, 2025
  • Be new or used, subject to existing limitations

Notably, the updated law expands eligibility to include qualified sound recordings, which may benefit media, entertainment, and advertising businesses.

Elections that Remain Available to Taxpayers

The IRS confirmed that several elections, helpful for managing taxable income, continue to apply. Taxpayers may choose to:

  • Elect a reduced first-year bonus depreciation amount (40% instead of 100%)
  • Opt out of bonus depreciation for one or more classes of property
  • Expense specific components of self-constructed property
  • For farming and media businesses: elect bonus depreciation on certain plants or production assets

These elections can be beneficial when businesses anticipate higher future income and prefer to defer deductions rather than fully accelerating them. Elections are made on the tax return for the year the asset is placed in service and are generally irrevocable.

Special Rules for Farming and Long-Production Assets

The IRS also outlined guidance for two key categories:

Specified Plants for Farming Operations
Farmers may elect to take 100% bonus depreciation when specified plants—such as fruit trees, vines, or nut trees—are planted or grafted, rather than waiting until they begin producing income.

Long-Production-Period Property and Certain Aircraft
Taxpayers may elect a 60% bonus depreciation rate for certain assets that require an extended construction or manufacturing period. This applies for the first taxable year ending after January 19, 2025.

Planning Considerations Moving Forward

While the IRS characterizes this update as “interim guidance,” it provides meaningful direction for the upcoming filing season. With permanent 100% bonus depreciation now restored, businesses may find renewed opportunities to accelerate deductions and improve cash flow.

If you are planning capital investments, equipment purchases, or long-term construction projects, this is an ideal time to evaluate how these rules may impact your overall tax strategy. Coordinating bonus depreciation with Section 179, long-term planning, and projected income patterns can help you optimize the benefit.

HTB’s tax team is ready to help you make the most of permanent bonus depreciation. Contact us today to evaluate opportunities that support your capital planning and strengthen your long-term tax outlook.

Contact HTB

/by