Bonus Depreciation in 2026: Eligibility, Timing and Loss Limits

By AE Tax Advisors · Published 2026-08-15 · Updated November 13, 2026.

The restored 100% bonus allowance generally applies to eligible property acquired and placed in service after January 19, 2025. That does not make every asset purchased or studied in 2026 immediately deductible. Begin with the property, dates and taxpayer.

Use both acquisition and service facts

A binding contract or other acquisition history can affect which rules apply. Being placed in service generally requires readiness and availability for the asset's intended use; payment or delivery alone may not establish the date.

Older property examined in a new cost segregation study keeps its relevant acquisition and service history. The report date does not reset the bonus rate or cure an ineligible acquisition.

Classify each asset

Many eligible assets have recovery periods of 20 years or less, but recovery period alone is not the complete test. Review original-use or qualifying used-property requirements, related-party transactions, required ADS treatment and other exclusions.

Land is not depreciable. A residential or commercial building does not become ordinary Section 168(k) bonus property merely because the owner orders a study. Supported shorter-lived components require their own asset schedule.

Separate qualified production property

Section 168(n) is a distinct provision for qualifying production property, with its own activity, construction, service, election and recapture requirements. Do not apply it to any building described as industrial or to general office space without the statutory analysis.

Check whether the deduction can be used

Pass-through basis, at-risk amounts, passive activity, personal use and excess-business-loss rules can limit the result. Wages do not become business income for the Section 461(l) calculation simply because the employee owns a rental.

Real estate professional status and short-term customer-use exceptions require separate participation analysis. Neither creates an unlimited current deduction. Keep suspended amounts and other carryforwards with their applicable schedules.

Model an election out

Bonus generally applies unless a valid election out is made for a class of property. Review all assets in that class, not just the ones in a particular study. The election's timing and revocation rules matter.

Compare current and future deductions, expected income, state adjustments, QBI effects and a potential sale. Depreciation changes timing and basis; it does not automatically create a permanent reduction equal to the first-year deduction.

Keep a return-ready schedule

• Asset description, basis and recovery class.
• Acquisition documents and service evidence.
• Used-property, related-party and ADS review.
• Election statements and prior depreciation history.
• Owner limitations, state differences and future sale assumptions.

Use the return-reporting guide and request a depreciation review before relying on a large projected deduction.

Frequently Asked Questions

Sources and review notes

Reviewed November 13, 2026 by AE Tax Advisors. Examples are illustrative; apply the rules to the relevant tax year and records. See our editorial policy.

• IRS Publication 946: depreciation
• IRS Form 4562 instructions
• IRS Publication 925: loss limitations
• IRS: 2026 limitation amounts

Bonus depreciation 2026: current rates and the old phase-out

The restored 100% allowance has no scheduled phase-down for the eligible post-January 19, 2025 acquisition category under current law. Older acquisitions can remain under the prior schedule. The year of a new study does not select the rate. See IRS guidance on Notice 2026-11.

The IRS describes the ordinary legacy 2026 percentage in Revenue Procedure 2026-15. This is not a rule that every 2026 purchase receives 20%. Preserve contracts and acquisition history when an order predates the law change.

Which property types and business assets should be reviewed?

• Equipment and furniture: qualifying shorter-life business assets may be eligible; separate personal use and substantiate basis.
• Computer software: certain depreciable software can qualify. A subscription payment is not automatically a depreciable software asset.
• Rental components: supported shorter-life classifications can be relevant; a study does not turn land or the entire building into ordinary bonus property.
• Qualified improvement property: test the statutory interior-improvement requirements and exclusions rather than treating every renovation as eligible.
• Vehicles: listed-property, business-use and passenger-auto limitations can restrict the result even when a bonus percentage is 100%.

Use IRS Publication 946 for asset eligibility, and Form 4562 instructions for reporting and listed-property rules.

A deduction example: equipment versus a rental loss

Equipment: assume $100,000 of fully eligible business basis, the restored 100% allowance, no Section 179 election, no credit-related basis adjustment and full current deductibility. Bonus depreciation is $100,000. At an illustrative 30% marginal federal rate, the isolated tax effect is $30,000, rather than a $100,000 refund. The completed return can differ.

Rental: assume a supported study identifies $100,000 of eligible basis with the same bonus percentage. The depreciation calculation may also be $100,000, but passive-loss restrictions can suspend the loss. Compare the calculation of depreciation with its use on the owner's return. See short-term rental participation rules and real estate professional status.

Compare bonus depreciation, Section 179 and regular depreciation

Request three projections with the same income and investment assumptions. Compare current cash taxes, future deductions, QBI, owner loss limitations and state adjustments. Section 179 has separate eligibility and business-income rules; it is not interchangeable with bonus. See our Section 179 versus bonus comparison.

Make the state and sale-year effects visible

Build separate federal and state depreciation schedules where required. Ask which states conform for the actual tax year, whether an addback is needed and how future deductions are recovered. Include the expected disposition: accelerated deductions reduce basis and can affect recognized gain and recapture. An intended 1031 exchange does not resolve every asset's recapture treatment.

Before the year-end purchase or study engagement

1. List each asset, business-use allocation, purchase contract and acquisition date.
2. Save evidence of readiness and availability for its intended use.
3. Reconcile land, building, improvements and previously depreciated assets to the books.
4. Have the preparer review class-wide elections, owner limitations, state differences and any prior-year method correction.
5. Compare the proposed deduction with a no-purchase or regular-depreciation scenario, including financing, fees and the planned sale.

Request a depreciation planning review with the asset schedule and relevant contracts before relying on a projected deduction. Tax savings should be evaluated alongside the business reason for the investment.

Bonus depreciation strategy 2026: planning questions

Updated November 13, 2026. Use these answers to prepare a review of your records with AE Tax Advisors.

Records to bring to the planning call

Bring the latest filed returns, ownership details and documents supporting the transaction or deduction. Identify deadlines and prior elections before implementing a change. Discuss your planning questions with AE Tax Advisors.

Source references

• IRS Publication 946
• IRS Notice 2026-11 guidance

Read the editorial policy. These educational answers do not establish eligibility for a particular return.