Thinking of growing your business? Bonus depreciation is back.
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Business owners got their wish in 2025 when Congress made 100% bonus depreciation permanent. The provision, which was initially part of the 2017 Tax Cuts and Jobs Act (TCJA), began to phase out in 2023. However, the One Big Beautiful Bill Act (OBBBA) permanently reinstated the deduction for qualifying property.
The IRS has now issued guidance on the deduction for eligible depreciable property acquired after January 19, 2025. The notice also provides guidance on certain qualified sound recording productions that OBBBA added as property that may be eligible for the additional first-year depreciation deduction.
Here’s what you need to know.
What Is Bonus Depreciation?
Generally, when taxpayers acquire property for business use, they must depreciate it over several years based on various depreciation schedules.
With 100% bonus depreciation, however, businesses can immediately deduct 100% of the cost of eligible new or used business property in the year it is used, or placed in service.
(What you and I call “bonus depreciation” is the tax code’s “additional first-year depreciation deduction” under section 168(k).)
Why Do Businesses Like Bonus Depreciation?
The big plus is timing. Instead of recovering an asset’s cost over multiple years, bonus depreciation lets you deduct a large share—now 100% for many assets—in the year the property is placed in service, accelerating deductions and typically improving after-tax cash flow.
What Does “Placed in Service” Mean?
For depreciation purposes, property is considered placed in service when it is ready and available for a specific use, even if it is not yet actually used.
What If I Have a Contract to Buy Something?
Whether property qualifies for bonus depreciation depends on when it is acquired, but when you can actually take the deduction depends on when the property is placed in service.
In other words, there are two timing rules. First, the property has to be acquired during the right time period, which usually means signing a binding contract or starting construction. Second, the property has to be placed in service, meaning it’s ready to be used. You don’t get the deduction unless both things happen.
What Is Qualifying Property?
The guidance largely advises taxpayers to determine eligibility by relying on the existing definitions under section 168(k) of the regulations, with updated dates and percentages.
Under the regulations, “qualified property” generally includes new or used tangible business assets with a Modified Accelerated Cost Recovery System (MACRS) recovery period of 20 years or less. Common examples include office furniture and desks, computers and copiers, and cars, vans, and light trucks used for business. It also includes manufacturing machinery, tools, and some land improvements, such as parking lots and fencing.
(But, importantly—and since I know many of you are chomping at the bit for me to say it—you cannot depreciate land.)
Qualified property also includes certain non-custom software, improvements made to the interior of a nonresidential building that qualify as qualified improvement property (QIP), and additional categories such as water utility property and qualified film, television, and live theatrical productions.
Some Of Those Feel Really Specific
They are. And OBBBA added another very specific category: qualified sound recording productions. A qualified sound recording production is considered placed in service at the time of initial release or broadcast and qualifies for the deduction if production begins in a taxable year ending after July 4, 2025.
According to the notice, section 181 previously allowed taxpayers to elect to deduct up to $15 million of the production costs of any qualified film, television, or live theatrical production beginning before January 1, 2026, but it did not allow a deduction for sound recording productions. OBBBA expanded the definition of qualified property to include qualified sound recording productions.
The new provision closely tracks the previously introduced Help Independent Tracks Succeed (HITS) Act, a bipartisan proposal supported by Reps. Linda Sánchez (D-Calif.) and Ron Estes (R-Kan.), and Sens. Marsha Blackburn (R-Tenn.) and Catherine Cortez Masto (D-Nev.). The HITS Act was first introduced in 2020 and never passed as a standalone measure.
(It’s likely no coincidence that Senators Blackburn and Cortez Masto represent states with significant music and entertainment industry presence.)
When And How Can I Claim The 100% Depreciation Deduction?
You can claim the deduction for qualified property acquired after January 19, 2025, and placed in service as required by section 168(k).
You claim the deduction on your federal tax return using the normal depreciation reporting, typically Form 4562. (Bonus depreciation is generally the default if the property is eligible, but taxpayers can opt out for a class of property using the same form.)
For property acquired and placed in service in 2025, the deduction is claimed on the 2025 tax return, which most taxpayers will file during the 2026 tax filing season.
Is This the Same as Bonus Depreciation?
No. Section 179 expensing and bonus depreciation both let you write off the cost of business property faster than normal depreciation—but they work differently.
There is no annual maximum deduction limit on bonus depreciation. Businesses can generally deduct 100% of the cost of eligible property placed in service, regardless of the amount. Bonus depreciation isn’t limited by business taxable income, so it can create or increase a net loss.
Section 179, by contrast, does have limits. For 2025, the maximum section 179 deduction you can elect is $2.5 million. That amount begins to phase out dollar for dollar once total qualifying purchases exceed $4 million. In contrast to bonus depreciation, section 179 is limited by business taxable income, so it can’t be used to create a net loss in the year it’s claimed.
(You can use both in the same year.)
Where Can I Find This Information?
You can find the guidance in IRS Notice 2026-11 here.
What’s Next
This guidance is not the same as final regulations. The IRS says it intends to issue proposed regulations consistent with the notice, including those addressing qualified sound recording productions. Until then, taxpayers may rely on the information in Notice 2026-11.
There’s more information to come on OBBBA, so check back with Forbes. To keep it easy, I recommend subscribing to our free tax newsletter—so the information you need lands in your inbox each Saturday morning.
Source: https://www.forbes.com/sites/kellyphillipserb/2026/01/15/100-bonus-depreciation-is-back-heres-what-businesses-need-to-know/
