The 100% write-off is back and this time it is permanent. There is no phase-down schedule to plan around any more.
Two dates decide whether you actually get it, and neither one is the date on the invoice. Get those wrong and a deduction you have already budgeted for moves into next year, or disappears.
What the Rule Is Now
Notice 2026-11, issued in January, sets out interim guidance on what the IRS describes as a permanent 100 percent additional first year depreciation deduction for eligible property acquired after January 19, 2025. Proposed regulations are expected to be consistent with it, and taxpayers may rely on it in the meantime.
What qualifies, broadly: tangible property with a recovery period of 20 years or less, computer software, water utility property, qualified film, television and live theatrical productions, and now qualified sound recording productions. Used property counts as well as new, subject to an important exception below.
Qualified improvement property comes in through the 20-year test, since it carries a 15-year recovery period. Ordinary buildings do not: nonresidential real property has a 39-year recovery period and sits entirely outside bonus depreciation, with one new exception covered later in this article.
What is excluded:
- Listed property used 50% or less in a qualified business use.
- Anything required to be depreciated under the Alternative Depreciation System.
- Property placed in service and disposed of in the same tax year. Buy it and sell it inside twelve months and you get nothing.
- Property for which you elected not to claim the allowance.
- Property primarily used in a regulated utility trade or business, and property used in a trade or business with floor plan financing indebtedness.
Not sure your December purchase will actually be placed in service in time?
Date One: Acquisition, and the Binding Contract Trap
The property has to be acquired after January 19, 2025. The trap is in what acquired means.
Notice 2026-11 is explicit: property is not treated as acquired after the date on which a written binding contract was entered into for its acquisition. A written binding contract is one enforceable under state law against the taxpayer that does not limit damages.
So if you signed a purchase contract in December 2024 for a machine delivered in March 2026, that machine was acquired in 2024 for this purpose. It is outside the 100% rule no matter what the invoice says. On long-lead equipment, aircraft and custom plant, check the contract date before you budget the deduction.
For property you build yourself, the test is different and more forgiving. Manufacture, construction or production begins when physical work of a significant nature begins, and there is a safe harbor: the test is satisfied where you have incurred or paid more than 10% of the total cost of the property. For a self-constructed asset straddling the date, that 10% point is the number to document.
Date Two: Placed in Service, Which Is Not Delivery
This is where the deduction is most often lost, and it is the one a December conversation can still fix.
Publication 946 sets the standard: you place property in service when it is ready and available for a specific use. Not when it arrives, not when you pay for it, not when title passes.
The IRS gives its own example, and it is worth reading twice: a machine was delivered in one year, but it was not installed and operational until the next. The deduction belongs to the later year.
What that means in practice over the next ten weeks:
Note the third row, because it cuts the other way and in your favor. The standard is ready and available, not in use, so a commissioned machine sitting idle over the holiday still counts.
One thing worth saying plainly, since it comes up every December: there is no placed-in-service safe harbor. The 10% rule above is an acquisition-date test for self-constructed property, nothing more. Notice 2026-11 in fact switches off the old regulation on placed-in-service dates for post-January 19, 2025 acquisitions. If it is not ready and available on December 31, it is next year's deduction. Plan the installation, not just the order.
Used Equipment Qualifies, Unless You Buy It From Yourself
Used property is eligible, which is one of the more useful features of the current rules. Two conditions apply: the property must not have been used by you or a predecessor before the acquisition, and the acquisition has to meet the purchase requirements of Section 179(d)(2).
That second condition is the one that catches people. Section 179(d)(2) excludes property acquired from a person whose relationship to the buyer would trigger the loss disallowance rules of section 267, from a member of the same controlled group, or in a transaction where basis carries over.
Translated: moving equipment between your own entities does not create a 100% deduction. Neither does buying it from a family member within the section 267 relationships, or from a partnership you control. If a transaction looks like a way to generate a write-off on an asset the group already owns, it is almost certainly caught.
Section 179 or Bonus? The Asymmetry That Decides It
They stack in a fixed order: Section 179 first, then bonus on what remains, then regular MACRS depreciation. For 2026, the Section 179 figures are:
Above the threshold, the maximum reduces dollar for dollar by the excess, so at roughly $6.65 million of Section 179 property placed in service the deduction is gone entirely.
Now the difference that actually drives the choice, and it is not the dollar caps.
So Section 179 is the precision instrument and bonus is the blunt one. If you want to take exactly enough depreciation to land taxable income on a particular number, that is Section 179. If you have a large purchase and want all of it now and do not mind a loss, that is bonus.
And sometimes you want less depreciation, not more. You can elect out of bonus for any class of property, which is worth considering when you expect higher marginal rates in later years, when you need taxable income to remain positive to use credits or the Section 179 election itself, or when you are heading toward a sale and would rather not have basis at zero. The election is made by attaching a statement to a timely filed return, it applies to the whole class rather than individual assets, and once made it cannot be revoked without IRS consent. If you missed it, there is relief: an amended return filed within six months of the due date excluding extensions.
One more point that sits outside federal rules entirely. Many states decouple from federal bonus depreciation, and several cap Section 179 well below the federal figure, so a decision that is optimal federally can create a state add-back. Check your own states before committing. We have not verified individual state positions here and you should not assume conformity.
Qualified Production Property: The New One Worth Knowing
This is the genuinely new provision, it applies to nonresidential real property, and it is the only route by which a building gets anything like a 100% write-off. Notice 2026-16 provides the interim guidance.
The allowance is 100 percent of the adjusted basis of qualified production property, which is the portion of nonresidential real property used as an integral part of a qualified production activity. A qualified production activity means manufacturing, production or refining of a qualified product, and the activity has to result in a substantial transformation of the property comprising the product.
Five things to get right:
Two coordination points. Electing this treats the property as a separate class and treats you as having elected out of ordinary bonus for it, and the allowance applies for alternative minimum tax purposes as well.
And the tail nobody mentions. There is a ten-year recapture rule. If the property ceases to be used in a qualified production activity and is put to a different productive use within ten years of being placed in service, section 1245 recapture applies. A manufacturer taking a very large deduction on a facility needs to be confident about a decade of use, not a year of it, and that is a board-level conversation rather than a tax-return one.
Vehicles: Where Two Different Rules Get Confused
For passenger automobiles, including trucks and vans, placed in service in 2026, Revenue Procedure 2026-15 caps the deduction:
Then the exception that matters more than the table. Under section 280F, a passenger automobile is one rated at 6,000 pounds or less, and for a truck or van the test uses gross vehicle weight rather than unloaded weight. A truck, van or SUV rated above 6,000 pounds GVWR is therefore not a passenger automobile at all, the caps above do not apply to it, and 100% bonus is available on the full business-use basis.
Which brings us to the thing that gets written wrongly almost everywhere: the $32,000 SUV cap is a Section 179 limit, not a bonus limit. It restricts what you can expense under Section 179 on a sport utility vehicle. It does not restrict bonus depreciation on a vehicle over 6,000 pounds. Those are two separate provisions and merging them produces the wrong answer in both directions.
The gate on all of it is business use. A vehicle used 50% or less in a qualified business use is excluded from bonus entirely, and listed property rules mean the mileage log is not optional.
What Happens When You Sell It
A 100% write-off drives adjusted basis to zero immediately, and basis is what determines your gain later.
- On a sale, essentially the whole price is ordinary income. Equipment, vehicles and qualified improvement property are section 1245 property, so depreciation comes back as ordinary income rather than capital gain. With basis at zero, there is nothing to shelter it.
- A drop in business use triggers recapture. If business use falls to 50% or less during the recovery period, the excess depreciation is recaptured as ordinary income and reported in Part IV of Form 4797, with the amount added back to basis. This is the live risk on a heavy vehicle expensed in full.
- Qualified production property carries its own ten-year rule, described above.
None of this is a reason not to take the deduction. It is a reason to know that a 100% write-off converts a future capital gain into future ordinary income, and if you expect to sell the asset inside a few years, that trade may not be worth making.
The December Checklist
- Check the contract date, not the invoice date, on anything with a long lead time.
- Confirm installation dates in writing for every asset you are counting on this year. Ready and available on December 31 is the test, and it is an installation question, not a shipping question.
- Confirm the asset is not coming from a related entity, because that disqualifies used property.
- Run the numbers both ways before choosing Section 179 or bonus, and check whether you want taxable income to stay positive.
- Check your state's conformity before you rely on the federal answer.
- If you are building production space, see whether the qualified production property election is available, and decide before the return is filed, because it cannot be added later without consent.
Orbit Accountants handles fixed asset schedules, depreciation elections and year-end planning as part of our small business accounting and corporate tax work, including the installation-date evidence that makes a December placed-in-service position hold up.
Also read: Year-End Closing Checklist for Small Businesses
Frequently Asked Questions
Is 100% bonus depreciation permanent?
Yes. Notice 2026-11 describes a permanent 100 percent additional first year depreciation deduction for eligible property acquired after January 19, 2025, and confirms that the previous annual phasedown of the applicable percentage was replaced. There is no longer a step-down schedule to plan around.
What does placed in service mean for bonus depreciation?
Property is placed in service when it is ready and available for a specific use, which is not the same as delivered or paid for. Publication 946 gives the example of a machine delivered in one year that was not installed and operational until the next, with the deduction falling in the later year. Equipment still crated or awaiting an electrical hookup on December 31 is next year's deduction. The test is ready and available rather than actually used, so a commissioned machine sitting idle still counts.
Can I claim 100% bonus depreciation on equipment I ordered before January 19, 2025?
Probably not. Notice 2026-11 provides that property is not treated as acquired after the date on which a written binding contract was entered into for its acquisition. A contract signed on or before January 19, 2025 therefore puts the property outside the 100% rule even if delivery and payment came later. For self-constructed property the test is when physical work of a significant nature began, with a safe harbor met once more than 10% of total cost has been incurred or paid.
Does used equipment qualify for bonus depreciation?
Yes, provided you or a predecessor did not use the property before acquiring it and the acquisition meets the purchase requirements of Section 179(d)(2). Those requirements exclude property acquired from a related party under the section 267 relationship tests, from a member of the same controlled group, or in a transaction with carryover basis. Moving equipment between entities you control does not generate a deduction.
What is the Section 179 limit for 2026?
$2,560,000, up from $2,500,000 in 2025. It begins to phase out once the cost of Section 179 property placed in service in the year exceeds $4,090,000, reducing dollar for dollar, and the cap on any single sport utility vehicle is $32,000.
Should I use Section 179 or bonus depreciation?
They apply in order, Section 179 first and then bonus on the remaining basis. The deciding difference is that Section 179 is limited to taxable income from the active conduct of a trade or business and cannot create a loss, with the excess carrying forward, while bonus has no income limit and can create or increase a net operating loss. Section 179 is also asset by asset and lets you choose the amount, where bonus is all or nothing by class of property. Use Section 179 when you want to land taxable income on a particular figure, and bonus when you want the whole deduction now.
What is qualified production property?
A new provision allowing a 100 percent allowance on the portion of nonresidential real property used as an integral part of a qualified production activity, meaning manufacturing, production or refining that results in a substantial transformation of the product. It is an election rather than automatic, construction must begin after January 19, 2025 and before January 1, 2029, and the property must be placed in service after July 4, 2025 and before January 1, 2031. Office, administrative, lodging, parking, sales and research space is excluded, and a lessor cannot claim it for space used by a tenant. A ten-year recapture rule applies if the property is put to a different productive use.
Can I write off a vehicle over 6,000 pounds in full?
Potentially. Under section 280F a vehicle rated above 6,000 pounds gross vehicle weight is not a passenger automobile, so the annual depreciation caps do not apply and 100% bonus is available on the business-use basis. Note that the $32,000 SUV limit is a Section 179 cap and not a bonus cap, which is a distinction a lot of published guidance gets wrong. Business use above 50% is required, and if it later drops to 50% or less the excess depreciation is recaptured as ordinary income.
Can Orbit Accountants help with our depreciation planning?
Yes. We maintain fixed asset schedules, run the Section 179 and bonus comparison before year end, document the installation evidence that supports a placed-in-service position, handle elections and elections out, and flag state conformity issues. That sits within our small business accounting and corporate tax services.
Legal Disclaimer
This article is for general information only and is not tax or legal advice. It reflects the Internal Revenue Code, IRS notices, revenue procedures and forms as of [publish date]. Several provisions discussed here are new and currently governed by interim guidance, with proposed regulations still expected, so the detail may change. State treatment of bonus depreciation and Section 179 varies and is not covered here. Please speak with a qualified tax professional about your own position before relying on any of it. Reading this article does not create a client relationship with Orbit Accountants.
