# What Is Bonus Depreciation?

Bonus depreciation, officially the special depreciation allowance, lets a business deduct a large share of a qualifying asset's cost in the first year. Under the One Big Beautiful Bill Act, it's 100% and permanent for property acquired and placed in service after January 19, 2025. Unlike Section 179, it has no dollar cap and can create a loss.

## Key takeaways

- For property acquired and placed in service after January 19, 2025, bonus depreciation is 100%, with no scheduled phase-down (P.L. 119-21; IRS Notice 2026-11).
- Property acquired before January 20, 2025, including under a binding contract signed before then, stays on the old phase-down schedule (40% if placed in service in 2025).
- It covers new and used equipment, vehicles and other property with a recovery period of 20 years or less.
- It applies automatically to every asset in a property class unless you elect out for that class.
- Unlike Section 179, it has no business income limit, so it can produce a loss. Vehicles of 6,000 lbs GVWR or less are still capped by the passenger auto limits.

> **Current status, checked October 12, 2026**
>
> The One Big Beautiful Bill Act (P.L. 119-21, signed July 4, 2025) restored a **permanent 100%** additional first-year depreciation deduction for qualified property acquired and placed in service after January 19, 2025. The IRS issued interim guidance in Notice 2026-11 and has said proposed regulations will follow. This page is general information, not tax advice. Confirm with your CPA or enrolled agent before relying on it.

## How bonus depreciation works

Under normal [depreciation](https://www.brix.so/learn/depreciation), a $50,000 skid steer is written off over five years. Bonus depreciation lets you deduct an extra share of the cost up front, in the year the asset goes into service. With the rate at 100%, that means the whole business-use cost, in year one.

The IRS calls it the **special depreciation allowance**, and it lives in section 168(k) of the tax code. You claim it on Form 4562. Unlike [Section 179](https://www.brix.so/learn/section-179-deduction), you don't have to elect it. It applies by default to qualifying property, and you elect out if you don't want it.

## What are the bonus depreciation rates?

**Bonus depreciation rate by when property was acquired and placed in service**

| Property | Rate |
| --- | --- |
| Acquired **and** placed in service after January 19, 2025 | 100%, permanent (no phase-down) |
| Acquired after Sept. 27, 2017 and before Jan. 20, 2025, placed in service during 2025 | 40% (60% for certain long-production property) |
| Acquired before Jan. 20, 2025, placed in service during 2026 | Old phase-down schedule applies, which drops 20 points a year. Ask your CPA. |
| Placed in service in your first tax year ending after Jan. 19, 2025 | You may elect 40% instead of 100% for that year only |

_Sources: IRS Notice 2026-11, sections 2.01–2.02; IRS Publication 946 (2025), What's New and chapter 3. An asset bought under a written binding contract is treated as acquired on the contract date._

The acquisition date is the trap. If you signed a binding purchase contract for a truck in December 2024 and it was delivered in March 2025, the IRS treats it as acquired in December 2024, so it gets the old rate, not 100%.

## What property qualifies?

- Tangible property depreciated under MACRS with a recovery period of **20 years or less**: tools, equipment, trucks, trailers, machinery, office furniture, computers.
- Off-the-shelf computer software.
- **Qualified improvement property** (interior improvements to a nonresidential building you own), which has a 15-year recovery period.
- **New or used** property. Used property qualifies if you (or a related party) didn't use it before.

Buildings themselves (27.5 or 39 years), land, property you must depreciate under the alternative depreciation system, and listed property you use 50% or less for business don't qualify.

> **Example: a roofing company's slow-profit year**
>
> This is an illustrative example. A roofing contractor's 2026 profit before equipment is $50,000. In April 2026 he buys a used dump trailer for $18,000 and a new skid steer for $62,000, both used 100% in the business. That's $80,000 of equipment.
>
> With Section 179, the deduction is capped at his $50,000 of business income. The other $30,000 carries forward.
>
> With 100% bonus depreciation, he can deduct all $80,000 in 2026, creating a $30,000 business loss. That loss can offset other income, such as a spouse's wages, subject to the excess business loss rules. Whether that's smart depends on his brackets this year versus next, which is a question for his CPA.

## Bonus depreciation on trucks and vans

Vehicles are where contractors use bonus depreciation most, and where the rules split by weight:

- **Over 6,000 lbs GVWR** (most full-size work pickups, cargo vans and heavy SUVs): not subject to the passenger auto caps, so the full business-use cost can generally be deducted with 100% bonus. Heavy SUVs are capped at $32,000 under Section 179 for 2026, but bonus depreciation has no SUV cap.
- **6,000 lbs GVWR or less**: the passenger auto caps apply. For vehicles placed in service in 2026, total first-year depreciation including bonus is capped at **$20,300** (Rev. Proc. 2026-15).
- **Business use must be more than 50%.** Listed property used 50% or less for business can't take bonus depreciation at all, and if business use later drops to 50% or less, you recapture the excess.

Once you take bonus depreciation on a vehicle, you can't switch that vehicle to the [standard mileage rate](https://www.brix.so/learn/mileage-deduction-for-contractors) later. Compare both before you decide. The [Section 179 calculator](https://www.brix.so/tools/section-179-calculator) and [mileage deduction calculator](https://www.brix.so/tools/mileage-deduction-calculator) help.

## Bonus depreciation vs. Section 179

**Which first-year write-off fits (2026)**

|  | Bonus depreciation | Section 179 |
| --- | --- | --- |
| Rate or limit | 100% for property acquired and placed in service after Jan. 19, 2025; no dollar cap | Up to $2,560,000 for 2026, phasing out above $4,090,000 |
| Business income limit | None, can create a loss | Limited to business income; excess carries forward |
| How it's applied | Automatic for the whole property class; elect out by class | Elected asset by asset, any amount |
| Heavy SUV | No SUV-specific cap | $32,000 cap |
| Roofs, HVAC, alarms on nonresidential buildings | Not eligible (39-year property) | Eligible if you elect |
| Qualified improvement property | Eligible (15-year) | Eligible if you elect |

_Sources: IRS Publication 946 (2025), chapters 2 and 3; Rev. Proc. 2025-32; Notice 2026-11. When both apply, Section 179 is taken first, then bonus on the remaining basis._

## When you might not want 100% bonus

- **You expect higher income next year.** A deduction is worth more in a higher bracket. Electing out spreads the write-off into years when it may save more.
- **You want a steady QBI deduction.** Big first-year write-offs lower qualified business income, which can shrink the [QBI deduction](https://www.brix.so/learn/qbi-deduction).
- **Your state doesn't follow it.** Many states don't conform to federal bonus depreciation, so you may track two sets of depreciation. See your [state tax guide](https://www.brix.so/taxes).
- **You'll sell soon.** Fully expensed equipment means most of the sale price is taxed as ordinary income through depreciation recapture.

## Bonus depreciation by trade

**How the trades typically use bonus depreciation**

| Trade | Typical assets | Note |
| --- | --- | --- |
| HVAC | Cargo vans, recovery machines, refrigerant scales | Vans over 6,000 lbs GVWR avoid the auto caps. |
| Plumbing | Jetters, sewer cameras, service trucks | Good fit when a big purchase lands in a low-profit year. |
| Roofing | Dump trailers, material lifts, crew trucks | Used trailers bought at auction qualify if new to you. |
| Electrical | Bucket trucks, trenchers, test gear | Bucket trucks are qualified nonpersonal-use vehicles, so the listed-property rules don't apply. |
| Landscaping | Mowers, skid steers, trailers | Buying in fall vs. spring doesn't change the 100% rate, only which year. |
| Cleaning and restoration | Extractors, dehumidifiers, air movers, vans | Small items may be simpler under a de minimis expensing policy. |

_Illustrative examples. Confirm each asset's treatment with your tax professional._

## Common mistakes

- **Assuming everything bought in 2025 gets 100%.** Acquisition date and binding contracts matter.
- **Forgetting it's automatic.** If you don't want bonus on a class of assets, you have to elect out on a timely filed return.
- **Not keeping business-use records** for vehicles and other listed property.
- **Ignoring state conformity**, which can leave you with a surprise state bill.

BRIX keeps equipment, vehicle and job expenses categorized and synced to QuickBooks, so your CPA has the purchase dates and costs needed to decide between bonus depreciation and Section 179. BRIX doesn't make that choice, file taxes or give tax advice.

- [Bookkeeping and tax help](https://www.brix.so/features/bookkeeping-taxes): Keeps expenses categorized, tracks 1099 subcontractors and sales tax, and reminds you of quarterly estimated tax dates. BRIX does not file taxes or give tax advice.
- [QuickBooks sync](https://www.brix.so/integrations/quickbooks): Syncs customers, invoices and payments with QuickBooks so the books match the jobs.

More on year-end planning in the [contractor taxes guide](https://www.brix.so/guides/contractor-taxes), and on how [BRIX bookkeeping and tax help](https://www.brix.so/features/bookkeeping-taxes) works.

## Frequently asked questions

### Is bonus depreciation 100% in 2026?

Yes, for qualified property acquired and placed in service after January 19, 2025. The One Big Beautiful Bill Act made the 100% rate permanent, and IRS Notice 2026-11 provides interim guidance. Property acquired earlier, including under a binding contract signed before January 20, 2025, follows the old phase-down.

### Is bonus depreciation going away?

Not under current law. The 2025 law replaced the scheduled phase-down with a permanent 100% rate for property acquired after January 19, 2025. Congress could change it again, so check the current rules each year.

### Can I take bonus depreciation on a used truck?

Yes, if you didn't use the truck before, didn't buy it from a related party, and use it more than 50% for business. Trucks over 6,000 lbs GVWR avoid the passenger auto caps, while lighter vehicles placed in service in 2026 are capped at $20,300 of first-year depreciation including bonus.

### Should I use Section 179 or bonus depreciation?

It depends on income and goals. Section 179 lets you pick exact amounts but is limited to business income. Bonus depreciation has no income limit and can create a loss, but it applies to a whole asset class unless you elect out. Many CPAs use both. Ask yours to model it.

### Can bonus depreciation create a loss?

Yes. Unlike Section 179, bonus depreciation isn't limited to business income, so it can push Schedule C into a loss. That loss may offset other income, subject to the excess business loss and net operating loss rules.

### Does my state allow bonus depreciation?

Many states don't follow federal bonus depreciation, or follow it only partly. If yours doesn't, you'll depreciate the asset more slowly on the state return. Your CPA tracks both.

## Related

- [What Is the Section 179 Deduction?](https://www.brix.so/learn/section-179-deduction)
- [What Is Depreciation?](https://www.brix.so/learn/depreciation)
- [Mileage Deduction for Contractors: 2026 Rates and Rules](https://www.brix.so/learn/mileage-deduction-for-contractors)
- [Contractor Tax Deductions: The Complete List for 2026](https://www.brix.so/learn/contractor-tax-deductions-list)
- [What Is the QBI Deduction?](https://www.brix.so/learn/qbi-deduction)
- [Section 179 Calculator for Trucks, Vans and Equipment (2026)](https://www.brix.so/tools/section-179-calculator)
- [Taxes for Contractors: The 2026 Guide for Self-Employed Trades Owners](https://www.brix.so/guides/contractor-taxes)
- [Bookkeeping for contractors that keeps your books tax-ready all year](https://www.brix.so/features/bookkeeping-taxes)
- [Quarterly Estimated Tax Calculator for Self-Employed Contractors (2026)](https://www.brix.so/tools/quarterly-estimated-tax-calculator)
- [Self-Employment Tax Calculator (2026)](https://www.brix.so/tools/self-employment-tax-calculator)

## Sources

- [IRS: Notice 2026-11, Interim Guidance on Additional First Year Depreciation Deduction under § 168(k)](https://www.irs.gov/pub/irs-drop/n-26-11.pdf) (checked 2026-10-12)
- [IRS: Publication 946 (2025), How To Depreciate Property](https://www.irs.gov/pub/irs-pdf/p946.pdf) (checked 2026-10-12)
- [IRS: Rev. Proc. 2026-15, 2026 passenger automobile depreciation limits (IRB 2026-13)](https://www.irs.gov/irb/2026-13_IRB) (checked 2026-10-12)
- [IRS: Rev. Proc. 2025-32 (2026 Section 179 limits)](https://www.irs.gov/pub/irs-drop/rp-25-32.pdf) (checked 2026-10-12)
- [IRS: One, Big, Beautiful Bill provisions](https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions) (checked 2026-10-12)

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Written by BRIX Editorial Team. Last updated 2026-10-12. General information, not tax, legal or financial advice.
Canonical: https://www.brix.so/learn/bonus-depreciation