Why this matters

Bonus depreciation rules are dynamic, and 2026 presents an especially important year to reassess capital spending strategies. Accelerating purchases before year-end or planning multi-year investments can:

• Reduce taxable income in high-earning years.
• Improve short-term cash flow for reinvestment or debt reduction.
• Position businesses to take full advantage of Section 179 limits and newly introduced incentives for qualified production property.

Failing to plan properly could mean leaving substantial tax savings on the table or mismatching deductions with revenue cycles. For businesses with heavy capital expenditures, even a few months’ timing can translate to tens of thousands or more in tax impact.

Understanding Bonus Depreciation

Bonus depreciation is a tax incentive that allows businesses to deduct a significant percentage of the cost of qualifying property in the year it’s placed in service. This can include machinery, equipment, software, and certain improvements to nonresidential real property. The goal is to encourage business investment by accelerating deductions and improving cash flow.

What property is eligible for bonus depreciation?

Eligible property includes computer systems, software, certain vehicles, machinery, equipment and office furniture, essentially, most property with a useful life of 20 years or less. 

What Is Section 179?

Section 179 is a related but distinct expensing strategy that allows businesses to immediately deduct the cost of qualifying asset purchases in the year they are placed in service, rather than depreciating them over time. While it overlaps with bonus depreciation, Section 179 operates under its own rules and limits.

For 2026, businesses may be able to expense up to $2.5 million of qualifying property, with a phaseout beginning once total eligible purchases exceed $4 million. Qualifying assets generally include equipment, machinery, software, certain vehicles, and select improvements to nonresidential real property.

What did the OBBBA Change?

The One Big Beautiful Bill Act (OBBBA) of 2025 permanently reinstates 100% bonus depreciation, increases Section 179 limits, and introduces new incentives for qualified production property, giving businesses opportunities to accelerate asset expensing, optimize tax planning, and improve cash flow.

Check out our blog, https://kahnlitwin.com/blogs/tax-blog/big-beautiful-bill-act-restores-100-bonus-depreciation-what-businesses-need-to-know-for-2025 for the details. 

Planning Tips

• Review your asset needs early: Take a proactive look at upcoming equipment, technology, or property investments well before year-end. Mapping out purchases in advance allows you to confirm which assets qualify for bonus depreciation or Section 179 and helps ensure they are placed in service at the optimal time to maximize deductions.
• Consider the cash flow impact: While immediate expensing can significantly reduce taxable income and current-year tax liability, it may also reduce depreciation deductions available in future years. Businesses should weigh the short-term cash flow benefit against long-term tax planning goals, especially if income levels are expected to fluctuate.
• Leverage cost segregation studies: For commercial or investment real estate purchases or renovations, a cost segregation study can reclassify certain building components into shorter-lived asset categories, making them eligible for accelerated depreciation. When combined with bonus depreciation, this strategy can unlock substantial upfront tax savings.
• Coordinate with your tax advisor: Ensure purchases align with overall tax strategy and regulatory compliance.

By understanding bonus depreciation and factoring it into your 2026 asset purchases, your business can benefit from stronger tax planning and improved financial outcomes.