Understanding the New 100% Depreciation Bonus Under OBBBA

In January of 2026, the IRS and the Department of the Treasury issued additional guidance via Notice 2026-11 that clarifies some provisions of the new 100% depreciation bonus which was signed into law as part of the One Big Beautiful Bill Act (OBBBA) in 2025.

If you're a business owner who may be affected by this new policy moving into the 2026 tax year, there are some things you should know about this tax benefit, when you can claim it, and your options for claiming it.

Understanding the New First-Year Depreciation Bonus

Typically, when a business buys equipment or other assets, it is allowed to deduct the expense as a tax break. However, up until passage of OBBBA, businesses were required to take the deduction gradually, often over a period of several years.

Beginning with assets acquired after January 19, 2025, businesses are now permitted to deduct up to 100% of the cost immediately. Known as additional first-year depreciation, this new rule could be a major tax benefit for many businesses.

What Qualifies for the 100% Bonus Depreciation Rule?

Compared to previous depreciation laws, not much has changed when it comes to which assets qualify for a tax break. However, the IRS may be working on additional eligibility rules, so it's important to keep an eye out for changes to these regulations.

In the meantime, most major business assets should qualify for the 100% bonus depreciation, with some common examples including:

• Business equipment
• Depreciable business property
• Certain crops (provided that they were grafted after January 19, 2025)

It is also worth noting that the new 100% bonus depreciation rule passed under OBBBA is meant to be permanent, so business owners can take advantage of it each year new assets or depreciable equipment is purchased.

Under the new IRS release, additional guidance has also been provided on deductions for “qualified sound recording productions,” which will mostly apply to sound artists and musicians. Specifically, the guidance clarifies that sound recordings may qualify for the deduction if:

• They are "acquired" when principal recording begins.
• They are placed in service at first release or broadcast.
• Recording begins during a tax year ending after July 4, 2025 (when OBBBA was signed into law).

Flexibility for Business Owners

Under the new guidance issued by the IRS and Department of the Treasury, some additional choices have been made available to business owners that provide additional flexibility. For example, business owners can:

• Choose to take 100% of the deduction up-front during the tax year when the asset is purchased.
• Tax less than 100% up-front and spread the rest out (depreciate it) over time.
• Claim bonus depreciation and apply it to a larger project.
• Opt out of taking the depreciation altogether (which may make sense in unique tax circumstances).
  
  
  

Benefits for Small- and Mid-Size Business Owners

In general, the new 100% depreciation bonus rule mostly benefits small and mid-size businesses that are profitable and buying or building relatively expensive assets.

The whole idea behind this new tax benefit is to encourage additional investment and growth, which will in turn stimulate the economy. It's also ideal for businesses that want to expedite their tax savings, rather than having to space them out over several years.

The 100% depreciation bonus could also be extremely beneficial to businesses looking to increase cash flow. Because costs of major equipment and asset purchases can be deducted immediately, this reduces the amount of tax owed now which frees up cash flow for small- and medium-sized businesses when they need it most.

Need More Guidance?

There has been some confusion when it comes to the new terms and options of the 100% depreciation bonus under OBBBA, but with the new guidance out from the IRS, this should clear up a lot of uncertainty.

However, if this is your first year claiming the 100% depreciation bonus as a business owner and you want to make sure you're doing everything correctly, it may be a good idea to consult with a tax professional for additional reassurance and peace of mind.

In fact, it's almost always wise for business owners to check with a tax professional before preparing and filing a business tax return, as these returns are often more complex than individual returns.

In many cases, a seasoned tax professional may even be able to reduce your tax burden and keep more of your hard-earned money in your pocket.

To learn more about LGT and how we can serve you, contact us here.