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.
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.
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:
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:
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:
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.
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.