Bonus Depreciation Is 100% in 2026, and Permanent

Buy a $100,000 machine for your business and place it in service in 2026, and you deduct the full $100,000 on this year's return. Section 70301 of Public Law 119-21, enacted July 4, 2025, repealed the TCJA's bonus-depreciation phase-down and set the first-year allowance at 100%, permanently, for property acquired after January 19, 2025.

When this article first ran in May 2026, it said the opposite: that bonus depreciation was down to 20% for 2026, its last year before vanishing in 2027. That was wrong on the day it published (the repeal was then ten months old), and the corrections are logged at Corrections. What follows is the law as it stands, re-verified against the statute on September 1, 2026.

The phase-down stopped at 40%

The Tax Cuts and Jobs Act wrote a five-step exit into §168(k): 100% through 2022, then 80% for property placed in service in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and zero from 2027 on. Congress struck that schedule while it stood at 40%. Former §168(k)(6) is gone from the statute, and so is the deadline that made the allowance temporary: §168(k)(2) once required property to be in service before January 1, 2027, and now names no end date at all. The IRS states the result in one line: a "permanent 100-percent additional first year depreciation deduction for qualified property acquired after January 19, 2025".

What qualifies did not move: tangible property with a recovery period of 20 years or less (equipment, machinery, vehicles, furniture), plus computer software, bought new or used so long as it is new to you. The allowance still applies automatically unless you elect out by asset class.

One addition a Schedule C reader can skip: new §168(n) extends the same 100% treatment to certain nonresidential real property used in production, where construction begins after January 19, 2025 and before January 1, 2029. That provision is written for factory construction, not for anything that runs beside a W-2.

What 100% is worth on a side-gig return

Take a single filer with a $65,000 W-2, a Schedule C side business that cleared $22,000, and the $16,100 standard deduction. For tax year 2026 (the return filed in early 2027), taxable income lands in the 22% bracket, which runs from $50,400 to $105,700 for a single filer.

A $10,000 piece of equipment placed in service by December 31 comes off Schedule C in full. At 22%, that is $2,200 of federal income tax. A filer claiming the qualified business income deduction should count on $1,760 instead: the write-off lowers qualified business income by the same $10,000, the 20% QBI deduction shrinks by $2,000, and taxable income falls by a net $8,000. The purchase also lowers the profit that self-employment tax is figured on; that saving is real, and it is left uncounted here.

Section 179 grew anyway

With bonus depreciation at 100%, Section 179 expensing reads like a spare part. The same law enlarged it regardless: the statutory cap rose from $1,000,000 to $2,500,000, effective for taxable years beginning after December 31, 2024. With the first inflation adjustment, the cap for tax years beginning in 2026 is $2,560,000, reduced dollar-for-dollar once total §179 property placed in service passes $4,090,000.

Three differences keep the election alive:

• §179 is an election, made asset by asset; bonus depreciation covers everything in an asset class unless you opt the whole class out.
• The §179 deduction cannot exceed the year's business taxable income, with the excess carried forward; bonus depreciation has no such limit and will put a Schedule C into a loss.
• Federally, the two routes now reach the same dollar on any small purchase. On a state return they often do not, and that is where the choice re-enters.

California and New York keep their own books

A state that starts from federal AGI still writes its own depreciation law, and a Schedule C write-off lands on the state return too. California allows no bonus depreciation at all: R&TC §17250(a)(4) makes §168(k) inapplicable to its personal income tax, and the state caps its own version of the §179 election at $25,000, phasing out above $200,000 of purchases. Thirty thousand dollars of equipment deducted in full on the federal Schedule C enters the California return at $25,000 at most, the balance spread over the normal recovery period. The 2026 federal cap is 102 times California's.

New York decoupled the other way around. Its addback reaches §168(k) and not §179: for property placed in service since June 1, 2003, Tax Law §612(b)(8) adds the federal special depreciation back to New York income (outside narrow Resurgence Zone and Liberty Zone exceptions), and Form IT-398 recomputes the deduction as if §168(k) did not exist, reported as addition A-209 on Form IT-225. So the choice that stopped mattering federally still decides the New York bill: elect §179 and the full deduction survives the state return; ride the automatic bonus allowance and it comes back only over the recovery period. The one §179 addback New York does impose is for a sport utility vehicle over 6,000 pounds, unless the filer is an eligible farmer.

The QBI deduction no longer expires

Section 199A, the 20% qualified business income deduction for sole proprietors, partners, and S corporation shareholders, was scheduled to die with tax year 2025. Section 70105 of the same public law struck the sunset; the deduction now has no end date. It sits below the line: it never lowers AGI, and it is available whether or not you itemize. When this article first ran it called the deduction above-the-line, and that correction is logged as well.

For tax years beginning in 2026, the threshold below which the full 20% is available to any qualifying business is $201,750 for a single filer, $403,500 on a joint return. Above it, a specified service business (the §199A(d)(2) category: the §1202(e)(3)(A) professional fields minus engineering and architecture, plus investing, trading, and dealing in securities) phases out over a band §70105 widened from $50,000 to $75,000 ($100,000 to $150,000 joint), reaching zero at $276,750 single, $553,500 joint. Other businesses above the threshold keep the deduction subject to W-2 wage and property-basis limits.

The floor is new. Starting with tax year 2026 (the first returns to carry it are filed in early 2027), a filer with at least $1,000 of qualified business income from active businesses takes a deduction of no less than $400, both figures indexed after 2026.

One caution for anyone checking this against irs.gov: as of September 1, 2026, the IRS's own QBI overview page still says the deduction is available "for tax years beginning after December 31, 2017, and ending on or before December 31, 2025." That page predates the repeal of the sunset; the statute controls.

Where 20% still applies

The rate this article was originally built around survives in exactly one place. Property acquired on or before January 19, 2025 stays on the TCJA schedule: 40% if placed in service during 2025, 20% during 2026, nothing after, because the repeal reaches only property acquired after that date. If you acquired equipment before January 20, 2025 and only place it in service this year, yours is the last 20% deduction in the code. Everyone else buying gear in 2026 deducts the whole invoice.

This article is for informational purposes only and does not constitute tax advice. Consult a qualified tax professional for guidance specific to your situation.