If your organization acquires equipment, vehicles, machinery, or production facilities, the acquisition date of each asset now determines whether you can deduct 40% or 100% of its cost in year one. That distinction can shift hundreds of thousands of dollars between tax years, making accurate asset tracking systems more critical than ever.
This guide breaks down exactly what changed, how it affects your depreciation strategy for 2025 and 2026, and what finance teams need to do now to maximize tax benefits while maintaining audit-ready compliance.
What Changed with OBBBA Depreciation Rules
OBBBA fundamentally altered the depreciation landscape by making 100% bonus depreciation permanent and significantly expanding immediate expensing options. Finance teams must understand four critical changes that directly affect 2025 and 2026 tax planning.
The Return of 100% Bonus Depreciation (Permanently)
The Tax Cuts and Jobs Act (TCJA) introduced 100% bonus depreciation in 2017, but it was always temporary. The deduction began phasing down in 2023—dropping to 80%, then 60% in 2024, with plans to fall to 40% in 2025, 20% in 2026, and zero by 2027.
OBBBA reversed this phase-out completely. For qualified property acquired and placed in service after January 19, 2025, businesses can immediately deduct 100% of the asset's cost. This permanent restoration eliminates the uncertainty that complicated multi-year capital planning.
What qualifies:
- Tangible personal property with a MACRS recovery period of 20 years or less
- Machinery, equipment, vehicles, computers, furniture
- Computer software
- Qualified improvement property (interior improvements to nonresidential buildings)
- Land improvements including parking lots, sidewalks, landscaping
Both new and used assets qualify, provided the taxpayer hasn't previously used the property and acquired it in an arm's-length transaction.
Section 179 Expensing Limits Nearly Doubled
Section 179 allows businesses to immediately expense qualifying property rather than depreciating it over time. The OBBBA more than doubled the annual limits:
Section 179 remains particularly valuable for property ineligible for bonus depreciation, including roofs, HVAC systems, fire protection equipment, and security systems. Many states that decouple from federal bonus depreciation still conform to Section 179, making it the more reliable choice for multi-state operations.
New Qualified Production Property Rules for Manufacturers
OBBBA introduced Section 168(n), which allows 100% first-year expensing for nonresidential real property used in manufacturing, production, or refining activities. This provision applies to building costs typically depreciated over 39 years.
Requirements for qualified production property:
- Construction must begin after January 19, 2025, and before January 1, 2029
- Property must be placed in service before January 1, 2031
- Original use must commence with the taxpayer
- Property must be integral to a qualified production activity
- Cannot be leased property
Exclusions: Office space, administrative areas, research facilities, software development spaces, sales areas, lodging, and parking are not eligible.
The provision includes a 10-year recapture rule: if property stops being used for qualified production within 10 years of being placed in service, a portion of the deduction must be recaptured as ordinary income.
Critical Acquisition Date: January 19, 2025
The January 19, 2025 cutoff creates a stark dividing line. Property acquired before this date remains subject to TCJA phase-down rules (40% for 2025, 20% for 2026). Property acquired after qualifies for 100% bonus depreciation.
For a $500,000 equipment purchase:
- Acquired January 18, 2025: $200,000 first-year deduction (40%)
- Acquired January 20, 2025: $500,000 first-year deduction (100%)
That $300,000 difference in timing creates substantial planning opportunities and significant audit risk if acquisition dates are documented incorrectly.
Understanding the January 19, 2025 Acquisition Date Cutoff
The January 19, 2025 date creates a clear dividing line between 40% and 100% bonus depreciation eligibility. Determining when property was "acquired" requires understanding binding contract rules and documentation requirements that withstand IRS scrutiny.
What is the OBBBA acquisition date for 100% bonus depreciation? The OBBBA acquisition date cutoff is January 19, 2025. Property acquired after this date qualifies for permanent 100% bonus depreciation. Property acquired before this date—based on binding contract dates, not delivery dates—remains subject to TCJA phase-down rules (40% for 2025, 20% for 2026). For self-constructed property, acquisition occurs when physical work of significant nature begins or when costs reach 10% of total expected costs.
What Counts as "Acquired" Under OBBBA
The acquisition date determines eligibility for 100% bonus depreciation. For most property, this is when a written binding contract is executed—not when you take possession or place the asset in service.
Binding Contract Requirements
A contract is considered binding if:
- Enforceable under state law
- Does not limit damages to a specified amount
- Contains sufficient detail on property and terms
Purchase orders, invoices, and delivery receipts alone don't establish acquisition date. The binding contract date controls.
For purchased equipment with standard lead times, the contract date and delivery date often align closely. For construction projects, manufactured equipment with long production periods, or custom installations, the gap can span months or years.
Self-Constructed Property Rules
For property a taxpayer constructs, manufactures, or produces for its own use, acquisition occurs when physical work of a significant nature begins. The IRS provides a 10% safe harbor: construction is deemed to begin when accumulated costs reach 10% of total expected costs.
A manufacturer building a $2 million production facility would meet the acquisition date requirement when construction costs hit $200,000, assuming this occurs after January 19, 2025.
The Transitional Period Problem (January 1-19, 2025)
Property placed in service between January 1 and January 19, 2025, or property acquired before January 20, 2025 (regardless of when placed in service), remains subject to the 40% bonus depreciation rate under TCJA phase-down rules.
This creates a classification challenge. Finance teams must review all 2025 asset additions to determine:
- Binding contract date or construction commencement date
- Whether the asset falls under old (40%) or new (100%) rules
- Proper classification in the fixed asset system
Many mid-market companies placed dozens or hundreds of assets in service during this 19-day window. Each requires individual analysis of contract terms, purchase orders, and payment terms to establish the correct acquisition date and corresponding depreciation method.
How to Document Acquisition Dates for Compliance
Essential documentation:
- Executed contracts with dates clearly visible
- Purchase orders with acceptance dates
- Construction contracts showing when physical work began
- Progress billing statements for self-constructed assets
- General contractor agreements with commencement dates
- Change orders and amendments (some may shift acquisition dates)
For assets crossing the January 19 threshold, maintain separate documentation files demonstrating when the taxpayer became legally obligated to acquire the property. During audits, the IRS will scrutinize contracts to verify acquisition dates, particularly for high-value assets where the 40% vs. 100% distinction creates material differences.
Organizations using spreadsheets or basic accounting software to track assets often lack the fields and workflows needed to capture and store this documentation at the asset level. As audit scrutiny increases, maintaining acquisition date documentation alongside standard asset records becomes non-negotiable.
OBBBA Bonus Depreciation vs. Section 179: Which Should You Use?
Both provisions allow immediate expensing, but they operate under different rules and serve different strategic purposes. Choosing the optimal approach requires understanding how dollar limits, income restrictions, and state conformity affect your specific tax position.
Key Differences That Impact Your Strategy
When Bonus Depreciation Makes More Sense
Large asset purchases exceeding Section 179 limits: For organizations acquiring assets totaling more than $6.5 million annually, bonus depreciation provides unlimited deductions without phase-outs.
Creating or expanding NOLs strategically: Bonus depreciation can reduce taxable income below zero, generating net operating losses that carry forward indefinitely (subject to the 80% limitation). Section 179 cannot create an NOL—excess deductions carry forward to future years.
Simplifying administration: Bonus depreciation applies automatically to all qualifying assets in a class unless you elect out. This reduces the administrative burden of making asset-by-asset elections.
When Section 179 Is the Better Choice
Multi-state operations in non-conforming jurisdictions: States like California, New York, and Illinois decouple from federal bonus depreciation but generally conform to Section 179. Using Section 179 eliminates state addback adjustments and simplifies compliance.
Property improvements not eligible for bonus: Roofs, HVAC systems, fire suppression equipment, and security systems qualify for Section 179 but often don't meet bonus depreciation requirements. Section 179 provides the only path to immediate expensing.
Managing current-year income precisely: Section 179 allows selective asset-by-asset elections. You can expense exactly enough to optimize your current tax position without over-deducting, preserving deductions for future years.
Pass-through entities with specific planning needs: S-corporations can use Section 179 to manage owner-level income thresholds for QBI deductions, IRMAA Medicare premium calculations, or other income-sensitive benefits.
Using Both Together for Maximum Benefit
The optimal strategy often combines both provisions:
- Apply Section 179 first to property ineligible for bonus depreciation or where state conformity matters
- Use Section 179 to fine-tune current-year income to specific targets
- Apply bonus depreciation to remaining qualified assets for full expensing
- Evaluate whether electing out of bonus depreciation for certain classes preserves flexibility
For detailed guidance on depreciation fundamentals and how these methods interact, see our complete fixed asset depreciation guide.
How OBBBA Depreciation Changes Impact Your Cash Flow
Accelerated depreciation creates immediate tax savings, but the financial impact extends beyond current-year deductions. Understanding multi-year tax effects, NOL limitations, and interest deduction interactions determines whether aggressive depreciation strategies actually optimize your tax position.
Immediate Tax Savings in 2025 and 2026
Accelerated depreciation reduces current-year tax liability and improves after-tax cash flow. For a profitable C-corporation in the 21% federal bracket acquiring $1 million in qualifying equipment:
- With 100% bonus depreciation: $1,000,000 deduction × 21% = $210,000 tax savings in year one
- With MACRS depreciation only: $200,000 deduction (20% first year for 5-year property) × 21% = $42,000 tax savings in year one
The $168,000 difference in first-year tax savings represents capital available for reinvestment, debt reduction, or operational needs.
Multi-Year Tax Planning Considerations
Accelerated depreciation front-loads deductions, which can create higher taxable income in future years when the depreciation shield expires. Organizations must model multi-year tax outcomes to avoid unintended consequences.
Scenarios requiring careful modeling:
Cyclical businesses: Companies with predictable revenue cycles may benefit from electing out of bonus depreciation in strong years and preserving deductions for weaker periods.
Businesses near profitability thresholds: If accelerated depreciation pushes you into NOL territory, evaluate whether the 80% NOL utilization limitation in future years creates better or worse outcomes than spreading deductions.
Companies planning exits: Accelerated depreciation reduces basis in assets. Upon sale, disposition, or trade-in, lower basis means higher taxable gain. For businesses planning sales or recapitalizations, model the impact of depreciation choices on exit tax liabilities.
Managing NOLs and the 80% Limitation
Post-2017 NOLs carry forward indefinitely but can only offset 80% of taxable income in future years. This limitation affects how aggressively you should pursue accelerated depreciation strategies.
A company generating a $500,000 NOL in 2025 through bonus depreciation can only use $400,000 of that NOL in a year with $500,000 of taxable income (80% × $500,000). The remaining $100,000 carries forward, but you pay tax on $100,000 of income despite having sufficient NOLs.
For capital-intensive organizations regularly generating NOLs, electing reduced bonus depreciation percentages (the OBBBA allows a 40% election for 2025) may optimize long-term tax efficiency better than automatically claiming 100%.
Interest Deduction Changes Under Section 163(j)
OBBBA permanently restored the more favorable EBITDA-based calculation for the business interest expense limitation. Under Section 163(j), business interest expense is generally limited to 30% of adjusted taxable income (ATI).
From 2022-2024, ATI was calculated using EBIT (earnings before interest and taxes), which produced lower ATI and more restrictive interest deductions. OBBBA returns to EBITDA (earnings before interest, taxes, depreciation, and amortization) beginning in 2025, which increases ATI and allows larger interest deductions.
For leveraged organizations with significant depreciation and amortization expenses, this change substantially improves the value of accelerated depreciation. The same bonus depreciation deductions that reduce taxable income now also increase your interest deduction capacity by adding back to ATI.
Strategic Asset Purchase Timing: Buy Now or Wait?
The permanent nature of 100% bonus depreciation eliminates artificial urgency, but timing still matters for tax optimization. The decision to accelerate or delay purchases depends on current-year income, future profitability expectations, and operational needs.
Should You Accelerate Equipment Purchases in 2025?
The permanent nature of 100% bonus depreciation eliminates the urgency created by temporary provisions. You won't lose the benefit by waiting—property acquired in 2026, 2027, or beyond still qualifies for 100% expensing.
Accelerate purchases if:
- You have strong 2025 profitability and need deductions to offset income
- Equipment is currently available at favorable pricing
- Asset replacement is operationally necessary regardless of tax benefits
- You're confident the assets will generate ROI exceeding financing costs
- Delaying reduces operational efficiency or revenue generation
Delay purchases if:
- Current-year NOLs or low income means deductions provide minimal benefit
- You expect significantly higher income in 2026 when deductions would be more valuable
- Equipment costs are declining or better models are imminent
- Cash flow constraints make financing difficult
- You're uncertain about state conformity and want to see how your states respond
Assets to Prioritize Before Year-End
If you're accelerating purchases into 2025 for tax planning purposes, prioritize:
High-value assets with long lead times: Manufacturing equipment, custom installations, or specialized machinery with 60-120 day delivery windows should be ordered early enough to ensure the January 19, 2025 acquisition date requirement is met.
Technology refreshes: Computers, servers, networking equipment, and software qualify for 100% expensing and often have rapid obsolescence cycles that justify accelerated replacement.
Vehicle fleet replacements: Commercial vehicles, trucks, and delivery equipment qualify for immediate expensing and may benefit from current manufacturer incentives before year-end.
When Delaying Purchases Makes Sense
Organizations in NOL positions or with minimal 2025 income gain little from accelerating deductions. If you expect stronger profitability in 2026, defer discretionary purchases to maximize the tax value of depreciation deductions.
Additionally, qualified production property requires construction to begin after January 19, 2025. Manufacturers planning facility expansions should carefully time groundbreaking and construction commencement to meet eligibility requirements while aligning with operational needs.
Planning Your 2026 Capital Expenditure Budget
The permanent restoration of 100% bonus depreciation allows multi-year capital planning without phase-out concerns. Finance teams should:
- Model 2025-2027 capital needs without artificial tax-driven acceleration
- Align asset purchases with actual operational requirements and ROI projections
- Maintain flexibility to elect out of bonus depreciation in specific years if tax positions change
- Document acquisition dates systematically to preserve 100% bonus depreciation eligibility
- Review state conformity annually as legislatures respond to OBBBA
Qualified Production Property: A Game-Changer for Manufacturers
Section 168(n) allows manufacturers to immediately expense building costs that traditionally depreciate over 39 years. Understanding eligibility requirements, timing restrictions, and mixed-use allocation rules determines whether this provision delivers substantial tax benefits or creates compliance headaches.
What Qualifies as Production Property
Qualified production property (QPP) under Section 168(n) allows manufacturers to immediately expense nonresidential real property used integrally in production activities. This applies to buildings and structures traditionally depreciated over 39 years.
Qualifying activities:
- Manufacturing tangible personal property
- Agricultural production
- Chemical production and refining
- Physical transformation or processing of materials
Non-qualifying uses (must be excluded from eligible costs):
- Administrative offices
- Research and development facilities
- Sales and marketing spaces
- Software engineering areas
- Lodging and employee amenities
- Parking structures
Construction Timeline Requirements (2025-2030)
QPP eligibility depends on precise timing:
- Construction must begin after January 19, 2025
- Construction must begin before January 1, 2029
- Property must be placed in service before January 1, 2031
- Original use must commence with the taxpayer (generally new construction, not acquired buildings)
A manufacturer breaking ground on a new facility in June 2025 with expected completion in 2027 meets all timeline requirements.
A manufacturer acquiring an existing building in 2026 generally does not qualify for QPP treatment, even if the building was never used for production. The narrow exception applies only to property that remained completely unused for any qualified production activities between January 1, 2021, and May 12, 2025.
Mixed-Use Building Allocation Challenges
Few manufacturing facilities are 100% production space. Most include offices, labs, warehouses, and other support areas that don't qualify for QPP treatment.
Taxpayers must:
- Document what percentage of building square footage is used for qualifying production
- Allocate construction costs between qualifying and non-qualifying portions
- Maintain records showing how the allocation was determined
- Substantiate that production space is "integral" to manufacturing operations
Example: A $5 million facility with 60% manufacturing floor space and 40% offices/labs would qualify for $3 million in QPP expensing (60% × $5 million). The remaining $2 million depreciates over 39 years under standard MACRS rules.
Cost segregation studies become essential for maximizing QPP benefits. These studies identify which building components and systems serve production areas versus non-qualifying spaces, creating defendable allocations that withstand audit scrutiny.
The 10-Year Recapture Risk
If property stops being used for qualified production activities within 10 years of being placed in service, taxpayers must recapture a portion of the deduction. The recapture amount depends on how long the property was used for qualified purposes before the change.
This creates risk for manufacturers considering future pivots, facility repurposing, or potential sales. Before making the QPP election, model scenarios where production activities cease or the facility is sold to a non-manufacturing buyer.
Leasing the facility to another manufacturer does not qualify. The statute requires that the taxpayer who claims the deduction uses the property in qualified production. Sale-leaseback structures and triple-net lease arrangements do not preserve QPP benefits.
State Conformity: The Hidden Complication
Federal tax planning is only half the equation when states decouple from bonus depreciation rules. Multi-state organizations face compliance complexity that can eliminate the administrative benefits of accelerated depreciation unless addressed systematically.
Which States Don't Follow Federal Bonus Depreciation
State tax treatment of bonus depreciation varies significantly. Some states fully conform to federal rules, others decouple entirely, and many adopt hybrid approaches.
States that generally decouple from federal bonus depreciation:
- California
- New York
- Illinois
- New Jersey
- Pennsylvania (partial conformity)
- Massachusetts
- Connecticut
- Minnesota
States with full or substantial conformity:
- Florida
- Texas (no corporate income tax)
- North Carolina
- Georgia
- Arizona
- Utah
- Louisiana (automatic 100% regardless of federal treatment)
Conformity status changes as state legislatures react to federal tax law changes. Several states that historically decoupled from bonus depreciation are considering conformity legislation in response to OBBBA.
Finance teams must monitor state-level developments throughout 2025 and 2026.
Why Section 179 May Work Better for Multi-State Operations
Most states that decouple from bonus depreciation still conform to Section 179 limits. This creates a significant compliance advantage for multi-state businesses.
Using bonus depreciation in a non-conforming state requires:
- Calculating depreciation twice (federal with bonus, state without)
- Tracking cumulative state addback adjustments
- Maintaining separate state-specific depreciation schedules
- Reconciling state basis differences upon asset disposition
Section 179 eliminates these complexities in many jurisdictions. By staying within Section 179 limits, organizations in non-conforming states can maintain aligned federal and state depreciation schedules, reducing preparation time and minimizing compliance costs.
Tracking State-Specific Adjustments
Organizations operating in multiple states must track:
- Which states conform to bonus depreciation and which decouple
- Whether Section 168(n) (QPP) conformity differs from Section 168(k) (bonus depreciation)
- Cumulative temporary differences between federal and state basis
- Recapture calculations at disposition when federal and state basis diverge
Excel spreadsheets quickly become unmanageable when tracking state-by-state depreciation differences across hundreds or thousands of assets. For common challenges with manual asset tracking systems, see our guide on fixed asset management challenges and solutions.
OBBBA Compliance and Audit Risk Management
The IRS will scrutinize bonus depreciation claims, particularly for high-value assets acquired near critical date thresholds. Proper documentation and systematic tracking separate defensible tax positions from audit adjustments that unwind intended tax benefits.
Critical Documentation Requirements
The IRS will scrutinize bonus depreciation claims, particularly for high-value assets and those acquired near the January 19, 2025 cutoff. Maintain documentation demonstrating:
Acquisition date evidence:
- Executed contracts with signature dates
- Purchase orders showing when they became binding
- Construction contracts with commencement dates
- Payment terms and deposit dates (for self-constructed property)
Qualification evidence:
- Asset descriptions and specifications
- Useful life classifications and MACRS recovery periods
- Proof of business use percentage (for mixed-use assets)
- Documentation that used property wasn't previously used by the taxpayer
Election evidence:
- Form 4562 tax reporting showing depreciation method selections and bonus depreciation calculations
- Documentation of elections to opt out of bonus depreciation
- Records of 40% transitional elections for 2025
- Section 179 elections by asset
Maintain comprehensive depreciation schedules showing method selections, useful lives, and accumulated depreciation for each asset to substantiate your bonus depreciation claims during examinations.
Common Mistakes That Trigger IRS Scrutiny
Misclassified acquisition dates: The most common error involves claiming 100% bonus depreciation for property actually acquired before January 20, 2025. Binding contract dates, not delivery dates, control eligibility.
Overstated business use percentages: Assets used partially for personal purposes must have bonus depreciation reduced proportionally. Vehicles, computers, and other mobile assets commonly trigger this issue.
Incorrect recovery period classifications: Only property with 20-year or shorter MACRS lives qualify. Some taxpayers incorrectly classify assets into shorter recovery periods to claim bonus depreciation.
Missing or insufficient documentation: Claiming bonus depreciation without retaining supporting documentation creates presumptive disallowance risk during audits.
How Poor Asset Tracking Creates Compliance Exposure
Organizations managing significant asset portfolios in spreadsheets or basic accounting software face systemic risks:
Inability to substantiate acquisition dates at scale: When the IRS requests documentation for 50 or 100 assets from 2025, can you quickly provide binding contract dates for each?
Inconsistent depreciation method application: Manual systems lack controls preventing incorrect method selections. Different preparers may classify identical assets differently.
State basis tracking failures: Multi-state organizations often lose track of cumulative state adjustments, creating material errors in state tax returns and disposition gain calculations.
Disposition and recapture errors: Without system-level tracking of depreciation methods and basis differences, calculating proper gain/loss and recapture amounts becomes error-prone.
Modern fixed asset management platforms address these risks through automated acquisition date tracking, method validation rules, and multi-jurisdiction depreciation calculations. For an overview of leading solutions, see our comparison of top fixed asset accounting software.
How Fixed Asset Management Software Simplifies OBBBA Compliance
Manual tracking systems cannot scale to handle acquisition date documentation, multi-jurisdiction calculations, and audit support requirements created by OBBBA. Purpose-built platforms automate compliance workflows that eliminate systematic risk and administrative burden.
Automated Acquisition Date Tracking
Purpose-built asset management platforms capture acquisition dates systematically as part of the asset record creation workflow. The system:
- Prompts for binding contract date entry during asset creation
- Flags assets with placed-in-service dates before acquisition dates (indicating data errors)
- Automatically determines whether property qualifies for 40% or 100% bonus depreciation based on acquisition date
- Stores scanned contracts and supporting documentation at the asset level
- Generates acquisition date audit reports for IRS examination support
This eliminates the manual spreadsheet tracking that creates compliance gaps and audit exposure.
Real-Time Depreciation Method Updates
When OBBBA became law on July 4, 2025, finance teams faced immediate questions: Which assets already in the system should switch to 100% bonus depreciation? Which remain at 40%? How do we handle assets placed in service during the January 1-19 transition period?
Sophisticated platforms include depreciation rules engines that:
- Update method selections automatically when tax law changes
- Apply acquisition date logic to determine correct treatment
- Allow transitional elections (40% vs. 100%) by asset class
- Support elect-out functionality at the class level
- Maintain complete audit trails of method changes and the reasons
Multi-Jurisdiction Compliance Management
For organizations operating across multiple states, platforms handle:
- State-specific conformity rules (which states follow federal bonus depreciation and which decouple)
- Separate depreciation calculations for federal and each state jurisdiction
- Cumulative temporary difference tracking between federal and state basis
- State-specific Section 179 limit applications
- Disposition gain/loss calculations reflecting state basis differences
This eliminates the need to maintain parallel spreadsheets for each tax jurisdiction.
Audit-Ready Documentation and Reporting
During IRS examinations, examiners request acquisition reports and detailed fixed asset listings showing acquisition dates, costs, depreciation methods, and accumulated depreciation. Platforms generate these reports instantly with:
- Filtering by acquisition date ranges (pre/post January 19, 2025)
- Grouping by depreciation method (bonus vs. Section 179 vs. MACRS)
- Drill-down access to supporting documentation for any asset
- Complete asset audit trails showing who entered data, when changes occurred, and reasons for method adjustments
- Comparative reports showing tax vs. book depreciation differences
Generate depreciation audit reports that reconcile book-to-tax differences, trace acquisition dates to source documentation, and provide examiners with complete visibility into your depreciation calculations.
Organizations using spreadsheets spend days or weeks compiling this information manually. Platform users generate comprehensive audit packages in minutes.
For smaller organizations transitioning from spreadsheets to dedicated systems, see our guide on fixed asset software for small businesses.
OBBBA Depreciation Action Plan for CFOs and Controllers
Implementing OBBBA depreciation strategies requires immediate action on year-end tax planning and systematic preparation for 2026. These prioritized action items address both short-term optimization and long-term compliance infrastructure.
Q4 2025 Action Items
Review YTD asset additions: Identify all assets placed in service in 2025 and verify whether acquisition dates fall before or after January 19. Correct any miscategorized assets before year-end.
Evaluate remaining capex: For assets you plan to acquire before December 31, ensure binding contracts are executed and documented to establish proper acquisition dates for bonus depreciation qualification.
Model tax scenarios: Calculate 2025 taxable income under different depreciation election scenarios (full bonus vs. Section 179 vs. electing out) to optimize your tax position.
Confirm state conformity: Verify whether your states conform to federal bonus depreciation or require addbacks. Adjust elections accordingly to minimize state compliance burdens.
Update fixed asset procedures: Revise your asset capitalization and tracking procedures to capture acquisition date documentation systematically.
2026 Planning Checklist
Capital expenditure forecasting: Develop multi-year capex plans considering permanent 100% bonus depreciation availability without artificially accelerating purchases for temporary incentives.
QPP opportunity analysis: If you're in manufacturing, evaluate whether planned facility construction or expansion projects qualify for qualified production property treatment under Section 168(n).
Section 163(j) modeling: Calculate how EBITDA-based interest limitation changes affect your financing capacity and depreciation strategy.
State legislative monitoring: Track state-level responses to OBBBA throughout 2026 as legislatures consider conformity legislation.
System capability assessment: Evaluate whether your current asset tracking systems can handle acquisition date documentation, multi-jurisdiction calculations, and audit support requirements.
Questions to Ask Your Tax Advisor
- Should we elect out of bonus depreciation for any asset classes based on our specific tax position?
- How do OBBBA depreciation changes interact with our NOL strategy and Section 163(j) limitations?
- What state conformity issues affect our multi-state operations?
- For qualified production property, what cost segregation strategies maximize our QPP benefit?
- Should we amend prior-year returns to take advantage of any OBBBA provisions?
Frequently Asked Questions
Can I claim both bonus depreciation and Section 179 on the same asset?
Yes, but Section 179 is applied first. Any remaining basis after the Section 179 deduction is eligible for bonus depreciation. For example, if you expense $100,000 of a $150,000 asset under Section 179, the remaining $50,000 basis qualifies for 100% bonus depreciation, resulting in full first-year expensing.
What happens if I bought equipment in late 2024 but it arrives in 2025?
The binding contract date controls, not the delivery or placed-in-service date. If you executed a binding contract in 2024, the asset remains subject to the TCJA phase-down rules (60% bonus depreciation for 2024). If the contract was signed after January 19, 2025, you qualify for 100% bonus depreciation even if placed in service months later.
Can I elect out of bonus depreciation if it doesn't benefit me?
Yes. You can elect out of bonus depreciation on a class-by-class basis for any tax year. For example, you might elect out for 5-year property but claim bonus depreciation for 7-year property. This election is made on Form 4562 and applies to all property in that class placed in service during the year.
How does OBBBA affect assets I'm leasing?
For lessors, bonus depreciation applies to leased property if you meet the acquisition date requirements and the property qualifies. For lessees, you cannot claim bonus depreciation on property you lease unless you meet capital lease requirements and are treated as the owner for tax purposes. Operating leases do not qualify lessees for bonus depreciation.
Do I need to amend prior year returns to benefit from OBBBA?
No. OBBBA applies to property acquired and placed in service after January 19, 2025. Assets placed in service in 2022-2024 remain subject to the depreciation rules in effect when they were placed in service. However, the OBBBA does include provisions for immediate expensing of previously capitalized domestic R&D costs, which may require amended returns. Consult your tax advisor for specific situations.
What if my state doesn't conform to federal bonus depreciation rules?
You'll need to calculate depreciation twice: once for federal purposes using bonus depreciation, and again for state purposes using the state's required method (typically MACRS without bonus). This creates temporary differences that must be tracked throughout the asset's life and reconciled upon disposition. Many organizations in this situation prioritize Section 179 to the extent possible, as most states conform to Section 179 even when they decouple from bonus depreciation.
Automate OBBBA Depreciation Compliance
Manual asset tracking creates audit exposure under OBBBA's new acquisition date and documentation requirements. Eliminate that risk with automated acquisition date validation, state-specific calculations, and audit-ready documentation built specifically for finance teams managing complex depreciation compliance.
