IRS Issues Guidance on Bonus Depreciation

In Summary

• The One Big Beautiful Bill Act (OBBBA) makes 100% bonus first-year depreciation permanent for qualifying property placed in service after January 19, 2025, allowing businesses to fully expense eligible assets—including certain real property, equipment, software, plants, and productions—rather than depreciating them over time, with added flexibility to elect reduced rates or opt out.

• IRS Notice 2026-11 clarifies the new rules, expands eligibility to qualified production property and sound recording productions, and provides taxpayers with greater planning flexibility, immediate deductions, reduced taxable income, improved cash flow, and stronger incentives for capital investment.

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The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, amended certain depreciation deductions for business taxpayers, making permanent a 100% bonus first-year depreciation for qualified property placed in service after January 19, 2025.  Bonus depreciation allows eligible business property to be fully expensed in the year it is placed in service rather than depreciated over its normal recovery period.

On January 14, 2026 the IRS issued Notice 2026-11, providing guidance on the now-permanent 100% bonus depreciation under Section 168(k) as established by the OBBBA. These new rules apply to the elections to claim bonus depreciation on qualified property, specific plants, and qualified sound recording productions commencing in a taxable year ending after July 4, 2025.

Bonus depreciation is defined as an additional depreciation allowance claimed in the first year on certain new and used qualifying property placed into service during that year.  Such qualifying property includes MACRS property with a recovery period of 20 years or less; certain computer software; specified plants; water utility property; and films, television shows, and theatrical productions.

Under the OBBBA, taxpayers may elect to take the 100% bonus depreciation allowance for “Qualified Production Property” under the following rules:

• The property is new MACRS nonresidential real property that is used as an integral part of a qualified production activity (manufacturing, production, or refining of tangible personal property)
• The property must be located in the United States or its territories;
• The property is constructed between January 20, 2025 and December 31, 2028;
• The property is placed into service by December 31, 2030; and
• The qualified production property (or portion of the property) is identified on the taxpayer’s tax return for the year of the election.

Per the OBBBA, taxpayers may make the following elections after January 19, 2025:

• Deduct 100% bonus depreciation for the qualified property.
• Deduct a 40% bonus rate (or 60% for longer production period property and certain aircraft) instead of the 100% bonus rate.
• Treat certain components (acquired or self-constructed) of larger self-constructed property as generally eligible for the additional first-year depreciation deduction; or
• Elect out of the bonus deduction.

Sound recording productions have been added to the list of qualifying productions for the special expensing rules, pending the following guidelines:

• The sound recording must be produced and recorded in the United States.
• The recording is treated as acquired on the date principal recording commences.
• The recording is placed into service at the time of initial release or broadcast.
• The recording qualifies for the bonus depreciation if the production commences in a tax year ending after July 4, 2025.

What are the benefits of the new bonus depreciation for taxpayers?

• Immediate expensing of 100% of the cost of qualified property acquired and placed in service after January 19, 2025
• Reduced taxable income
• Greater flexibility in deduction elections
• Improved cash flow
• More wide-ranging eligibility for certain types of assets
• Stronger incentives for capital investment

Contact Us

If you have questions about the OBBB changes or need assistance with another tax or accounting issue, Klatzkin can help. For additional information call 609-809-9189 or click here to contact us. We look forward to speaking with you soon