From TCJA to OBBBA: Bonus Depreciation Strategy for 2026 and Beyond

Impact of OBBBA’s permanent 100% bonus rate

When the OBBBA became law on July 4, 2025, it brought sweeping tax policy changes with broad impacts on individuals and businesses. One major shift is the permanent bonus depreciation rate of 100% for qualified business property.

Unlike deductions under Section 179, for which the maximum increased to $2.5 million under the new law, bonus depreciation under OBBBA has no annual dollar limit on the deduction. Also unlike Section 179 deductions, which are limited to annual taxable business income, tax professionals can use bonus depreciation to create a net operating loss (NOL).

Considerations for electing out of bonus depreciation

Even with the relief that comes with permanent bonus depreciation for qualifying property, strategic considerations do remain – particularly when it comes to timing, NOLs, and state conformity issues.

Preventing increased state tax liability

One of the most common reasons to elect out of federal bonus depreciation is the mismatch between federal bonus depreciation and state tax rules. Many states do not conform to federal bonus depreciation or only partially conform. Examples include California, New York, New Jersey, and Pennsylvania.

When a state decouples, taxpayers typically must:

• Add back the federal bonus depreciation deduction to state taxable income
• Then recover the deduction over multiple years using a state-specific depreciation method.

If a state requires a 100% addback of federal bonus depreciation (for example California or New Jersey), the taxpayer receives a large federal deduction but little or no immediate state deduction. This can create a higher current state tax liability.

Therefore, electing out of federal bonus can:

• Avoid state addback adjustments
• Avoid maintaining separate federal vs state depreciation schedules
• Reduce state compliance complexity for multistate filers
• Allow for standard MACRS depreciation

Managing NOLs

As discussed, bonus depreciation can create or increase a federal NOL. A company might elect out of bonus to avoid generating an NOL that may be limited in use under §172 or to preserve deductions for future years when the company expects higher taxable income to improve profitability.

Strategic timing of deductions

Although OBBBA permanently restores 100% bonus depreciation, taxpayers are not required to “take it all now.” They may instead make a transitional election to opt out of bonus depreciation. If the election is made, the taxpayer must recover the asset’s cost under MACRS over its applicable recovery period, rather than deducting the full cost in the year the property is placed in service.

Companies may elect out to avoid large swings in taxable income, improve the predictability of state tax outcomes, and better align depreciation deductions with future taxable income.

Bonus elections as a strategic lever

Companies elect 100% bonus depreciation primarily to accelerate deductions, improve cash flow, maximize the present value of tax savings, offset current profits, and support capital investment strategies. The decision is typically evaluated alongside broader considerations such as expected profitability, NOL planning, and state tax conformity.

If a business is eyeing the purchase of qualified property such as a residential or commercial building, tax professionals should consider a cost segregation study to analyze capital expenditures and appropriately allocate costs between real and personal property for depreciation.

Bonus depreciation for qualified production property under §168(n)

The OBBBA includes a new provision allowing an election for 100% bonus depreciation for the adjusted basis of “qualified production property” that’s used for “qualified production activity,” allowed in the year placed in service. This class covers specific instances of non-residential real estate, such as facility upgrades or new construction, intended for qualified production activities for at least ten years.

If a qualified property is found to be eligible for 100% bonus depreciation under OBBBA, tax professionals should also do an analysis to determine how taking this deduction would fit into their overall, long-term bonus depreciation strategy.

Here is a breakdown of the definitions of qualified production property and qualified production activity under section 168(n).

Considerations for multinational corporations

In addition to the issues that small enterprises and mid-market corporations face, multinational corporations have certain portfolio-level considerations due to the expansion of permanent bonus depreciation under OBBBA.

Because the expanded depreciation is not available for foreign property, it creates an incentive to invest in the United States. Tax leaders should therefore encourage businesses to reassess their property investment plans.

Other incentives for domestic activity, such as the immediate expense for domestic research and development, further encourage businesses to shift investments to the United States.

Tax professionals for multinational corporations should:

• Consider how to strategically allocate the companies’ assets, such as by deploying those most likely to qualify for bonus depreciation domestically.
• Determine how to best maximize other qualified deductions for foreign-use property that does not qualify for 100% bonus depreciation.

Broadly, tax professionals working with companies of all sizes must also understand the importance of staying vigilant in the area of tax law. While OBBBA may now allow for permanent bonus depreciation at the federal level, political shifts could introduce new limits or alternative incentives in the future.

Modeling depreciation decisions without the risk

Effective planning requires careful thought and consideration. Tax professionals should explore “what-if” scenarios before making irrevocable decisions related to bonus depreciation strategy. Bloomberg Tax Fixed Assets allows teams to conduct strategic modeling and forecasting with confidence and ease.

Tax depreciation modeling

Bloomberg Tax Fixed Assets, a cloud-based fixed assets software, offers tax depreciation modeling to support a more precise bonus depreciation strategy – without impacting your production data.

Our software allows you to build customized scenarios instead of taking an all-or-nothing approach. The interactive grid offers tax depreciation insights at your fingertips – adjust assumptions and compare scenarios to drive better decision-making. Compare multiple scenarios in clear, easy-to-read charts to quickly identify trends, assess outcomes, and make data-driven decisions with confidence.

For instance, you may decide to compare accelerated vs. deferred deductions under OBBBA to see how each impacts tax liability over a five-year period.

Bloomberg Tax Fixed Assets supports multi-year modeling to make it easy to evaluate long-term strategies without all the manual work.

[There’s a simple way to take control of your fixed assets depreciation strategy. Request a demo of Bloomberg Tax Fixed Assets to see how advanced modeling features can work for you. Or download: Four Ways Tax Depreciation Modeling Can Optimize Your Tax Planning Strategy.]

Efficient and accurate automation for tax reporting

Bloomberg Tax Fixed Assets features ensure accuracy and ongoing compliance with evolving regulations thanks to automatic tax law updates. In fact, our users report saving an average of 4.5 hours per week by automating these updates. 98% of Bloomberg Tax Fixed Assets customers confirmed they can respond to change more quickly.

Our fixed assets depreciation software also delivers instant recalculation and impact analysis with no need for spreadsheets and version control. Cost-segregation tools provide streamlined control over deduction timing, so you can efficiently identify components that can be split or separated into assets with shorter class life groups and more easily unlock access to bonus depreciation.

Plus, the platform’s side-by-side modeling makes it easy to present clear, data-backed options to leadership staff or board members.

[Learn how to maintain the most up-to-date bonus rates, model bonus election scenarios, and apply bonus changes to your assets across entities. Read: 6 Ways to Prepare for Bonus Depreciation Changes.]