Bonus Depreciation 2026: The 60% First-Year Deduction
Bonus depreciation is the second pillar of equipment tax deductions in 2026, and it's more valuable than ever this year — but also phasing out fast. At 60% in 2026 (down from 80% in 2025), it allows you to deduct more than half the cost of new equipment in the first year. After 2026, the rate drops to 40% in 2027, 20% in 2028, and 0% in 2029. This creates a "use it or lose it" dynamic — delaying equipment purchases costs you dearly.
In this article, I'll break down the 2026 bonus depreciation rules, show you how to calculate it, compare it with Section 179, and explain how to stack both incentives for maximum savings.
The 2026 Bonus Depreciation Rate and Phase-Out Schedule
The Tax Cuts and Jobs Act (TCJA) introduced 100% bonus depreciation for 2018–2022, then scheduled a phase-out. Here's the full schedule:
| Tax Year | Bonus Depreciation Rate |
|---|---|
| 2022 and earlier | 100% |
| 2023 | 80% |
| 2024 | 80% |
| 2025 | 80% |
| 2026 | 60% |
| 2027 | 40% |
| 2028 | 20% |
| 2029 | 0% |
The 20-point drop from 2025 to 2026 means every $100,000 in new equipment purchased in 2026 generates $60,000 in bonus depreciation (vs. $80,000 in 2025). That's a $6,000 difference in tax savings at 30% tax rates for every $100,000 spent. For businesses planning large equipment purchases, accelerating the purchase into 2026 can save $10,000-$50,000 in taxes.
What Qualifies for Bonus Depreciation in 2026?
Bonus depreciation applies to a broad range of property, but with a critical distinction from Section 179:
Qualifying Property (2026):
- Tangible personal property with a MACRS recovery period of 20 years or less (3-year, 5-year, 7-year, 10-year, 15-year, 20-year property)
- Qualified improvement property (QIP) — interior improvements to non-residential commercial buildings
- Qualified used property — tangible personal property acquired from an unrelated party that the taxpayer didn't previously own (previously eligible only for new property, now includes used)
- Fruit-bearing plants and trees (e.g., apple orchards, citrus groves)
- Qualified film, television, and live theatrical productions
Key Differences from Section 179:
- Bonus depreciation has NO dollar limit — you can expense 60% of any amount of qualifying property
- Bonus depreciation has NO income limit — it can create a loss
- Bonus depreciation applies automatically to all qualifying assets in the same class (you can't pick and choose individual assets without electing out)
- Passenger vehicles have a $19,200 bonus depreciation limit in 2026
How to Calculate Bonus Depreciation in 2026
The formula is straightforward: Bonus Depreciation = 60% × Qualified Property Cost
But there's a more nuanced calculation when stacking with Section 179 and MACRS. Here's the standard three-step process:
Step 1: Apply Section 179
Deduct up to $1,110,000 (or your taxable income limit) from qualifying property costs.
Step 2: Apply Bonus Depreciation (60% of remaining cost)
Calculate bonus depreciation on the cost remaining after Section 179.
Step 3: Apply MACRS to remaining balance
Use standard MACRS rates on the amount remaining after both Section 179 and bonus depreciation.
Concrete Example: $200,000 in New 5-Year Equipment
Let me show you how this stacking works in 2026. Suppose your business places $200,000 in new 5-year equipment (e.g., computers, delivery vehicles) in service on June 1, 2026. Here's your deduction calculation:
| Step | Calculation | Deduction |
|---|---|---|
| Cost of equipment | — | $200,000 |
| Section 179 (elect full $200,000) | Full amount (below $1,110,000 limit) | $200,000 |
| Remaining after Section 179 | $200,000 − $200,000 | $0 |
| Bonus depreciation | None (no remaining cost) | $0 |
| MACRS | None (no remaining cost) | $0 |
| Total first-year deduction | — | $200,000 |
In this case, Section 179 covers the full $200,000 — no bonus depreciation or MACRS needed. But what if you have more than $1,110,000 in equipment?
Example: $1,500,000 in Equipment (Stacking All Three)
Suppose you have $1,500,000 in new 5-year equipment placed in service in 2026 (all in January, so no mid-quarter issue):
| Step | Calculation | Deduction |
|---|---|---|
| Cost of equipment | — | $1,500,000 |
| Section 179 (max $1,110,000) | Apply full limit | $1,110,000 |
| Remaining after Section 179 | $1,500,000 − $1,110,000 | $390,000 |
| Bonus depreciation (60% of $390,000) | $390,000 × 60% | $234,000 |
| Remaining after bonus depreciation | $390,000 − $234,000 | $156,000 |
| MACRS Year 1 (20% of $156,000) | $156,000 × 20% | $31,200 |
| Total first-year deduction | — | $1,375,200 |
That's 91.7% of the total cost deducted in the first year alone. And the remaining $124,800 will be depreciated over the next 5 years using standard MACRS rates.
The tax savings at 30% (federal + state): $1,375,200 × 30% = $412,560. Compare this to no accelerated depreciation (just MACRS first-year = $300,000): savings of $1,075,200 in the first year. That's the power of stacking Section 179 and bonus depreciation.
Bonus Depreciation for Passenger Vehicles in 2026
Passenger vehicles (cars, SUVs weighing 6,000 lbs or less) have special limits. For 2026:
- Section 179 limit: $11,100
- Bonus depreciation limit: $19,200
- Total first-year limit: $30,300
- MACRS depreciation cap applies to the remaining cost
For a $50,000 Tesla Model Y (5-seat, under 6,000 lbs) placed in service in 2026:
- Section 179: $11,100
- Bonus depreciation: $19,200
- MACRS Year 1: 20% × ($50,000 − $30,300) = $3,940
- Total first-year deduction: $34,240
For heavy vehicles (6,001+ lbs), the full Section 179 ($1,110,000) and bonus depreciation (60%) limits apply with no special caps. A $60,000 Ford F-250 (over 6,000 lbs) qualifies for full expensing.
Election Out of Bonus Depreciation: When It Makes Sense
You can elect OUT of bonus depreciation for any asset class. This might make sense if:
- You're in a very low tax bracket this year and expect to be in a higher bracket in future years
- You want to avoid triggering the net investment income tax (NIIT) or the additional Medicare tax
- You have NOLs that would be expanded by bonus depreciation
- You want to keep depreciation deductions for future years when you'll have more taxable income
However, for most freelancers and small businesses, electing out is rarely advantageous. The time value of money means a $1 deduction today is worth more than a $1 deduction tomorrow. Unless you're in a climbing tax bracket (unlikely for most small businesses), you should claim bonus depreciation.
The Bottom Line
Bonus depreciation at 60% in 2026 is still a valuable tax incentive — but it's declining fast (40% in 2027, 20% in 2028, 0% in 2029). The key rules: no dollar limit, no income limit, applies automatically to all qualifying assets in a class, and stacks perfectly with Section 179. The optimal strategy for 2026: apply Section 179 first (up to $1,110,000), then bonus depreciation (60% of remaining), then MACRS on the balance. For passenger vehicles, remember the combined $30,300 first-year limit. Use our MACRS Depreciation Calculator to model your equipment purchases and plan accordingly. If you've been delaying a major equipment purchase, 2026 is the year to act — the bonus depreciation rate drops by 20 points next year, and waiting could cost you thousands in lost deductions.