Bonus Depreciation is Back at 100% — What Orange County Small Business Owners Need to Know in 2026

Pathfinding Consultants | Tax Preparation & Business Solutions | Orange County, CA | May 2026

Source: IRS Notice 2026-11, January 14, 2026 — Treasury/IRS Guidance on the Additional First Year Depreciation Deduction under the One Big Beautiful Bill Act Official IRS source: irs.gov/newsroom/treasury-irs-issue-guidance-on-the-additional-first-year-depreciation-deduction-amended-as-part-of-the-one-big-beautiful-bill

IRS DISCLAIMER:

This blog is for general informational purposes only and does not constitute tax advice. Tax laws are complex and subject to change. Every business situation is different. Please consult a qualified tax professional before making any tax decisions. For official IRS guidance on bonus depreciation, visit irs.gov and refer to IRS Notice 2026-11.

If your small business purchased equipment, machinery, vehicles, or other qualifying property after January 19, 2025, there is significant news that directly affects your business tax preparation for 2026: bonus depreciation is back at 100%, and it is now permanent. Under the One Big Beautiful Bill Act (OBBBA) signed in July 2025, Congress permanently restored 100% first-year bonus depreciation for qualifying business property — reversing the scheduled phase-down that had reduced the deduction to 40% in 2025 and was set to eliminate it entirely by 2027. The IRS issued Notice 2026-11 on January 14, 2026 providing interim guidance on exactly how the new rules work. This blog explains what OBBBA bonus depreciation means for Orange County small business owners, what qualifies, the key dates, and how bonus depreciation compares to the Section 179 deduction as part of your broader small business tax deductions 2026 strategy. Pathfinding Consultants provides business tax preparation services for small and mid-size businesses across Orange County and reviews every client’s bonus depreciation and Section 179 position as a standard part of every business tax return.

Source: irs.gov/newsroom/treasury-irs-issue-guidance-on-the-additional-first-year-depreciation-deduction-amended-as-part-of-the-one-big-beautiful-bill

What Is Bonus Depreciation and Why Did It Almost Disappear?

Bonus depreciation — also called the additional first-year depreciation deduction under Section 168(k) of the Internal Revenue Code — allows a business to deduct a significant portion or the full cost of qualifying depreciable property in the year it is placed in service, rather than spreading that deduction over the asset’s standard depreciation schedule. For a business that purchases a $100,000 piece of equipment, the difference between standard depreciation and 100% bonus depreciation is the difference between deducting $20,000 per year for five years and deducting the entire $100,000 in year one.

The brief history every business owner needs to know

The Tax Cuts and Jobs Act of 2017 (TCJA) introduced 100% bonus depreciation for qualifying property and scheduled a phase-down beginning in 2023. By 2025, the deduction had fallen to 40% under the TCJA schedule — meaning a business that bought $100,000 in equipment in January 2025 could only deduct $40,000 in year one, not the full amount. The OBBBA permanently reversed this phase-down. For qualifying property acquired and placed in service after January 19, 2025, the bonus depreciation rate is 100% — permanently, with no future phase-down under current law.

Business tax planning that was delayed due to the declining bonus depreciation percentages can now proceed with confidence. A $500,000 equipment purchase placed in service after January 19, 2025 generates a $500,000 first-year business tax deduction. For an Orange County small business owner in a 24% federal plus 9.3% California bracket, that is approximately $166,500 in combined tax savings in the year of purchase. 

2026 Bonus Depreciation Rules — The Key Dates and Rates from IRS Notice 2026-11

The IRS issued Notice 2026-11 on January 14, 2026 to provide interim guidance on how the OBBBA bonus depreciation rules apply in practice. The notice confirms that taxpayers may rely on the existing Section 168(k) depreciation regulations with updated dates and percentages. Here are the key rules every Orange County business owner must understand:

Period / Rule	Rate	Key Condition
Jan 1 – Jan 19, 2025	40%	TCJA phase-down still applies. Property acquired or placed in service before Jan 20 is NOT eligible for 100%.
Jan 20, 2025 onward (OBBBA)	100%	Permanent. Property must be both ACQUIRED and PLACED IN SERVICE on or after Jan 20, 2025 to qualify.
Transition election (1st tax year ending after Jan 19, 2025)	40% or 60%	Taxpayers may elect 40% (or 60% for long-production-period property/aircraft) instead of 100% for this one tax year only.
Election out (any year)	0%	Taxpayer may elect OUT of bonus depreciation for any entire class of qualifying property. Election is typically irrevocable.

Source: IRS Notice 2026-11, January 14, 2026 — irs.gov/newsroom/treasury-irs-issue-guidance-on-the-additional-first-year-depreciation-deduction-amended-as-part-of-the-one-big-beautiful-bill Critical rule: Property must be BOTH ACQUIRED and PLACED IN SERVICE on or after January 20, 2025 to qualify for 100% bonus depreciation. If either date falls before January 20, 2025, the property is subject to the prior TCJA rate of 40%.

The written binding contract rule — why acquisition date matters

IRS Notice 2026-11 confirms that the acquisition date of property is generally determined by when a written binding contract to acquire the property was entered into. If a business signed a purchase contract before January 20, 2025 but the equipment was not delivered and placed in service until after that date, the property may not qualify for 100% bonus depreciation under the new rules — because the acquisition date precedes the cutoff. This is one of the most important planning details for OBBBA bonus depreciation. Pathfinding Consultants reviews contract dates and placed-in-service dates for every equipment purchase claimed on a business tax return.

Did your business purchase equipment after January 19, 2025?

Pathfinding Consultants reviews bonus depreciation eligibility for every Orange County business tax return. Book your consultation now and make sure you are claiming the full deduction you are entitled to.

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What Property Qualifies for 2026 OBBBA Bonus Depreciation?

Not every business purchase qualifies for bonus depreciation. Understanding which assets qualify is a critical part of business tax preparation. IRS Notice 2026-11 confirms that the general eligibility framework from the TCJA regulations continues to apply, with the key date updated from September 27, 2017 to January 19, 2025. Qualifying property for OBBBA bonus depreciation generally includes:

QUALIFYING for OBBBA Bonus Depreciation (100%):

• Depreciable property with a MACRS recovery period of 20 years or less — equipment, machinery, tools, computer hardware

• Computer software that is off-the-shelf and depreciable

• Qualified improvement property (QIP) — interior improvements to nonresidential buildings after the building is placed in service

• Used property — eligible if the original use of the property by the taxpayer begins on or after January 20, 2025 (first use by THIS taxpayer)

• Vehicles used for business — subject to luxury auto limits and listed property rules

• Qualified sound recording productions — new addition under OBBBA for tax years ending after July 4, 2025

• Components of larger self-constructed property — if the component itself is acquired after January 19, 2025 under a component election

NOT QUALIFYING for Bonus Depreciation:

• Real property — residential rental buildings, commercial buildings (recovery period over 20 years)

• Land — not depreciable and not eligible

• Property used predominantly outside the United States

• Property used for tax-exempt purposes

• Property acquired before January 20, 2025 under a written binding contract

• Property where construction began before January 20, 2025 for self-constructed assets

Used property — an important opportunity for small business owners

One of the most valuable aspects of OBBBA bonus depreciation for small business owners is the eligibility of used property. If you purchase a used vehicle, a pre-owned piece of equipment, or a used computer system that is new to your business — meaning your business has never previously used or claimed depreciation on it — that used property qualifies for 100% bonus depreciation as long as it is acquired and placed in service after January 19, 2025. This opens up significant business tax saving opportunities for businesses that purchase used rather than new assets.

Bonus Depreciation vs Section 179 Deduction — Which Is Better for Your Business?

Both OBBBA bonus depreciation and the Section 179 deduction allow businesses to deduct qualifying property costs immediately in the year of purchase. Understanding the differences between them is essential for business tax planning and for maximizing your small business tax deductions 2026. Pathfinding Consultants analyzes both options for every client purchase to determine which delivers the larger benefit given the specific business situation. Here is the direct comparison:

Feature	Bonus Depreciation (OBBBA 2026)	Section 179 Deduction (2026)
First-year deduction rate	100% permanent	100% up to $1,250,000 limit
Dollar limit	No dollar limit	$1,250,000 (2025/2026) Phases out above $3,130,000
Can create net operating loss?	YES — can push business into a loss	NO — limited to business taxable income
Used property eligible?	YES — if new to taxpayer	YES — used property qualifies
Listed property (vehicles, etc.)?	YES — with business use requirements	YES — with business use >50% requirement
Applies automatically?	YES — must ELECT OUT to avoid	NO — must actively elect to use
Best for...	Large equipment purchases with no income cap concerns	Businesses wanting precise control over deduction amount

Section 179 limit for 2025 tax year is $1,250,000, phasing out dollar-for-dollar once total asset purchases exceed $3,130,000. These limits are adjusted for inflation annually. Confirm current year limits with your business tax consultant.

The most important difference — net operating losses

Bonus depreciation can create a net operating loss (NOL). If your business purchased $300,000 in qualifying equipment and your net income before depreciation was only $200,000, 100% bonus depreciation generates a $100,000 NOL that can be carried forward to offset future taxable income. Section 179 cannot generate an NOL — it is limited to the business’s taxable income. For a business that expects higher income in future years, creating an NOL through bonus depreciation may deliver more total tax savings than a larger current-year deduction from Section 179. Pathfinding Consultants evaluates NOL implications for every business tax return involving significant equipment purchases.

Bonus depreciation applies automatically — you must elect OUT if you do not want it

This is one of the most commonly misunderstood aspects of bonus depreciation. Under the OBBBA rules and IRS Notice 2026-11, bonus depreciation applies by default to all qualifying property. If a business does NOT want to claim 100% bonus depreciation on a class of property — for example, because it wants to spread deductions over several years to match expected income — it must affirmatively elect out on its timely filed tax return. This election is irrevocable and applies to an entire class of property. If your business tax return is filed without the election out and you later realize you did not want bonus depreciation, it is too late to change. This is why business tax preparation must include a deliberate bonus depreciation strategy discussion before the return is filed.

Section 179 or bonus depreciation — which saves your business more?

Pathfinding Consultants runs the complete analysis for every equipment purchase across Orange County. Book your consultation today and make the right choice before your return is filed.

Schedule your consultation now

Business Tax Planning with Bonus Depreciation — What Orange County Business Owners Should Do Now

The restoration of 100% OBBBA bonus depreciation permanently changes the business tax planning landscape for Orange County small businesses. Here is what Pathfinding Consultants advises every client with qualifying equipment purchases to do as part of their 2026 business tax preparation:

1. Document acquisition dates and placed-in-service dates for every asset

IRS Notice 2026-11 requires both the acquisition date (when the purchase contract became binding) and the placed-in-service date (when the asset was ready and available for business use) to fall on or after January 20, 2025 for 100% OBBBA bonus depreciation. For every significant asset purchase, preserve the signed purchase agreement, delivery confirmation, and the date the asset was first used in the business. This documentation is essential for defending the bonus depreciation claim in the event of an IRS inquiry.

2. Evaluate whether to elect out for strategic reasons

100% bonus depreciation is powerful but not always the optimal choice for every business. If your business is projecting significantly higher income in 2027 or 2028, spreading depreciation over future years may reduce more total tax than deducting everything in 2026 when income is lower. A business that is currently in a low-income or break-even year may derive limited current-year benefit from a large first-year deduction. Business tax planning evaluates your multi-year income projection before committing to the election or election out.

3. Check California state conformity — California does NOT conform to federal bonus depreciation

This is the most important California-specific point for Orange County business owners. California generally does not conform to federal bonus depreciation rules. A business that claims 100% federal bonus depreciation on a $200,000 equipment purchase must still depreciate that $200,000 over its standard recovery period for California state tax purposes. This creates a temporary difference between federal and California taxable income that must be tracked and reconciled on California Form 3885 or 3885P. Pathfinding Consultants prepares both federal and California business tax returns and manages this depreciation difference for every client claiming federal bonus depreciation.

4. Review component elections for ongoing construction projects

IRS Notice 2026-11 specifically addresses businesses with larger self-constructed property — such as a building under construction or custom equipment being manufactured. Even if the larger property itself was acquired or construction began before January 20, 2025, individual components acquired or self-constructed after that date may be separately eligible for 100% bonus depreciation under a component election. This is a significant planning opportunity for construction companies, manufacturers, and businesses with capital improvement projects spanning the January 2025 cutoff date.

Pathfinding Consultants — Business Tax Preparation for Orange County Small Businesses

The restoration of permanent 100% OBBBA bonus depreciation is one of the most significant business tax saving developments for small businesses in years. For an Orange County business owner who spent $150,000 on qualifying equipment after January 19, 2025, the difference between claiming 100% bonus depreciation and claiming standard MACRS depreciation is $150,000 in year-one deductions versus approximately $30,000 — a $120,000 difference that translates to tens of thousands of dollars in immediate federal and California tax savings when combined with Section 179 and other small business tax deductions 2026.

If you have been searching for a business tax consultant near me in Orange County who understands OBBBA bonus depreciation, IRS Notice 2026-11, the California non-conformity issue, and the interaction with Section 179 — Pathfinding Consultants provides business tax preparation for all entity types across Orange County. We review every equipment purchase, every acquisition date, every state conformity adjustment, and every election decision as part of every business tax return we prepare.

Key Takeaways — OBBBA Bonus Depreciation 2026:

• Bonus depreciation restored to permanent 100% for property acquired and placed in service after January 19, 2025

• Both acquisition date AND placed-in-service date must be on or after January 20, 2025 to qualify for 100%

• Property acquired before January 20, 2025 under a written binding contract is subject to prior TCJA 40% rate

• Used property qualifies if it is new to the taxpayer

• Transition election available for first tax year ending after January 19, 2025: 40% or 60% instead of 100%

• Bonus depreciation applies automatically — businesses must affirmatively elect out if they do not want it

• Bonus depreciation CAN create a net operating loss — Section 179 cannot

• California does NOT conform to federal bonus depreciation — separate California depreciation tracking required

• IRS Notice 2026-11 is the controlling interim guidance — source: irs.gov

• Pathfinding Consultants reviews bonus depreciation eligibility and elections for every Orange County business tax return

IRS DISCLAIMER:

This blog is for general informational purposes only and does not constitute tax advice. Tax laws are complex and subject to change. Every business situation is different. Please consult a qualified tax professional before making any tax decisions. For official IRS guidance on bonus depreciation, visit irs.gov and refer to IRS Notice 2026-11.

Make sure your 2026 business tax return captures the full benefit of OBBBA bonus depreciation

Pathfinding Consultants serves Orange County small business owners with business tax preparation, bonus depreciation analysis, Section 179 comparison, and California non-conformity tracking. Book your consultation at calendly.com/pathfindingconsultants/30min

Schedule your consultation now