How Does the IRS’s New Guidance on Bonus Depreciation Impact Your Business Planning?

What the IRS’s Bonus Depreciation Guidance Means for Strategic Tax Planning

Following the passage of H.R. 1, formerly the One Big Beautiful Bill Act (OBBBA), the IRS has released guidance that clarifies how businesses can leverage the now-permanent 100% bonus depreciation rules. This update not only confirms enhanced deductions under the revised law but also outlines transitional elections and new categories of eligible property, including qualified sound recording productions.

At Keiter, we are focused on helping clients uncover opportunities that drive growth and improve financial outcomes. Understanding these updates is a key part of strategic tax planning for 2025 and beyond.

H.R.1. makes 100% bonus depreciation permanent

Bonus depreciation, under IRC § 168(k), allows businesses to immediately deduct the full cost of qualified property in the year it’s placed in service. While prior law had begun phasing down this benefit, with a planned reduction to 40% in 2025, H.R.1 reversed course.

What has changed:

• 100% bonus depreciation is now permanent for qualified property acquired and placed in service after January 19, 2025.
• The law also introduces transition provisions for businesses adjusting to the change.

Transition-year elections: Flexibility for 2025 planning

Businesses placing qualified property in service in the first tax year ending after January 19, 2025, may elect to apply the pre- H.R.1 reduced rate:

• 40% for most property
• 60% for long-production-period property and aircraft

This flexibility allows for strategic alignment with a business’s cash flow, income projections, and broader financial goals. Additionally, taxpayers can elect to opt out of bonus depreciation entirely for any specific class of property during the tax year, offering even more control over depreciation strategies.

Interim IRS Guidance: What taxpayers can rely on now

In Notice 2026-11, the IRS provided interim rules that taxpayers can begin applying immediately while formal regulations are in development. Key takeaways include:

• Elections for reduced bonus depreciation (40% or 60%) should follow the procedures in Reg. § 1.168(k)-2(f)(3) and be filed via Form 4562.
• The eligibility of self-constructed or component parts of larger projects must be determined using modified versions of existing regulations.

These updates provide clarity for year-end planning and help ensure compliance as businesses begin adjusting to the new tax landscape.

Additional considerations to keep in mind

While the reinstatement of 100% bonus depreciation is significant, eligibility depends on more than when an asset is placed in service.

• Purchase and contract timing matters
  Assets purchased, or subject to a binding contract to purchase, before January 20, 2025 do not qualify for 100% bonus depreciation under H.R.1. These assets remain subject to the 40% limitation, regardless of when they are placed in service.
• Self-constructed property requires careful review
  Bonus depreciation treatment depends on when construction begins. Projects that begin and are completed prior to January 20, 2025, do not qualify. Projects started after January 20^th should qualify for the 100% bonus. Any projects started well before, but finished after January 20^th, will likely need additional consideration as it pertains to the eligibility for bonus depreciation on the assets.
• State conformity considerations
  Many states, including Virginia, have not yet conformed to the updated federal bonus depreciation provisions. As a result of the ongoing state considerations and conformity concerns, taxpayers may want to consider filing an extension while waiting on additional state-level guidance.

How Keiter can help

The IRS’s guidance offers flexibility, but also complexity. Our team of tax professionals is ready to help you evaluate how to take full advantage of the updated bonus depreciation rules in ways that align with your broader business strategy.

Whether you are planning large equipment purchases, navigating construction projects, or exploring investments in creative productions, Keiter can help you uncover the best path forward.

Contact your Keiter Opportunity Advisor | Email | Call 804.747.0000 to learn how these new rules may create opportunities for your business.

Source: Thomson Reuters