If you bought business equipment in 2024 or earlier and wrote off the full cost in year one, you were taking advantage of 100% bonus depreciation, one of the more generous provisions that came out of the Tax Cuts and Jobs Act. That rate no longer applies. For assets placed in service during 2026, the bonus depreciation rate is 80%, and it is scheduled to keep stepping down by 20 percentage points each year until it reaches zero in 2027 unless Congress acts to extend or restore it.
What this means in practical terms is that if your business spends $100,000 on qualifying equipment this year, you can immediately deduct $80,000 through bonus depreciation and then depreciate the remaining $20,000 over the asset's standard useful life. That is still a meaningful first-year deduction, but it is a real difference from writing off the entire purchase on day one. The shift catches a lot of business owners off guard, especially those who remember the 100% rate and assume it is still in effect.
A Restaurant Owner Planning Equipment Purchases Around the Wrong Assumption
Consider a restaurant owner planning a $150,000 kitchen renovation, including new commercial ovens, refrigeration units, and prep equipment, budgeting around an assumption that the entire cost would be immediately deductible in the year of purchase, based on what a colleague had described from a purchase made several years earlier under the old 100% bonus depreciation rules. Working through the actual 2026 numbers with a tax advisor reveals that only 80% of the qualifying equipment cost, roughly $120,000 in this case, is immediately deductible under current bonus depreciation, with the remaining $30,000 spread over the equipment's normal depreciation schedule.
Fortunately, because the total purchase falls well within the Section 179 limit, electing Section 179 instead of relying on bonus depreciation alone allows the full $150,000 to be deducted in the first year, assuming the restaurant has enough taxable income to absorb it. Understanding this distinction before finalizing the renovation budget and loan structure, rather than after filing the return, meant the owner could plan cash flow and tax payments accurately from the start instead of being caught off guard by a smaller-than-expected deduction.
One detail that catches people off guard, in the other direction from what many assume, is that bonus depreciation is not limited to brand-new equipment. Since the 2017 Tax Cuts and Jobs Act, bonus depreciation applies to both new and used property, as long as it is new to you: you did not previously own or use it, and it was not acquired from a related party (a close family member or a commonly controlled business) or in certain carryover-basis transactions. A used piece of equipment purchased in an arm's-length deal from an unrelated seller generally qualifies for bonus depreciation the same as new equipment would. This is worth confirming with a tax professional for your specific purchase, since the related-party and carryover-basis exceptions are where this rule gets more technical, but the blanket assumption that used equipment never qualifies is outdated and no longer accurate under current law.
Section 179 is the other tool worth understanding here, because the two often get confused. Under Section 179, you can elect to immediately expense the full cost of qualifying business property regardless of where bonus depreciation stands in its phase-down schedule. The 2026 Section 179 limit allows businesses to deduct up to $1,220,000 in qualifying purchases, subject to a phase-out that begins once total asset additions exceed $3,050,000. For most small and mid-sized businesses, Section 179 is available to fill in what bonus depreciation no longer covers, but it comes with its own rules around business income limitations and property types.
The practical planning question for most business owners right now is whether to move forward with a planned equipment purchase or hold off to see if Congress restores the higher bonus rate. There is no reliable answer to that based on current law, and waiting for a legislative fix that may or may not arrive is a real business risk. Decisions about timing large asset purchases should be based on your actual cash flow needs and tax position for the year, not on speculation about what Congress might do.
What Counts as a "Related Party" for the Used-Property Exception
The related-party restriction on used-property bonus depreciation is broader than many business owners expect. It generally covers close family members (spouses, siblings, ancestors, and descendants), and business entities where there's common majority ownership or control, not just a literal parent-subsidiary relationship. Buying equipment from a business you or a close relative also owns a controlling stake in, even if it looks like an arm's-length transaction on paper, can fall under this restriction and disqualify the purchase from bonus depreciation.
This is worth checking carefully any time a purchase involves a seller with any personal or ownership connection to the buyer, since the disqualification applies regardless of whether the price paid was genuinely fair market value.
Given how frequently this percentage has changed in recent years, it's worth confirming the current rate directly before finalizing any purchase decision based on an assumption from a prior year or a conversation with someone whose information may already be outdated. A quick confirmation before signing a purchase agreement costs nothing; assuming the wrong percentage can meaningfully change the actual return on a major equipment investment.