Tax Bill Permanently Restores 100% Bonus Depreciation and 20% QBI Deduction for Pass-Through Businesses

Many business owners entered 2026 assuming their capital expenditure deductions were evaporating. Under the original schedule of the 2017 Tax Cuts and Jobs Act (TCJA), first-year bonus depreciation was slated to drop to just 20% this year, while the 20% Qualified Business Income (QBI) deduction was set to expire entirely. Instead, the opposite has happened. The One Big Beautiful Bill Act (OBBBA), signed into law in mid-2025, permanently restored 100% bonus depreciation and cemented the QBI deduction into the tax code, fundamentally altering how pass-through entities will file their 2026 returns.[1][2][5]

The stakes for cash flow are immediate and substantial. For a business purchasing $100,000 of qualifying equipment in 2026, the old phase-down would have limited the first-year bonus deduction to $20,000, forcing the remaining $80,000 to be depreciated over several years. Under the permanent restoration, the entire $100,000 is deducted upfront. This applies to tangible property with a MACRS recovery period of 20 years or less, including machinery, computers, and qualified improvement property (QIP) like interior renovations.[4][8]

The mechanism behind this shift relies on the acquisition date. The 100% rate applies to eligible property acquired and placed in service after January 19, 2025. This retroactive application means businesses that made investments last year expecting a 40% deduction are now reaping a massive unexpected tax benefit as they prepare their filings, while 2026 purchases face no phase-down anxiety at all.[2][4][8]

Beyond equipment, the legislation permanently locks in the Section 199A QBI deduction, which allows eligible sole proprietors, partnerships, S corporations, and LLC owners to deduct up to 20% of their qualified business income. Without this legislative intervention, pass-through entities would have faced a steep effective tax increase starting this year.[3][5][6]

The QBI permanence also comes with widened phase-out thresholds, expanding access for high-earning taxpayers. For the 2026 tax year, the income thresholds where the deduction begins to phase out for specified service trades or businesses (SSTBs)—such as law, consulting, and medicine—have been adjusted for inflation to approximately $203,000 for single filers and $406,000 for married couples filing jointly.[3][6]

This threshold expansion means that service-based business owners who previously found themselves entirely phased out of the QBI benefit may now qualify for at least a partial deduction. Tax professionals are advising clients to closely monitor their W-2 wages and qualified property limits to maximize this newly permanent 20% carve-out before the end of the fiscal year.[3][5]

The restoration of 100% bonus depreciation is also reviving the aggressive use of cost segregation studies. Because commercial buildings themselves do not qualify for bonus depreciation—carrying a 39-year recovery period—cost segregation allows property owners to reclassify specific building components, like specialized lighting, HVAC systems, or flooring, into shorter 5-year or 15-year asset classes.[4][8]

With the 100% rate back in play, reclassifying these components translates directly into immediate, dollar-for-dollar deductions in year one, rather than spreading the tax benefit over nearly four decades. For real estate investors and businesses expanding their physical footprints, this strategy is proving to be one of the most lucrative levers in the 2026 tax planning playbook.[1][4]

In tandem with bonus depreciation, the OBBBA expanded Section 179 expensing. The annual deduction limit has been raised to $2.56 million for 2026, with the phase-out threshold climbing to $4.09 million. While Section 179 cannot be used to create a net operating loss (NOL), bonus depreciation has no such limitation, allowing businesses to strategically layer both provisions to optimize their taxable income.[4][6]

Finally, the legislation resolved a major pain point for innovative companies by repealing the requirement to amortize domestic research and development (R&D) costs over five years. Businesses can once again immediately expense domestic R&D investments, a move that analysts note will significantly lower the effective tax rate for manufacturing and tech startups compared to the baseline TCJA expiration scenario.[3][7]

Together, these provisions represent a massive stabilization of the tax environment for small and mid-sized enterprises. Rather than bracing for a cliff of expiring deductions, pass-through entities are entering the 2026 filing season with permanent tools to accelerate write-offs, preserve capital, and reinvest in their operations.[3][5][7]