Place Equipment in Service by Dec. 31 for 100% Bonus

Every December, business owners call to ask whether a piece of equipment they ordered will count for this year. The answer usually turns on one phrase: placed in service. Under the One Big Beautiful Bill Act (OBBBA), 100% bonus depreciation is back and permanent for qualified property, and the 2026 Section 179 limits are higher than ever. Neither helps for 2026 unless the asset is ready for use by December 31.

100% Bonus Depreciation Is Permanent

The IRS explains in IR-2026-06 that the OBBBA provides a permanent 100% additional first-year depreciation deduction for eligible property acquired after January 19, 2025. Notice 2026-11 provides interim guidance and confirms that taxpayers may generally rely on the existing bonus depreciation regulations.

Two requirements are easy to overlook:

• The acquisition date. Under the OBBBA effective date rule described in Notice 2026-11, property is not treated as acquired after the date a written binding contract is entered into for its acquisition. Equipment bought under a binding contract signed before January 20, 2025 does not qualify for the 100% rate, even if it arrives later.
• The placed-in-service date. The deduction is claimed for the tax year the property is placed in service, not the year it is ordered or paid for.

What "Placed in Service" Means

IRS Publication 946 states that you place property in service when it is ready and available for a specific use. Even if you are not using the property yet, it is in service when it is ready and available for its specific use. In practice:

• Ordered is not enough. A machine on backorder at December 31 has not been placed in service, even if you paid in full.
• Delivered may not be enough. Equipment sitting in crates that still needs installation, wiring, or calibration before it can operate is generally not ready and available for use.
• Ready counts, even if idle. A truck titled, insured, and parked in your lot on December 30 is in service even if its first job is in January.

Document the date. Keep delivery receipts, installation sign-offs, title and registration records, and a photo or log showing the asset ready to operate.

Section 179 for 2026

Section 179 lets you elect to expense qualifying property instead of depreciating it. Under Rev. Proc. 2025-32, for tax years beginning in 2026:

• The maximum Section 179 deduction is $2,560,000.
• The limit is reduced dollar for dollar once the cost of Section 179 property placed in service during the year exceeds $4,090,000.
• The cost of a sport utility vehicle that can be taken into account under Section 179 is limited to $32,000.

Section 179 is also limited to taxable income from the active conduct of a trade or business, with any excess carried forward. Bonus depreciation has no income limit and can create a loss. Many owners use both: Section 179 where they want precise control over the amount, and bonus depreciation for the rest. Section 179 property must also be placed in service during the year.

The California Add-Back

California does not follow either federal rule. The Franchise Tax Board's Summary of Federal Income Tax Changes states that California does not conform to bonus depreciation and does not conform to the federal Section 179 dollar limits. Under the FTB 3885A instructions, the California Section 179 maximum is $25,000, reduced when Section 179 property placed in service exceeds $200,000. Corporations follow separate California depreciation rules.

The practical result is a large add-back on the California return in the purchase year, followed by California deductions in later years that no longer exist federally. Keep separate federal and California fixed asset schedules from the start. Our Briefing on California nonconformity walks through a $200,000 equipment example.

Watch the Mid-Quarter Convention

If more than 40% of the depreciable property you place in service during the year (excluding certain real property) is placed in service in the last three months of the year, Publication 946 requires the mid-quarter convention. For assets you fully expense federally, the convention matters little. For California, where you depreciate over several years, it can reduce the first-year deduction on property placed in service in the fourth quarter. A rush of December purchases can shift the timing of California deductions.

Before You Buy

• Confirm delivery and setup dates in writing. Ask the vendor to commit to delivery and installation before year-end, not just shipment.
• Check whether the deduction is worth it this year. A large deduction in a low-income year may waste lower brackets. Electing out of bonus depreciation for a class of property is generally irrevocable without IRS consent, so decide carefully.
• Coordinate with QBI. Large depreciation deductions reduce qualified business income and can change your Section 199A deduction. See QBI Is Permanent in 2026.
• Plan financing. Financed equipment qualifies when placed in service, so the deduction can exceed the cash you paid this year.

We covered the mechanics of Section 168(k) in an earlier Briefing on bonus depreciation strategies. This update reflects the permanent 100% rate and 2026 limits. For more year-end items, see our 2026 year-end checklist.

Key Takeaways

• 100% bonus depreciation is permanent for qualified property acquired after January 19, 2025, and a binding contract signed earlier controls the acquisition date.
• The deduction belongs to the year the asset is ready and available for its specific use, not the year it is ordered or paid for.
• For 2026, Section 179 allows up to $2,560,000, phasing out above $4,090,000 of purchases.
• California allows no bonus depreciation and only $25,000 of Section 179, so expect an add-back and separate state asset records.

If you are planning equipment purchases before December 31, schedule a consultation with SMB CPA Group so we can model the federal and California results first. You can also contact us, learn about our custom scope of work, or review our pricing.

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