Key takeaways
Search for bonus depreciation and you will still find pages telling you the rate for 2026 is 20%. Those pages were written under the old schedule and never updated, and a capital plan built on them will understate the deduction by a wide margin.
Bonus depreciation under Section 168(k) is 100% for qualifying property acquired after January 19, 2025 and placed in service after that date. The 2025 tax law made the 100% rate permanent and removed the annual step-down that was cutting it toward zero. There is no dollar cap, no income limit, and used equipment counts.
Below is what changed, how the acquisition date rule works, what qualifies inside a plant, and the situations where a manufacturer should think twice before taking the full deduction. This is general information rather than tax advice, so confirm the details with your CPA.
What Changed, and Why So Much Online Is Wrong
Bonus depreciation was scheduled to disappear. Under the rules in place from 2018, the rate dropped by 20 points a year starting in 2023, so a machine placed in service in 2026 would have received only 20%. Most of the guidance published between 2022 and 2024 assumed that path, and a lot of it still sits near the top of search results with a new year in the title and the old numbers in the body.
The 2025 tax law reversed the phase-down and made the full rate permanent. There is no schedule to plan around now, which is a real change for plants that were rushing projects forward to catch a higher rate before it fell.
| Year Placed in Service | Rate Under the Old Schedule | Rate Now |
|---|---|---|
| 2023 | 80% | 80% |
| 2024 | 60% | 60% |
| 2025 | 40% | 100% for property acquired after 19 Jan 2025 |
| 2026 | 20% | 100% |
| 2027 and later | 0% | 100% |
The 100% rate applies to qualifying property acquired after January 19, 2025. Property acquired before that date generally stays under the older rules for the year it is placed in service.
If you are checking any article on this topic, three things settle it quickly. Look for the date on the page, look for a reference to the 2025 law rather than the 2017 one, and compare the figure against the IRS guidance for the year in question. Guidance that still describes an annual step-down was written before July 2025.
How Bonus Depreciation Works
Bonus depreciation lets you deduct the full cost of qualifying property in the year it is placed in service, rather than recovering it over the asset’s normal life. Three features separate it from the Section 179 election that manufacturers often use alongside it.
The January 19, 2025 Acquisition Date Rule
This is the detail that decides which rate applies, and it trips up projects with long lead times. The test is when the property was acquired, not only when it was placed in service.
For most purchases, acquisition is tied to the date of a binding written contract. A line ordered under a binding purchase agreement signed in December 2024 and commissioned in 2025 generally falls under the old rules, even though it went into service after the law changed. The same line ordered in February 2025 gets the full 100%.
Self-constructed property works differently. When a manufacturer builds equipment for its own use, acquisition is generally treated as beginning when physical work of a significant nature starts. Plants that design and fabricate their own handling systems should date that start clearly in their records.
Two practical points follow. Keep the signed purchase agreement, the purchase order and any amendments with the asset file, because that paperwork establishes the acquisition date years later. And if a 2024 contract was materially renegotiated in 2025, ask your CPA whether the later agreement resets the date, because the answer is not always obvious.
What Qualifies Inside a Plant
Bonus depreciation covers tangible property with a recovery period of 20 years or less, which takes in almost everything on a production floor, plus off-the-shelf software and qualified improvement property. In a typical automation project, that means:
The main exclusion is the building itself, along with land and site work. New production facilities have their own provision under Section 168(n), which allows 100% expensing of qualified production property, and that runs on separate construction and in-service timing rules.
New Buildings Are Covered Separately
Bonus depreciation does not apply to the building shell, but the 2025 law added Section 168(n) for exactly that gap. It allows 100% expensing of qualified production property, meaning certain new nonresidential buildings used in manufacturing, production or refining, which previously had to be depreciated over 39 years.
The two provisions can work on the same project, with the building under Section 168(n) and the equipment inside it under Section 168(k). The catch is that Section 168(n) has its own conditions on when construction begins and when the property is placed in service, so a greenfield plant needs the tax timeline drawn alongside the construction schedule, not after it.
Financed and Leased Equipment
Financing does not reduce the deduction. Equipment bought with a term loan or an SBA-backed loan is expensed in full in the year it is placed in service, even though repayments run for years afterward. That combination, a full deduction now against payments spread over time, is a large part of why full expensing changes capital planning.
Leasing is different, and the label on the agreement matters less than its substance. Under a true operating lease the lessor owns the asset and claims the depreciation, while the lessee deducts lease payments instead. A finance lease or a lease-to-own structure may be treated as a purchase for tax purposes, in which case bonus depreciation can apply. Have your CPA read the agreement before you assume either treatment.
Why This Matters More for Automation Than for a Single Machine
A standalone machine rarely stresses either provision. A full line does. When processing, conveying and end-of-line packaging land in the same year, a mid-size plant can easily commit several million dollars, which is above the Section 179 ceiling and often above the phase-out threshold as well.
That is exactly where bonus depreciation earns its place. It has no ceiling, so the portion above the Section 179 limit still gets deducted in year one. It can create a loss, which a plant investing ahead of a demand ramp may actually want, because the loss carries forward against the profits the new capacity is meant to produce.
There is a second reason bonus depreciation suits automation work specifically. Automation projects rarely arrive as a single invoice. They come as equipment, integration, controls and installation spread across suppliers and months, and much of that cost is capitalized into the asset basis rather than expensed as it is incurred. Full expensing pulls that whole basis into one deduction in the year the line starts running.
The State Problem
Federal treatment is only half the calculation. States do not all follow Section 168(k). Some conform fully, some cap the deduction, and others disallow bonus depreciation entirely and require the amount to be added back on the state return, then recovered over the asset’s normal life.
For a multi-state manufacturer, that means a project can be fully expensed federally and still generate state taxable income in the year of purchase. It is worth asking your CPA for the state position before the capital request is approved, not after, particularly if the project decides where a new line is installed.
“From processing and conveying to bagging and palletizing, qualifying automation equipment can benefit from 100% bonus depreciation. This helps manufacturers bring the full project cost into the first-year deduction.”
See it in action
When Electing Out Makes Sense
Taking the largest deduction available is not automatically the best outcome. There are situations where a manufacturer should look at electing out of bonus depreciation for a class of assets.
The election out is made by asset class and applies to all property in that class placed in service during the year, so it is not a per-machine choice.
A Worked Example: A $6 Million Expansion
A chemical manufacturer commissions a $6 million project in 2026: powder handling and mixing at the front end, drum filling and palletizing at the back, plus controls and installation. Assume all of it is qualifying equipment and none of it is building work.
Section 179 alone would cover $2,560,000 at most, and because total purchases of $6 million exceed the $4,090,000 threshold, the allowance drops by $1,910,000 to $650,000. Bonus depreciation then covers the remaining $5,350,000, so the full $6 million is still deducted in the year the project goes into service.
At a 21% federal rate, that is roughly $1.26 million of federal tax deferred into later years. The word to hold on to is deferred. There will be no depreciation on those assets in future years, so the benefit is cash timing, not a permanent saving. For a plant funding its next project out of operating cash, that timing is usually the point.
What Happens After Year One
Once an asset is fully expensed, its tax basis is effectively zero. There is no depreciation left to claim on it in later years, which is worth modeling if profits are expected to grow, because future years carry the full tax on that income with no shelter from this asset.
There is a second consequence at disposal. When fully depreciated equipment is sold, the proceeds are generally recaptured as ordinary income rather than treated as capital gain. Plants that refresh equipment on a cycle, or that resell older machines when a line is upgraded, should have that conversation before the sale rather than at filing time.
A Checklist Before Year End
- Confirm the acquisition date of every major asset. Pull the signed contracts, not just the invoices.
- Confirm realistic in-service dates. Equipment has to be installed and ready for use, not delivered.
- Split the invoices. Equipment, freight, installation and building work should be separate lines so the eligible basis is clear.
- Run the state position. Ask what each state where you operate does with bonus depreciation.
- Model both paths. Compare full expensing against electing out for a class, especially if you have losses or unused credits.
- Decide the Section 179 split early. The two provisions work together, and the order they are applied in affects the result.
How Cybernetik Fits Into the Timing
Cybernetik designs and builds the processing and packaging systems that these deductions are usually claimed on, supporting US plants through Cybernetik Inc in Summerville, South Carolina, with more than 6,000 installations worldwide since 1989.
On projects where a tax year is part of the plan, three things tend to matter:
We do not provide tax advice or file returns. Our part is making sure the equipment is specified properly, delivered when you planned, and producing the output the investment was approved on.