Every October a client asks the same question: "I heard we can write off equipment in full if we buy it before year-end. Is there still time?" This year half of that is right: federal 100% bonus depreciation is back, and it is permanent. The other half depends on which states the company pays income tax in, who it buys the equipment from, and whether it actually has profit this year. Here are the five things to check, in order.
1. Federal: 100% is back, but only two dates matter
The tax law signed July 4, 2025 (P.L. 119-21, commonly called the OBBBA) amended §168(k): the additional first-year depreciation percentage for qualified property is restored to 100% with no sunset. The conditions are that the property is acquired after January 19, 2025 and placed in service after that date. Property acquired on or before that date stays on the old phase-down: 40% if placed in service in 2025, 20% in 2026. IRS Notice 2026-11, issued in January 2026, is the interim guidance taxpayers may rely on until regulations are proposed.
The acquisition date is not the payment date or the delivery date. Under section 2.03 of Notice 2026-11, property acquired under a written binding contract is treated as acquired on the latest of the contract date, the date it becomes enforceable under state law, the end of any cancellation period, and the date any contingencies are satisfied. Self-constructed property is acquired when physical work of a significant nature begins, or under a safe harbor once more than 10% of total cost is paid or incurred. A non-cancellable order signed before January 19, 2025 only gets 40% or 20% even if the machine arrives in 2026.
The placed-in-service date decides which year gets the deduction. The asset must be ready and available for its intended use by the end of the tax year: installed, commissioned, able to run. Equipment that is fully paid for but still on the water, or sitting in the plant without power, is not placed in service in 2026. This is the most common mistake in year-end purchasing.
- Both acquisition and placed-in-service must be after January 19, 2025 for 100%
- Binding contracts signed on or before that date stay on the old schedule (40% in 2025, 20% in 2026)
- "Available for use" by December 31, not "paid for" or "delivered"
- Keep installation sign-offs and first-run logs as placed-in-service evidence
2. Section 179 and bonus depreciation are not the same thing
Owners often call any full write-off "Section 179," but federal law has two separate regimes. §179 is an election with dollar limits: under section 4.24 of Rev. Proc. 2025-32, for tax years beginning in 2026 a taxpayer may expense up to $2,560,000, reduced dollar for dollar once §179 property placed in service in the year exceeds $4,090,000; heavy SUVs are capped separately at $32,000. §179 also cannot exceed the year's active business income, so it is unavailable in a loss year and the excess carries forward.
§168(k) bonus has no dollar cap and no income limit: it can create a loss, and that loss becomes a net operating loss carryforward. The ordering is §179 first, bonus on the remaining basis. For most Chinese-owned subsidiaries, with equipment spend in the hundreds of thousands to a few million dollars, the §179 cap is not binding; the practical differences show up in state treatment and in whether the company wants to keep some basis for later years.
- §179: $2,560,000 for 2026, phasing out above $4,090,000, cannot create a loss
- Bonus: no cap, can create a loss, applied by asset class (100%, or elect out by class)
- Both apply by class of property, not machine by machine
- Used property qualifies federally under both, subject to the related-party rule in section 4
3. States do not necessarily follow: Florida decoupled this year, California and New York never conformed
A federal 100% deduction does not mean a 100% deduction on the state return. Florida HB 7031 (Ch. 2026-137), signed June 11, 2026, moved the state's IRC conformity date to January 1, 2026 but froze five provisions at their January 1, 2025 text: §168(k), §179, §174(a), §163(j) and §274, so the OBBBA changes to those sections do not apply. The Department of Revenue's TIP 26C01-01 of July 7, 2026 is explicit: bonus depreciation claimed federally is added back on Form F-1120 and subtracted one-seventh per year over seven years beginning in the year of the addback; §179 is computed at the pre-OBBBA cap with an adjustment for the difference; and §168(n) 100% expensing for qualified production property is not allowed either — those assets are depreciated under §§167 and 168. A pro forma federal return recomputed on the Florida basis must be attached.
California has never adopted §168(k). Its corporate §179 limit is $25,000, phasing out above $200,000 of §179 property, with only a small state additional first-year deduction capped at $2,000. New York likewise disallows the federal special depreciation deduction for Article 9-A corporations (Form CT-399 instructions) and requires a separate state depreciation computation under IRC §167. Texas has no income tax, but the franchise tax cost-of-goods-sold deduction has its own rules. The result: on a $1,000,000 machine the federal return deducts $1,000,000 in year one, Florida deducts roughly $143,000, California deducts normal MACRS, and the company maintains two or three fixed-asset schedules.
| Jurisdiction | §168(k) 100% bonus | §179 | Mechanics |
|---|---|---|---|
| Federal | Allowed, permanent | $2,560,000 for 2026 | Form 4562 |
| Florida | Not allowed (HB 7031, June 2026) | Pre-OBBBA cap as of Jan. 1, 2025 | Add back on F-1120, deduct over 7 years; attach pro forma federal return |
| California | Not allowed | $25,000 | Separate state depreciation on FTB 3885 |
| New York State | Not allowed (Article 9-A) | Generally follows federal | Separate state depreciation on CT-399 |
- Confirm every state where the company pays income tax before deciding how much to buy and when
- Florida: addback plus seven-year subtraction, pro forma federal return, no §168(n)
- California: no bonus, §179 capped at $25,000
- The fixed-asset register needs at least federal and state depreciation columns
4. Buying from the Chinese parent: new qualifies, used does not, and everything goes on Form 5472
The most common pattern for Chinese-owned companies is to ship machines out of the parent's factory to the U.S., or to have the parent buy the equipment and transfer it to the subsidiary. A federal rule is routinely missed here: used property qualifies for bonus only if it meets the §179(d)(2) tests incorporated by §168(k)(2)(E)(ii) — it must not be acquired from a related person, must not come from a member of the same controlled group, and its basis must not be determined by reference to the transferor's basis. A parent that owns more than 50% of the subsidiary is a related person. Equipment the parent has used and then transfers to the subsidiary gets neither bonus nor §179 federally; it is depreciated over its normal recovery period.
New, never-used equipment that the parent manufactured and sells to the subsidiary is different: the subsidiary is the original user and 100% can apply. The price must hold up under transfer pricing rules, because the sale is a reportable related-party transaction in Part IV of Form 5472, and a missing or incorrect 5472 carries a penalty starting at $25,000. The asset's tax basis also includes import duties, ocean freight, insurance and installation and commissioning costs; these are capitalized into the equipment and depreciated with it, not expensed separately. A company that received IEEPA tariff refunds in 2026 reduces the basis of the related equipment accordingly.
- Equipment the parent has used: no federal bonus, no §179
- New, unused equipment built by the parent: eligible, with an arm's-length price and transfer pricing support
- Parent-paid, subsidiary-owned: classify the funding as capital, loan or intercompany before booking
- Capitalize duties, freight and installation; report every related-party purchase on Form 5472
5. Whether to use 100%: a loss-year subsidiary may not want it
A 100% deduction is a right, not an obligation. A subsidiary two or three years old and still in a loss position only makes the loss bigger by expensing this year's equipment: under §172 an NOL carries forward indefinitely, but it can offset at most 80% of taxable income in any later year, so some tax is still paid when profits arrive. More importantly, in a decoupling state like Florida the federal bonus is added back, and a year that is a loss federally can show taxable income at the state level.
There are two tools. First, elect out of bonus by class of property and depreciate over the normal recovery period, preserving deductions for profitable years. Second, for the tax year that includes January 20, 2025, amended §168(k)(10) allows an election to take 40% (60% for certain longer production period property and aircraft) instead of 100%, by attaching a statement to Form 4562. Both elections must be made on a timely filed return and cannot be made late. Run a three-to-five-year taxable income projection before the year-end purchase, then decide how much to deduct.
- In a loss year, 100% bonus only enlarges an NOL that offsets 80% of future income per year
- Elect out by class, or elect 40% in the first applicable year
- Elections go on the timely filed return
- In a decoupling state, a federal loss is not a state loss
