Bonus Depreciation in 2026: A Tax Strategy for Childcare Owners

As your childcare business grows, you’ll want to take advantage of every tax incentive available to you. One of the most powerful tools for small business owners is bonus depreciation. The rules changed dramatically in 2025, and the deduction is now back to 100% for most qualifying purchases. Here’s what every Early Childhood Education business owner needs to know.

What Is Bonus Depreciation?

Bonus depreciation is a tax incentive that lets you deduct a large percentage of a qualifying asset’s cost in the year you place it in service. The rest of the cost is recovered through standard depreciation over the asset’s useful life.

For a daycare or preschool, this is a real cash-flow advantage. As a result, you reduce your taxable income in the year you make a major purchase — playground equipment, a renovation, a vehicle, or new technology. For more on smart deductions, see our guide to the top 10 tax deductions for childcare businesses.

The History of Bonus Depreciation

Congress first created this incentive through the Job Creation and Worker Assistance Act of 2002, after the September 11 attacks, to encourage small business investment.

The Tax Cuts and Jobs Act (TCJA) of 2017 expanded the rule to 100% for property placed in service from September 27, 2017 through December 31, 2022. After that, TCJA scheduled a phase-out:

• 2023 — 80%
• 2024 — 60%
• Early 2025 (before January 20) — 40%

The 2025 Reset Under OBBBA

However, the One Big Beautiful Bill Act (OBBBA), signed on July 4, 2025, changed everything. OBBBA permanently restored 100% bonus depreciation for qualifying property acquired and placed in service after January 19, 2025. The phase-out is gone.

In other words, if your childcare business buys a qualifying asset today, you can write off 100% of the cost in the same tax year. This is a meaningful planning opportunity.

Which Assets Qualify for Bonus Depreciation?

Not every business purchase is eligible. To qualify, the property generally must have a useful life of 20 years or less. The following are typical qualifying assets for a childcare business:

• MACRS property with a recovery period of 20 years or less — office furniture, classroom furniture, computers, and equipment
• Off-the-shelf computer software
• Qualified Improvement Property — interior improvements to a non-residential building you already place in service (carpet, lighting, partitions, etc.)
• Vehicles used in the business — see our guide to buying or leasing a vehicle for your daycare
• Used equipment (as long as it’s new to your business)
• Short-life components reclassified through a cost segregation study — a study can move portions of a building purchase into 5-, 7-, or 15-year property that qualifies

The IRS publishes the full rules in Publication 946, How to Depreciate Property. For specifics on the deduction itself, the IRS bonus depreciation FAQ walks through edge cases. Always work with a qualified tax professional, since each rule has its own conditions.

A Note on Cost Segregation

If you own the building your daycare operates in, a cost segregation study is one of the highest-leverage moves available to you. It identifies portions of the property — like flooring, certain electrical, and land improvements — that depreciate over 5, 7, or 15 years instead of 39. Those shorter-life components are then eligible for 100% bonus depreciation.

How to Report Bonus Depreciation on Your Tax Return

You’ll claim the deduction on Form 4562, Depreciation and Amortization. The same form handles Section 179 expensing and other depreciation methods.

The math is straightforward:

1. Bonus Depreciation Rate × Cost of Qualifying Asset = Bonus Depreciation Amount
2. Cost of Qualifying Asset − Bonus Depreciation Amount = Remaining Depreciable Basis

For example, suppose your daycare buys $50,000 of new classroom furniture and equipment in 2026:

1. 100% × $50,000 = $50,000 of bonus depreciation
2. $50,000 − $50,000 = $0 remaining basis

The full $50,000 reduces your taxable income that year. Meanwhile, for any pre-OBBBA assets placed in service in 2024 (60%) or in early 2025 before January 20 (40%), you’ll use the lower rate. Your CPA will track which rule applies.

Bonus Depreciation vs. Section 179

Both bonus depreciation and Section 179 let you write off business assets in the year of purchase. However, they have different rules.

Section 179 has annual dollar caps and can’t create a net loss — it’s limited to your business income. On the other hand, bonus depreciation has no dollar cap and can generate a net operating loss that carries forward.

For larger purchases, the deduction under bonus depreciation is often the better choice. For smaller purchases, Section 179 may be simpler. Your CPA will run both to find the optimal mix. The right choice can also depend on your business structure.

Plan Your Bonus Depreciation Strategy With Honest Buck

The deduction is a powerful tax-saving tool — but only when planned proactively. Calculating eligible costs, coordinating with cost segregation studies, and choosing between bonus depreciation and Section 179 all take strategy. Schedule a call with the experts at Honest Buck Accounting today, and let’s make sure your next big purchase delivers every tax dollar it should.