The Tax Foundation recently released its "2026 Capital Cost Recovery in the OECD" update, comparing how well OECD member countries allow businesses to recover the cost of investments in equipment, structures, and intangible assets through depreciation. The report notes that in 2025 the United States made full expensing of machinery and equipment permanent, while also introducing temporary full expensing for industrial structures. For Chinese clients in Austin who run restaurants, clinics, retail stores, or small manufacturing businesses and need to purchase equipment or commercial real estate, this change directly affects whether they can deduct the full cost of equipment purchases or store renovations in a single year in the coming years — which in turn affects cash flow planning and investment timing.
What Capital Cost Recovery and Full Expensing Actually Mean
Simply put, when a business buys long-term assets such as machinery, structures, or software, tax law generally does not allow the full cost to be deducted from income in the year of purchase. Instead, the cost must be deducted gradually over several years according to a depreciation schedule. The amount that can be deducted each year is called a capital allowance. If a business can deduct the entire cost in the year of purchase, this is called full expensing. In theory, full expensing is most favorable for businesses because it allows tax savings to be realized sooner, reduces cash flow pressure, and encourages greater investment.
According to the report, OECD countries on average allow businesses to recover only 70.1% of the real value of their investment costs. Equipment performs best, with an average recovery rate of 86%, followed by intangible assets at 78.2%, while industrial structures perform worst at just 50.3%. Estonia and Latvia have already achieved 100% full expensing, while Chile stands at only 48.4% and New Zealand at 49.1%. This shows that tax systems vary widely in how much support they provide for different asset types — the tax benefits businesses receive for purchasing equipment versus constructing a building are quite different.
What the U.S. Policy Change Actually Means for Chinese Business Owners in Austin
The report specifically notes that in 2025 the United States made full expensing of machinery and equipment permanent. This means that when businesses purchase kitchen equipment, production lines, office computers, delivery vehicles, and similar assets, they will most likely continue to be able to deduct the full cost in the year of purchase going forward, without worrying about the policy expiring at any moment — providing a degree of certainty for long-term investment decisions. At the same time, the United States has also introduced temporary full expensing for industrial structures. For Chinese business owners planning to build or renovate factories, warehouses, or commercial properties, this is a window of opportunity worth paying attention to. Because it is a temporary measure, whether and how it will continue depends on the specific business and asset type, and should be planned for in advance — not something to ask your accountant about only after the renovation is finished.
For many Chinese-owned small businesses structured as partnerships or S corporations, depreciation deductions for equipment and structures ultimately flow through to the owners' personal tax returns and directly affect taxable income for the year. These structural issues are often intertwined with immigration status and filing procedures, so before making a large asset purchase, it's a good idea to first clarify your own filing approach. You can refer to our Chinese Tax Filing Guide to avoid missing a tax deduction window due to unfamiliarity with the rules.
In an Inflationary Environment, Cross-Border Business Owners Should Stay Extra Alert
The report uses a specific calculation to illustrate the damaging effect of inflation: if the inflation rate rises from 2% to the 2025 OECD average of 3.6%, the real value of the investment costs a business can recover could drop by as much as 3.9 percentage points. This is because depreciation deductions are realized gradually over several years, and the higher the inflation rate, the less valuable those future deductions are worth in today's dollars. The report also notes that among OECD countries, only Mexico, Israel, and Chile currently adjust capital allowances for inflation — the United States is not among them, meaning depreciation deductions for U.S. businesses are likewise eroded by inflation.
For many Chinese clients who run businesses in Austin while still maintaining assets or business ties with mainland China or other regions, this is a reminder that when making major capital expenditure decisions such as equipment purchases or facility renovations, it's not enough to look only at current tax rates — inflation expectations and the depreciation speed of different asset categories should also be factored in. This kind of cross-jurisdiction, cross-category tax planning is often more complex than simply filing a return, so it's advisable to consult a professional in advance. You can also follow our Tax Insights column for ongoing updates and analysis.
YZ CPA Note
YZ CPA reminds our Chinese clients in Austin that if your business is planning to purchase equipment or vehicles, or renovate commercial property in the near future, it's best to talk with an Austin Chinese CPA before taking action, so that asset type, purchase timing, and your own filing status can be planned together as a whole — rather than trying to fix things after the transaction is already done. This is especially important because full expensing for industrial structures is a temporary policy, so timing needs to be calculated in advance. Inflation's erosion of future tax deduction value should also be factored into your regular cash flow forecasts. Specific applicable rules and amounts are subject to the latest guidance published on the IRS website, and we will continue to track further developments and provide case-by-case analysis for our clients.
For professional tax assistance, please visit the YZ CPA Services page or contact us.