Bonus Depreciation Reference Guide

What the 2025 statute changed

Section 70301 of Public Law 119-21 amended §168(k) to provide a permanent 100 percent additional first-year depreciation deduction for qualified property acquired after January 19, 2025, and placed in service after that date. The law removed the requirement that qualified property be placed in service before January 1, 2027 (January 1, 2028, for certain longer-production-period property and certain aircraft). It replaced the annual phase-down of the applicable percentage with a 100 percent rate for those later acquisitions.

The same section amended §168(k)(10) to allow a transition election: 40 percent instead of 100 percent (60 percent for property described in §168(k)(2)(B) or (C)) for qualified property placed in service during the taxpayer’s first taxable year ending after January 19, 2025. Notice 2026-11 section 4.03 says to make that election using procedures consistent with Treas. Reg. §1.168(k)-2(f)(3), with those percentage and date substitutions, on the applicable Form 4562.

Public Law 119-21 is the reconciliation act the IRS describes as commonly known as the One, Big, Beautiful Bill Act. This page uses that IRS phrasing. It does not treat the short title as if it were the official enacting clause. Section 70434 of the same law added qualified sound recording productions to qualified property for productions commencing in taxable years ending after July 4, 2025. That addition is in the notice; it is not a building-classification rule.

What qualifies

Qualified property generally includes MACRS property with a recovery period of 20 years or less, including 5-, 7-, and 15-year components and qualified improvement property. Used property can qualify if the taxpayer (or a predecessor) did not use it before and the purchase is from an unrelated party under the §179(d) tests. Property required to use ADS, property you elect out for, and property placed in service and disposed of in the same year do not qualify.

A residential rental building (27.5 years) and a nonresidential building (39 years) are not qualified property. Their shorter-life components can be. That is the only bonus-depreciation work a cost segregation study does: it identifies the components whose statutory recovery period is short enough for §168(k) to attach. It does not convert the shell into qualified property.

Section 168(k)(7), which Public Law 119-21 did not amend, still allows an election out by class of property. Notice 2026-11 points to the Form 4562 instructions for the statement that identifies the class. Electing out of bonus depreciation for five-year property is a return-level choice. It is not made by a study vendor, and it is not made by a proposed Super Intelligence workflow.

Acquisition date, binding contracts, and self-constructed property

Property is not treated as acquired after the date a written binding contract for it was entered into. Public Law 119-21 §70301(c)(4) contains that rule. Notice 2026-11 section 3.03 tells taxpayers to apply Treas. Reg. §1.168(k)-2(b)(5) by substituting January 19, 2025, for September 27, 2017, and January 20, 2025, for September 28, 2017. A contract signed on January 15, 2025, therefore keeps the property on the prior phase-down even if closing and placed-in-service occur in 2026.

The regulation, as applied by the notice, treats the acquisition date under a written binding contract as the later of the date the contract was entered into, the date it is enforceable under state law, the end of any cancellation period, or the date contingencies are satisfied. A written binding contract is one enforceable under state law that does not limit damages to a specified amount. Those are legal tests. Have a CPA or tax attorney read the contract before assuming the 100 percent rate on a 2025 or 2026 closing.

Self-constructed property is acquired when manufacture, construction, or production of a significant nature begins. The regulation’s safe harbor, carried forward by the notice with the new dates, treats physical work of a significant nature as beginning when the taxpayer incurs or pays more than 10 percent of the total cost of the property, excluding land and preliminary activities such as planning, designing, financing, exploring, or researching. Property manufactured for the taxpayer under a written binding contract entered into before production is treated as self-constructed property under those same rules.

A taxpayer may also make a component election, under rules consistent with Treas. Reg. §1.168(k)-2(c) as date-substituted by Notice 2026-11 section 3.05, to treat certain components of a larger self-constructed property as eligible for the 100 percent rate even if construction of the larger property began before January 20, 2025. The notice requires a statement on the return. That election is not automatic, and this page does not decide whether a particular project qualifies.

Reliance, proposed regulations, and states

Notice 2026-11 is interim guidance. Section 6.02 allows reliance on sections 3 through 5 for property acquired after January 19, 2025, and placed in service in a taxable year beginning before forthcoming proposed regulations are published, but only if the taxpayer follows those sections in their entirety for all eligible property, beginning with the first year of reliance. Proposed regulations had not been located in the Federal Register when this page was written. Until they appear, the notice is the administrative text this library uses.

California does not conform to federal bonus depreciation. The 2025 Instructions for Form FTB 3885, opened on the Franchise Tax Board site, state that California law does not conform to IRC §168(k). Those instructions also state that California does not conform to the 100 percent allowance for qualified production property under §168(n) and does not conform to the enhanced federal §179 dollar limits. Other states are not listed here until confirmed on official state pages. Federal classification and state taxable income can diverge in the same year.

As-of date for this page: October 16, 2026. If a later statute, notice, or final regulation changes the rate or the acquisition rule, the tax-law update archive and the §168(k) page will carry the new date. This reference guide will be wrong the day it is copied without that check.