Bonus Depreciation Eligibility
Which property qualifies for bonus depreciation under §168(k), including used property, and what is excluded. Eligibility and the applicable rate are separate questions. As of October 16, 2026, 100 percent applies only after January 19, 2025. Educational information, not tax advice.
Educational information, not tax advice.
Updated 2026-10-14
Key takeaways
- Qualified property generally means MACRS property with a recovery period of 20 years or less, plus listed software, water utility, and specified productions.
- Used property qualifies only if the taxpayer did not use it before and it is acquired by purchase from an unrelated party.
- Property required to use ADS, and property you elect out for, does not qualify.
- 27.5- and 39-year buildings are not qualified property; 15-year QIP and land improvements can be.
- As of October 16, 2026, the rate is 100% for qualified property acquired after January 19, 2025.
Under §168(k)(2), qualified property includes MACRS property with a recovery period of 20 years or less, certain computer software, water utility property, and qualified film, television, live theatrical, and — after Public Law 119-21 — sound recording productions. In a cost segregation study, 5-, 7-, and 15-year components and qualified improvement property are generally within that recovery-period ceiling. Buildings with 27.5- or 39-year periods are not.
Property can be new or used. Used property must not have been used by the taxpayer or a predecessor before the acquisition and must meet the purchase requirements of §179(d)(2) and (d)(3). Treas. Reg. §1.168(k)-2(b)(3)(iii) implements those used-property tests. Related-party and carryover-basis acquisitions fail the purchase definition.
Publication 946 lists exclusions including property placed in service and disposed of in the same year, property converted to personal use in the year acquired, property required to use ADS (including listed property used 50 percent or less for business), property for which an election out was made, and certain property of businesses excluded under §168(k)(9) for tax years beginning after December 31, 2017.
Eligibility and rate are separate questions. As of October 16, 2026, the rate is 100 percent for qualified property acquired after January 19, 2025, and the phase-down rate for property acquired after September 27, 2017 and before January 20, 2025. A used machine acquired in 2026 can be eligible and take 100 percent. A used machine acquired under a 2024 binding contract can be eligible and still take the phase-down rate for the year it is placed in service.
This page is educational information, not tax advice. Whether a particular component is qualified property is a CPA determination. This page does not conclude that any reader’s asset qualifies.
Recovery-period ceiling
The 20-year-or-less ceiling is why cost segregation and bonus depreciation interact. Reclassifying a lighting package from the 39-year building to 5-year or 7-year property can bring that basis inside qualified property, if the classification is correct and no other exclusion applies.
Fifteen-year land improvements and 15-year QIP are within the ceiling. They are not automatically qualified. ADS-required QIP, for example the QIP of an electing real property trade or business, is excluded because ADS is required.
Water utility property has a 25-year GDS period but is listed separately as qualified property. Do not generalize that exception to other 25-year or longer classes.
Used property and related parties
After 2017, original use with the taxpayer is not required. The used-property rule is now §168(k)(2)(E)(i). Public Law 119-21 removed a paragraph and renumbered the rest. Older articles that cite (E)(ii) for this rule are using the prior numbering.
“Purchase” for this purpose is the §179(d)(2) definition: not from a person whose relationship would disallow losses under §267 or §707(b) (family limited to spouse, ancestors, and lineal descendants), not between members of the same controlled group using a more-than-50-percent test, and not with carryover basis or a §1014 basis from a decedent.
A cost segregation study does not override those acquisition rules. Reclassifying a building bought from a parent company does not make the used personal property bonus-eligible if the purchase test fails. See the related-party page.
ADS and elections out
Property required to use the alternative depreciation system is not qualified property. That includes property used predominantly outside the United States, certain tax-exempt use and tax-exempt bond-financed property, and the real property and QIP of an electing real property trade or business under §168(g)(8).
A voluntary ADS election under §168(g)(7) likewise takes the class or the real-property asset out of bonus. That election is irrevocable.
A class-by-class election out under §168(k)(7) is a different switch. It leaves GDS in place and forgoes only the additional first-year allowance for that class for that year.
Citation and rate notes
Public Law 119-21 removed a paragraph of §168(k)(2)(E) and renumbered the rest. Confirm citations against a post-2025 text of §168.
Notice 2026-11 is interim guidance. Taxpayers relying on it must follow sections 3 through 5 in their entirety. Proposed regulations (RIN 1545-BR95) had not been published as of October 16, 2026.
Qualified production property under §168(n) is a separate elective allowance, not a §168(k) qualified-property category. Do not treat a factory shell as bonus-eligible 39-year property. Discuss any §168(n) election with a CPA. This page reaches no eligibility conclusion on QPP.
Sources
- 1
- 2
- 3IRS Publication 946 — How To Depreciate Property (2025)(opens in a new tab)
Appendix B reproduces the Rev. Proc. 87-56 class lives.
- 4
- 5Public Law 119-21 (July 4, 2025), §§70301, 70306, 70307(opens in a new tab)
The 2025 reconciliation law, which the IRS describes as commonly known as the One, Big, Beautiful Bill Act.