Qualified Property for Economic Stimulus: Bonus vs. Section 179

Qualified property for economic stimulus is business property eligible for bonus depreciation, and under the One Big Beautiful Bill Act (OBBBA) signed in 2025, qualifying assets acquired after January 19, 2025 can be written off 100% in the year they are placed in service, with no expiration date. The categories include tangible business assets with a recovery period of 20 years or less, off-the-shelf computer software, certain water utility property, qualified film, television, live theatrical, and sound recording productions, and interior improvements to nonresidential buildings. Both new and used property can qualify if you meet the acquisition rules.

What Counts as Qualified Property

Internal Revenue Code Section 168(k) defines the categories. An asset has to fit into one of them, and it has to be used in your trade or business.¹

Tangible property with a MACRS recovery period of 20 years or less. This is the largest bucket and covers most business equipment, machinery, furniture, and certain land improvements.
Computer software depreciated under Section 167(f)(1)(B), meaning off-the-shelf software. Software treated as a Section 197 intangible does not qualify.
Water utility property, which qualifies even though its normal recovery period is 25 years.
Qualified film, television, live theatrical, and sound recording productions under Section 181.

Personal-use property never qualifies, and neither does land itself, which is not depreciable. Inventory held for resale is not qualified property because it is not depreciable business-use property.

New, Used, and the Related-Party Trap

Both new and used property can qualify. Used property has extra conditions: you cannot have used the property yourself before acquiring it, your cost basis cannot be determined by reference to the seller’s adjusted basis (which knocks out like-kind exchanges, gifts, and certain tax-free transfers to the extent basis carries over), and you cannot buy from a related party or a member of the same controlled group.²

The related-party rule catches transactions people assume are routine. Buying equipment from a business owned by your spouse or parent, or from a corporation you own more than 50% of, disqualifies that purchase for bonus depreciation. The IRS tests the relationship at the time of acquisition, and for chained transactions also looks at the relationship with the original transferor.²

Acquisition date matters as much as the placed-in-service date for the 100% rate. Property must be acquired after January 19, 2025 to receive the permanent 100% deduction, and acquisition generally means the date you signed a binding written contract. A purchase agreement signed on January 15, 2025 falls under the old Tax Cuts and Jobs Act phase-down (40% for 2025 placed-in-service), even if the equipment arrives in 2026.³

Interior Building Improvements

Renovations to the inside of a nonresidential building count as qualified improvement property (QIP), a specific category with a 15-year recovery period that qualifies for bonus depreciation. Interior lighting upgrades, new flooring in a retail store, an office lobby remodel, and new HVAC, fire protection, or security systems inside a commercial building are typical examples.¹

QIP does not cover building enlargements, elevators or escalators, or the internal structural framework. Improvements made before the building itself was first placed in service also fall outside the definition. QIP is eligible for both bonus depreciation and Section 179 expensing.

Business Vehicles and the 6,000-Pound Line

Vehicles can qualify, but passenger automobiles face an annual cap on total depreciation under Section 280F. For 2026, the first-year cap for a passenger vehicle claiming bonus depreciation is $20,300. Without bonus depreciation, that first-year cap drops to $12,300.⁴

Vehicles with a gross vehicle weight rating over 6,000 pounds are exempt from the Section 280F caps, so their full cost can receive bonus depreciation. Section 179 imposes its own $32,000 cap on sport utility vehicles rated between 6,001 and 14,000 pounds GVWR, so the common planning move on a heavy SUV is a $32,000 Section 179 deduction combined with bonus depreciation on the remaining cost.⁵

Vehicles and computers used partly at home fall into a category called listed property. Listed property must be used more than 50% for business in the year placed in service to qualify for bonus depreciation or Section 179. If business use later drops to 50% or below, you have to recapture the excess depreciation as ordinary income on Form 4797 in the year the drop happens.⁶

When the Property Is “Placed in Service”

The bonus depreciation year is the year the property is placed in service, not the year you bought it or took delivery. Placed in service means ready and available for its intended use in your business. Actively running is not required; operationally ready is.

A machine bought in November that takes eight weeks to install is not placed in service until January, which pushes the deduction into the following tax year no matter when you paid for it. For year-end planning, this is the timing pitfall to watch.

Projects completed in stages follow a proportional approach. Each functional segment qualifies when that segment becomes ready for use. A manufacturing facility bringing three production lines online over 18 months claims the deduction line by line, in the corresponding tax years.

What Does Not Qualify

Section 168(k) excludes several categories even when the property otherwise looks eligible:¹

Property required to use the Alternative Depreciation System (ADS). This includes property used predominantly outside the United States, tax-exempt use property, tax-exempt bond-financed property, and certain farming property where the taxpayer elected out of the interest deduction limit. Voluntarily electing ADS also disqualifies the property.
Property used predominantly outside the United States.
Certain rate-regulated utility property.
Property with a recovery period over 20 years, including nonresidential real property (39 years) and residential rental property (27.5 years). QIP is the practical exception because its recovery period is 15 years.

Bonus Depreciation vs. Section 179

Section 179 is a separate first-year expensing provision with its own limits. For 2026, you can expense up to $2,560,000 under Section 179, with a dollar-for-dollar phaseout once total Section 179 property purchases for the year pass $4,090,000.⁵

The two work together in a set order. Section 179 comes first, up to the allowable amount. Bonus depreciation applies to whatever cost basis remains. Regular MACRS depreciation covers anything left after that.⁶

The differences that drive the choice:

Section 179 cannot create a net loss. Your deduction is capped at your aggregate business taxable income. Bonus depreciation has no income limit and can create or increase a net operating loss that carries forward.⁷
Section 179 has an annual dollar cap. Bonus depreciation has none.
Section 179 lets you pick specific assets to expense. Bonus depreciation applies automatically to every qualifying asset in a class unless you elect out for the whole class.

Section 179’s selectivity tends to suit smaller businesses that want to target specific purchases. Larger firms making capital investments well above the Section 179 cap generally lean on bonus depreciation because it has no ceiling.

Electing Out

Bonus depreciation is automatic. To decline it, you have to make an affirmative election, and the election applies to an entire class of property placed in service that year. Individual assets within a class cannot be cherry-picked out. You file the election statement with Form 4562 by the due date of your federal return, including extensions.⁸

Reasons to consider electing out include expiring tax credits that need taxable income to absorb them, expecting higher marginal rates in future years, or wanting to avoid a net operating loss you cannot use efficiently. There is also a special transition option: for property placed in service in the first tax year ending after January 19, 2025, the OBBBA lets you elect the old TCJA 40% rate instead of 100%.³

Electing out of bonus for a class does not block Section 179 on individual assets in that class, subject to Section 179’s own limits, and regular MACRS covers the rest.

What Happens If You Sell Later

Writing off 100% in year one lowers your adjusted basis to zero. When you later dispose of the asset, the gain attributable to depreciation you took is taxed as ordinary income under Section 1245 depreciation recapture, not at capital gains rates.⁹

Concretely: buy a $200,000 machine, write off the full cost in year one, and sell it three years later for $80,000. The entire $80,000 is ordinary income because it is all attributable to prior depreciation. If you had depreciated the asset over its normal recovery period, your basis at sale would have been higher and the recapture amount smaller.

The recapture applies regardless of holding period. Gifts and transfers at death are excepted; sales, exchanges, and involuntary conversions trigger it.⁹ The trade-off is a real one worth pricing into any purchase you might sell within a few years.

1
Office of the Law Revision Counsel. 26 U.S. Code 168 – Accelerated Cost Recovery System
2
eCFR. 26 CFR 1.168(k)-2 – Additional First Year Depreciation Deduction
3
Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One Big Beautiful Bill
4
Internal Revenue Service. Rev. Proc. 2026-15
5
Internal Revenue Service. Rev. Proc. 2025-32
6
Internal Revenue Service. Instructions for Form 4562
7
Office of the Law Revision Counsel. 26 U.S. Code 179 – Election to Expense Certain Depreciable Business Assets
8
Internal Revenue Service. Additional First Year Depreciation Deduction (Bonus) – FAQ
9
Office of the Law Revision Counsel. 26 U.S. Code 1245 – Gain From Dispositions of Certain Depreciable Property