What Property Qualifies for Bonus Depreciation: Classes and Exclusions

Business property qualifies for bonus depreciation when it has a MACRS recovery period of 20 years or less, is used more than 50% for business, and isn’t carved out by one of the statutory exclusions. That covers machinery, office furniture, computers, off-the-shelf software, vehicles, farm equipment, land improvements, and interior renovations to commercial buildings. Used property counts too, as long as it’s new to you and bought from an unrelated seller. For qualifying property acquired after January 19, 2025, the One Big Beautiful Bill Act restored the first-year deduction to 100% on a permanent basis.¹

Property acquired before January 20, 2025, keeps the phase-down rate that applied when it was placed in service. An asset placed in service in 2024 at 60% doesn’t get bumped back up.²

The 20-Year Recovery Period Test

The core eligibility rule sits in Section 168: the property must have a MACRS recovery period of 20 years or less.³ MACRS groups assets into standardized classes based on how fast they wear out or become obsolete, and the IRS assigns each class a fixed recovery period.

Two big categories fall outside the window: residential rental buildings, which have a 27.5-year recovery period, and nonresidential commercial buildings, at 39 years. The structures themselves don’t depreciate fast enough. Interior work inside those buildings is a different story, and it’s covered further down.

Property Classes That Qualify

Most business assets land in one of these MACRS classes, all of which meet the 20-year threshold:

3-year property: certain specialized manufacturing tools, tractors used for over-the-road hauling, and some breeding livestock.
5-year property: computers and peripherals, copiers, vehicles, appliances, carpeting, and most general-purpose research equipment.
7-year property: office furniture and fixtures, agricultural machinery, railroad track, and assets in most manufacturing and service industries without a more specific classification.
10-year property: water vessels, barges, single-purpose agricultural structures, and certain food-processing equipment.
15-year property: land improvements like fencing, parking lots, sidewalks, and landscaping. Qualified improvement property and retail motor fuels outlets also sit here.
20-year property: farm buildings other than single-purpose structures, municipal sewers placed in service after 2004, and certain railroad structures.

The 7-year class is where most small business assets end up. If you’re not sure where a specific piece of equipment falls, IRS Publication 946 has detailed tables organized by industry.

Qualified Improvement Property

Qualified improvement property covers interior renovations to an existing nonresidential building after that building was first placed in service by any owner. New flooring, upgraded lighting, interior painting, new interior walls, and similar work all count. It’s 15-year property, which puts it inside the bonus depreciation window.⁴ For commercial tenants and building owners who spend heavily on interior build-outs, this is one of the more valuable categories.

Three types of work are excluded regardless of cost:

Enlarging the building. Adding square footage isn’t an interior improvement.
Elevators and escalators. Installing or replacing vertical transportation systems is carved out.
Structural framework changes. Modifications to load-bearing walls, columns, or similar structural components don’t qualify.

Off-the-Shelf Software

Software qualifies if it’s readily available for purchase by the general public and is used without substantial customization.⁵ Operating systems, productivity suites, accounting packages, and design software all fit. Its normal recovery is 36 months straight-line, but at 100% bonus, you deduct the full cost in year one.

Custom software developed for your business by an outside contractor, or built in-house, doesn’t meet the general-public test and is amortized separately over 36 months. When a business licenses a standard platform and then pays for heavy customization, the base license may qualify while the customization work may not.

Vehicles

Vehicles are eligible, but a separate set of dollar caps limits how much you actually deduct in year one, and the caps depend on weight.

Passenger Vehicles Under 6,000 Pounds

Cars, small trucks, and crossovers with a gross vehicle weight rating under 6,000 pounds hit the Section 280F luxury automobile limits. For vehicles placed in service in 2026, the maximum first-year deduction including bonus depreciation is $20,300. Without bonus depreciation the first-year cap is $12,300. The cap applies regardless of purchase price, so a $55,000 sedan gets the same first-year write-off as a $35,000 one.

Heavy Vehicles Over 6,000 Pounds

SUVs, pickups, and vans with a GVWR above 6,000 pounds sidestep the Section 280F caps. With 100% bonus depreciation restored, the full business-use portion of a heavy vehicle’s cost is deductible in year one. One wrinkle: heavy SUVs built on a truck chassis but designed primarily for passengers face a separate $32,000 Section 179 cap if you use Section 179 rather than bonus depreciation. Dedicated work trucks and cargo vans don’t hit that SUV-specific limit.

The 50% Business Use Rule

Any vehicle claiming bonus depreciation must be used more than 50% for business.³ Drop to 50% or below in a later year and the IRS recaptures the excess depreciation as ordinary income. The deduction is always calculated on the business-use percentage, not the full purchase price. A $60,000 truck used 75% for business generates a deduction based on $45,000.

Used Property

Bonus depreciation covers used property as well as new, provided the buyer meets a short list of conditions.⁶ The ones that most often trip people up:

New to you. You (or a predecessor) can’t have used the property at any time before acquiring it. Buying back equipment you previously sold and leased doesn’t qualify.
Unrelated seller. The purchase can’t come from a related party, meaning family members (spouse, ancestors, lineal descendants) or members of the same controlled group of businesses.
Cost basis not inherited. Your basis can’t be determined by reference to the seller’s basis or acquired from a decedent under stepped-up basis rules.

A landscaping company buying a three-year-old excavator from an unrelated dealer gets the same 100% first-year deduction as if the machine were new. The asset still has to clear the 20-year recovery period rule; buying a used commercial building doesn’t turn it into eligible property.³

Property That Does Not Qualify

Even with a recovery period of 20 years or less, some categories are excluded by statute:

Alternative Depreciation System property. Assets required to use ADS don’t qualify. That includes property used predominantly outside the United States, tax-exempt use property leased to a tax-exempt entity, and property financed with tax-exempt bonds.³
Regulated public utility property, where the utility doesn’t apply a normalization method of accounting.
Floor plan financing property. Businesses that carry floor plan financing debt (common in auto dealerships) and deduct the related interest can’t claim bonus depreciation on the financed inventory or related property.³
Listed property used 50% or less for business. It must be depreciated under ADS, which knocks out bonus eligibility.
Electing real property trades or businesses. Companies that elect out of the Section 163(j) business interest deduction limit must depreciate real property, including qualified improvement property, under ADS.

Electing farming businesses that opt out of the interest deduction limit face a similar tradeoff: assets with recovery periods of 10 years or more must use ADS, which removes them from bonus depreciation eligibility.

How to Claim It or Elect Out

Bonus depreciation applies automatically to all eligible property. There’s no election required to claim it. You report the deduction on Form 4562, with the special depreciation allowance for non-listed property on Line 14 and listed property like vehicles on Line 25.⁷

To opt out (some businesses prefer to spread deductions rather than front-load them), attach a statement to your timely filed return, including extensions, identifying the class of property and stating that you won’t claim the special depreciation allowance on that class. The election is class-wide; you can’t pick specific assets within a class.⁷ If you missed it, you can still opt out on an amended return filed within six months of the original due date (not counting extensions), with “Filed pursuant to section 301.9100-2” written on the return. Once made, the election is irrevocable without IRS consent.

State Conformity

The federal deduction doesn’t automatically flow through to state returns. Many states either don’t conform to federal bonus depreciation or impose their own limits, and some still tie to an older version of the Internal Revenue Code that predates the 100% restoration. You may need to add back some or all of the federal deduction on the state return and depreciate the asset over its standard recovery period for state purposes. If your business operates in more than one state, check each state’s conformity rules before assuming the federal treatment carries.

1
Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One Big Beautiful Bill
2
Internal Revenue Service. Notice 2026-11 – Interim Guidance on Additional First Year Depreciation Deduction Under Section 168(k)
3
Office of the Law Revision Counsel. 26 USC 168 – Accelerated Cost Recovery System
4
Internal Revenue Service. Rev. Proc. 2020-25
5
Legal Information Institute. 26 USC 167(f)(1) – Depreciation of Computer Software
6
Internal Revenue Service. Additional First Year Depreciation Deduction (Bonus) – FAQ
7
Internal Revenue Service. Instructions for Form 4562