What Qualifies for Accelerated Depreciation and What Doesn’t

Accelerated depreciation is available for most tangible business property with a useful life beyond one year: equipment, furniture, business vehicles, interior improvements to nonresidential buildings, off-the-shelf software, and similar assets you own and use in a trade or business. The two tools that do the accelerating are Section 179 expensing (up to $2,560,000 for 2026) and bonus depreciation under Section 168(k), which the One, Big, Beautiful Bill permanently restored to 100% for property acquired after January 19, 2025. What doesn’t qualify: land, inventory, most intangibles acquired with a business, and anything used 50% or less for business purposes.

The Baseline Conditions Every Asset Must Meet

Before any accelerated method comes into play, the asset has to be depreciable at all. Three conditions apply. You must own the property or hold the equivalent economic interest in it. You must use it in a trade or business or hold it for the production of income. And it must have a useful life extending substantially beyond the year you place it in service.¹ Items consumed within a single year are ordinary business expenses, not depreciable assets.

The property also has to be something that wears out, decays, or loses value with use. The tax code phrases it as “exhaustion, wear and tear, and obsolescence,” which is a formal way of saying the asset can’t last forever.² If an asset is used partly for business and partly for personal reasons, only the business-use percentage is depreciable.

Equipment, Furniture, and Other Tangible Personal Property

Tangible personal property is the broadest qualifying category. It covers movable physical goods used in your trade or business: office desks, printing presses, manufacturing equipment, shelving, warehouse storage systems, and similar items. These assets qualify for both Section 179 immediate expensing and bonus depreciation under Section 168(k).³ Under the standard MACRS framework most equipment falls into 5-year or 7-year recovery periods, but the accelerated methods let you front-load or fully deduct those costs in year one.

The technical label is Section 1245 property, which broadly means tangible depreciable property that isn’t a building or its structural components. If the item wears down through business use and you can put your hands on it, it almost certainly qualifies.

De Minimis Safe Harbor for Low-Cost Items

Not every purchase needs to run through the depreciation system. The de minimis safe harbor lets you immediately expense tangible items costing $5,000 or less per invoice if you have audited financial statements, or $2,500 or less if you don’t.⁴ You make the election annually on your tax return, and it applies per invoice or per item as substantiated by the invoice. This keeps small tools, replacement parts, and inexpensive electronics off the depreciation schedule entirely.

Business Vehicles

Vehicles qualify, but the rules split sharply by weight. The tax code defines a “passenger automobile” as a four-wheeled vehicle made primarily for use on public roads that is rated at 6,000 pounds unloaded gross vehicle weight or less (gross vehicle weight for trucks and vans).⁵ Vehicles at or under that weight are subject to annual “luxury auto” depreciation caps that limit the deduction regardless of the vehicle’s cost. For passenger automobiles placed in service during 2025, the maximum first-year deduction is $20,200 with bonus depreciation or $12,200 without it. The IRS adjusts these amounts each year.

Vehicles above the 6,000-pound threshold escape the passenger-auto caps. Heavy SUVs, full-size pickups, and cargo vans in that weight class can take full bonus depreciation. One narrow limit still applies: the Section 179 deduction on a sport utility vehicle is capped at $32,000 for 2026, even though the general Section 179 limit is far higher. Bonus depreciation has no SUV-specific cap, which is why owners often combine the two on a qualifying heavy vehicle. Bulldozers, cranes, tractors, and other non-passenger heavy equipment face no passenger-vehicle restrictions at all.

The 50% Business-Use Rule

A vehicle or other “listed property” must be used more than 50% for qualified business purposes to claim accelerated depreciation. If business use falls to 50% or below in any year during the recovery period, you must switch to the slower alternative depreciation system going forward and recapture (include in income) any excess depreciation claimed in earlier years.⁵

Substantiation is strict. You need contemporaneous records showing the date, business purpose, and mileage for each business use. A mileage log kept weekly generally meets the IRS standard. Trying to reconstruct records at audit time is a losing strategy.¹

Interior Improvements to Nonresidential Buildings

Qualified improvement property (QIP) covers interior upgrades to an existing nonresidential building, such as retail stores, offices, or restaurants. The improvement must be made after the building was first placed in service. QIP gets a 15-year MACRS recovery period and qualifies for bonus depreciation, making it one of the more favorable categories for commercial landlords and tenants renovating leased space.⁶

QIP has three hard exclusions. It does not include any expenditure for enlarging the building, installing elevators or escalators, or modifying the building’s internal structural framework.⁷ Changes to the footprint, vertical reach, or skeleton of the building don’t qualify. Interior work like new drywall, flooring, lighting, plumbing fixtures, and interior doors is the target.

Roofs, HVAC, Fire, and Security Systems

Certain building systems don’t fit inside QIP but still get accelerated treatment through Section 179. Roofs, heating and air conditioning systems, fire protection and alarm systems, and security systems for nonresidential buildings are all eligible for immediate expensing. The One, Big, Beautiful Bill made this permanent, so a business replacing a $70,000 HVAC unit or putting on a new roof can deduct the full cost in the year the system goes into service rather than depreciating it over 39 years.³ Tenants who pay for these improvements in leased nonresidential space can also claim the deduction.

Off-the-Shelf Computer Software

Software qualifies for accelerated treatment if it meets three tests: it must be readily available for purchase by the general public, subject to a nonexclusive license, and not substantially modified for you.¹ Standard business applications, accounting programs, and design tools all fit. Qualifying software can be depreciated straight-line over 36 months, expensed under Section 179, or claimed under bonus depreciation.³

Custom software built to your specifications is treated differently. If it’s acquired as part of buying a business, it falls under Section 197 with a 15-year amortization and no acceleration. Short-term subscriptions that renew annually are generally deductible as ordinary business expenses rather than depreciated.

What Does Not Qualify

Some categories are permanently outside the accelerated depreciation system. Land cannot be depreciated because it doesn’t wear out, become obsolete, or get used up, and that remains true even when you clear, grade, or landscape it. Inventory is excluded because you hold it for sale to customers rather than for ongoing use in your business.¹ Property that the statute places under the alternative depreciation system, such as certain assets used predominantly outside the United States, cannot take bonus depreciation.⁸

Intangible assets acquired as part of buying a business typically fall under Section 197, which requires 15-year amortization and doesn’t allow accelerated write-offs. Goodwill, customer lists, and patents acquired in a business purchase all land here. Off-the-shelf software is the major carve-out. Property used solely for personal purposes that don’t generate taxable income doesn’t qualify either.

How the Two Accelerated Tools Differ

Section 179 lets you deduct the entire cost of qualifying property in the year you place it in service. For 2026, the maximum deduction is $2,560,000. That cap phases out dollar-for-dollar once the total cost of qualifying property placed in service during the year exceeds $4,090,000, and disappears entirely at $6,650,000. Eligible property includes tangible personal property, off-the-shelf software, and qualified real property like roofs and HVAC systems.³ Section 179 deductions cannot exceed your taxable income from the active conduct of your business; unused amounts carry forward.

Bonus depreciation works differently. It applies automatically to qualified property unless you elect out, has no dollar cap, and isn’t limited by business income. Qualified property generally includes MACRS assets with a recovery period of 20 years or less, off-the-shelf software, water utility property, and certain plants.⁸ The property must be new to you, though it doesn’t have to be brand-new from the factory.

The 100% Restoration and Acquisition Timing

Bonus depreciation had been phasing down under the original Tax Cuts and Jobs Act schedule: 80% in 2023, 60% in 2024, and it was set to drop further. The One, Big, Beautiful Bill permanently restored the rate to 100% for qualified property acquired after January 19, 2025.⁹

Property acquired before January 20, 2025 still runs on the old phase-down. Placed in service in 2025, it gets 40%; placed in service in 2026, 20%; placed in service after 2026, nothing.¹⁰ Because acquisition date is what governs, the same asset can be a 20% write-off or a 100% write-off depending on when you signed the purchase paperwork.

Recapture When You Sell

Qualifying for accelerated depreciation gives you larger deductions up front, but the IRS reclaims some of the benefit at sale. For tangible personal property, when you sell equipment or a vehicle for more than its adjusted basis, the gain attributable to prior depreciation is taxed as ordinary income rather than at capital gains rates. The recapture equals the lesser of the total gain or the total depreciation claimed. Take a $100,000 Section 179 deduction on a machine and sell it later for $40,000, and the full $40,000 gain is ordinary income.¹¹

Real property follows a lighter rule. For Section 1250 property, only “additional depreciation” above what straight-line would have produced is recaptured as ordinary income, and most post-1986 real property uses straight-line anyway.¹² The remaining gain on depreciable real property is typically taxed at 25%, still above the long-term capital gains rate most taxpayers pay on other investments.

Check Your State Before Assuming the Federal Treatment Applies

Federal eligibility doesn’t guarantee the same treatment on your state return. A significant number of states decouple from federal bonus depreciation, requiring an add-back and slower recovery for state tax purposes. Some cap their Section 179 deduction well below the federal limit. If you operate in more than one state, the mismatch can create tracking headaches and unexpected state liabilities, so confirm your state’s current conformity status before assuming a federal write-off flows through.

1
Internal Revenue Service. Publication 946 (2024), How To Depreciate Property
2
Office of the Law Revision Counsel. 26 USC 167 – Depreciation
3
Office of the Law Revision Counsel. 26 USC 179 – Election to Expense Certain Depreciable Business Assets
4
Internal Revenue Service. Tangible Property Final Regulations
5
Office of the Law Revision Counsel. 26 US Code 280F – Limitation on Depreciation for Luxury Automobiles
6
IRS.gov. Rev. Proc. 2020-25
7
Legal Information Institute. 26 USC 168(e)(6) – Qualified Improvement Property Definition
8
Office of the Law Revision Counsel. 26 USC 168 – Accelerated Cost Recovery System
9
Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One, Big, Beautiful Bill
10
Office of the Law Revision Counsel. 26 US Code 168 – Accelerated Cost Recovery System
11
Office of the Law Revision Counsel. 26 US Code 1245 – Gain from Dispositions of Certain Depreciable Property
12
Office of the Law Revision Counsel. 26 US Code 1250 – Gain from Dispositions of Certain Depreciable Realty