What Qualifies for Bonus Depreciation: Assets and Conditions

Bonus depreciation lets a business deduct the full cost of a qualifying asset in the year it is placed in service. What qualifies for bonus depreciation falls into a short list of property categories: tangible personal property with a MACRS recovery period of 20 years or less, qualified improvement property to the interior of nonresidential buildings, off-the-shelf computer software, qualified film, television, and live theatrical productions, and certain fruit- and nut-bearing plants. The asset also has to be used more than half the time for business, acquired from an unrelated party, and placed in service after you acquire it. Under the One Big Beautiful Bill Act, the deduction is 100% for property acquired after January 19, 2025, with no scheduled phase-down.¹

Tangible Property With a 20-Year or Shorter Recovery Period

The broadest eligible category is tangible personal property depreciated under the Modified Accelerated Cost Recovery System with a recovery period of 20 years or less.² Most physical business assets you can pick up or move fall inside that window.

Office equipment such as desks, chairs, computers, printers, and copiers, typically 5- or 7-year property
Machinery, including manufacturing equipment, assembly-line tools, and industrial robots
Farm equipment such as tractors, harvesters, and grain bins
Water utility property, including pipes, pumps, and treatment facilities used in water distribution or collection

Land improvements with a 15-year recovery period also qualify because they sit under the 20-year ceiling. That covers items like fencing, parking lots, and sidewalks.

The recovery-period ceiling is also where the biggest exclusions live. Commercial buildings carry a 39-year recovery period, residential rental buildings 27.5 years, so the buildings themselves are out.³ Land is never depreciable and never qualifies.

Vehicles

Vehicles qualify, but weight decides how much you can actually deduct in year one. Passenger automobiles with a gross vehicle weight rating of 6,000 pounds or less run into the annual depreciation caps of Section 280F. For a passenger automobile placed in service in 2025, the first-year cap with the bonus add-on is $20,200; without the bonus add-on, the 2025 first-year cap is $12,200.⁴ The statute provides an $8,000 increase to the base first-year limit when bonus depreciation applies.²

Heavy SUVs and trucks with a gross vehicle weight rating above 6,000 pounds are not subject to the Section 280F dollar caps, so they can receive the full 100% bonus depreciation on the entire cost. Because vehicles are listed property, the deduction is reduced to your business-use percentage, calculated by dividing business miles by total miles. Commuting does not count as business use.⁵

Qualified Improvement Property

Qualified improvement property covers work done to the interior of an existing nonresidential building after that building was first placed in service. It has a 15-year MACRS recovery period, so it fits inside the eligibility window.² Typical examples are new interior walls, upgraded flooring, modern lighting systems, and plumbing renovations.

Three types of work are carved out of the QIP definition and do not qualify:

Enlarging the building. Adding square footage disqualifies the improvement.
Elevators and escalators.
The internal structural framework, meaning load-bearing walls, columns, and support beams.⁶

Some other improvements to nonresidential buildings fall outside QIP entirely and are not eligible for bonus depreciation on that basis, including new roofs, HVAC systems, fire protection and alarm systems, and security systems. These may still be expensable under Section 179.⁷

Residential rental buildings are outside QIP. Improvements to residential rental property generally must be depreciated over 27.5 years and do not qualify for bonus depreciation.³

Off-the-Shelf Computer Software

Computer software qualifies when it is depreciable under Section 167(f)(1): readily available for purchase by the general public, subject to a nonexclusive license, and not substantially modified for a single user.⁸ Standard operating systems, productivity suites, and accounting programs fit the description. Basic configuration or setup does not count as substantial modification.

Custom-built software or a commercial product that has been substantially modified is different. If the software is treated as a Section 197 intangible, it is amortized over 15 years and does not qualify for bonus depreciation. Documentation that the license is nonexclusive and the product is sold to the general public supports treating a purchase as eligible.

Film, Television, and Live Theatrical Productions

Qualified film, television, and live theatrical productions are specifically listed as eligible property under Section 168(k), so a production company can deduct the full cost of a qualifying production in the year it is placed in service.⁸

Specified Plants

Certain fruit- and nut-bearing plants qualify, including trees, vines, and other plants with a pre-productive period longer than two years. The deduction is claimed in the year the plant is planted or grafted rather than the year it first produces income, and you have to make a specific election under Section 168(k)(5) to use this treatment.⁸

Conditions Every Qualifying Asset Has to Meet

Falling into an eligible category is only the first test. The asset also has to clear a set of use and acquisition rules.

More Than 50% Business Use

Listed property, which includes passenger vehicles, certain photographic equipment, and other assets prone to personal use, must be used for business more than 50% of the time. If business use is 50% or less, the asset does not qualify for bonus depreciation at all.⁵

New or Used, With Related-Party Limits

Both new and used assets are eligible, but used property has to satisfy every one of these conditions:

You have never used the specific asset before.
It was not purchased from a related party, such as a family member or a company you control.
Your cost basis is not determined by the seller’s adjusted basis.
You did not inherit the property.
The cost does not include basis from other property you already held.⁹

The transaction has to be at arm’s length with an unrelated seller. These rules keep taxpayers from claiming a fresh first-year deduction on property they effectively already owned.

Placed in Service, Not Just Purchased

Eligibility turns on when the asset is placed in service, meaning it is set up and ready for its intended use, not when you paid for it. Equipment sitting in a crate in the warehouse at year-end has not been placed in service and cannot generate a deduction for that year.⁸

Self-Constructed Property

Property your business builds for itself can qualify. Construction is treated as beginning when physical work of a significant nature starts, not when planning, designing, or financing begins. A safe harbor treats construction as beginning when you have incurred (or paid, if you use cash-basis accounting) more than 10% of the total expected cost.⁹

The Acquisition Date Cutoff

The 100% rate applies to qualifying property acquired after January 19, 2025. If you signed a binding purchase contract before January 20, 2025, the old phase-down schedule still applies to that asset, so property placed in service in 2026 under a pre-OBBBA contract gets only a 20% first-year deduction.¹⁰

What Doesn’t Qualify

Pulling the exclusions together in one place:

Commercial buildings (39-year recovery) and residential rental buildings (27.5-year recovery).
Land, which is never depreciable.
Improvements to residential rental property, which follow the 27.5-year schedule.
Building enlargements, elevators and escalators, and internal structural framework, each carved out of the QIP definition.
New roofs, HVAC, fire protection and alarm systems, and security systems on nonresidential buildings, which sit outside QIP (Section 179 may still apply).
Custom or substantially modified software treated as a Section 197 intangible.
Listed property used 50% or less for business.
Property acquired from a related party, inherited, or otherwise failing the used-property conditions.

How Bonus Depreciation Interacts With Section 179

Section 179 and bonus depreciation both let you deduct asset costs upfront, and they can be used together on the same purchase. For tax years beginning in 2025, Section 179 allows you to expense up to $2,500,000 in qualifying property, with the deduction beginning to phase out dollar-for-dollar once total qualifying purchases exceed $4,000,000. Heavy SUVs face a separate Section 179 cap of $31,300.⁵

Three practical differences shape how the two provisions stack:

Section 179 has a fixed annual dollar cap. Bonus depreciation has no dollar ceiling and applies to the full cost of every qualifying asset.
Section 179 cannot create a net loss; it is limited to your taxable business income. Bonus depreciation can create or increase a net operating loss.
Section 179 is elective and chosen asset by asset. Bonus depreciation applies automatically to every qualifying asset unless you elect out for an entire class of property.

When qualifying purchases exceed the Section 179 limit, bonus depreciation picks up the remainder. A business that spends $3,000,000 on eligible equipment in 2025 could apply Section 179 to the first $2,500,000 and claim 100% bonus depreciation on the remaining $500,000.

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
Office of the Law Revision Counsel. 26 USC 168 – Accelerated Cost Recovery System
3
Internal Revenue Service. Publication 527 (2025) – Residential Rental Property
4
Internal Revenue Service. Revenue Procedure 2025-16
5
Internal Revenue Service. Instructions for Form 4562 (2025)
6
Legal Information Institute. 26 USC 168(e)(6) – Qualified Improvement Property Definition
7
Internal Revenue Service. Topic No. 704 – Depreciation
8
Internal Revenue Service. Publication 946 (2024) – How To Depreciate Property
9
Internal Revenue Service. Additional First Year Depreciation Deduction (Bonus) – FAQ
10
Internal Revenue Service. Notice 2026-11 – Interim Guidance on Additional First Year Depreciation Deduction Under Section 168(k)