What Qualifies for Bonus Depreciation: Property, Timing, and Vehicles

What qualifies for bonus depreciation is any tangible business property with a Modified Accelerated Cost Recovery System (MACRS) recovery period of 20 years or less, along with off-the-shelf computer software, water utility property, qualified film and television productions, and interior improvements to nonresidential buildings. Under the One Big Beautiful Bill Act, qualifying property acquired after January 19, 2025 is deductible at 100% in the first year it is placed in service, with no scheduled expiration.¹ Several conditions still narrow the field: how you acquired the asset, when it went into use, how much you use it for business, and, for vehicles, how much it weighs.

The Core Eligibility Test

IRC Section 168(k) sets the baseline. To qualify, property must be depreciable under the general depreciation system and must have a MACRS recovery period of 20 years or less. That covers most of what a business actually buys: office furniture, manufacturing equipment, computers and peripherals, machinery, specialized tools, and similar tangible personal property.²

Beyond tangible equipment, the statute also reaches off-the-shelf computer software, water utility property, and qualified film, television, theatrical, and sound recording productions.²

Two categories are out. Land never qualifies because it does not wear out on a set schedule. And property required to use the alternative depreciation system (ADS) is excluded by rule. Assets financed with tax-exempt bonds and property used predominantly outside the United States are common examples; if ADS applies, bonus depreciation does not.²

Qualified Improvement Property

Interior renovation work on a nonresidential building can qualify as qualified improvement property (QIP). The improvement must be made to the interior of a nonresidential building, and the work must be completed after the building itself was placed in service.² Tenant build-outs in an office building, new flooring in a retail space, and upgraded lighting in a warehouse all fit, whether you own or lease the property. QIP carries a 15-year MACRS recovery period, which sits inside the 20-year threshold for bonus treatment.

Three types of work are specifically carved out: enlarging the building’s footprint, installing or replacing elevators and escalators, and modifying the building’s internal structural framework, meaning load-bearing walls, columns, and similar elements.² If a project mixes structural work with qualifying interior improvements, only the qualifying portion is eligible.

New and Used Property

Used property qualifies, as long as it is new to you. The statute offers two independent paths: the property either satisfies the original-use requirement (nobody has used it before), or it meets a set of acquisition rules for previously used assets.³

The used-property path has guardrails. The asset cannot be acquired from a related party or from another member of the same controlled group of corporations. Your cost basis in the property cannot be determined by reference to the seller’s adjusted basis, which knocks out most tax-deferred exchanges and certain corporate reorganizations.³ The point is to reward genuinely new investment by the taxpayer rather than reshuffling of assets within a family or corporate group.

Placed-in-Service Timing and the 2025 Acquisition Date

Buying the asset is not enough. It must be placed in service in the tax year you claim the deduction, meaning it is ready and available for its intended business use. Equipment still in a crate does not count. Neither does a machine that has been delivered but not yet installed and made operational.

The acquisition date then determines your rate. Property acquired after January 19, 2025 is eligible for the permanent 100% rate. Property acquired before January 20, 2025 stays on the older phase-down schedule even if you place it in service later: 40% in 2025, 20% if placed in service in 2026, and no bonus depreciation at all if it is placed in service in 2027 or later. The IRS applies the same acquisition-date framework used for prior versions of the rule, substituting January 19, 2025 for the older September 27, 2017 benchmark.⁴

A binding contract signed in December 2024 for equipment installed in 2026 gives you a 2024 acquisition date and the 20% phased-down rate, not the 100% rate you might expect from the placed-in-service year. Bonus depreciation is reported on IRS Form 4562, filed with the return for the year the property is placed in service.⁵

Listed Property and the 50% Business Use Rule

Most qualifying property has no minimum business-use percentage. Listed property is the exception. This category includes passenger vehicles and other assets with a high risk of personal use, and it must be used more than 50% for business in the year it is placed in service. Fall at or below that threshold in year one and the asset never qualifies for bonus depreciation.⁶

If business use later drops to 50% or below, the IRS requires you to recapture the excess depreciation as ordinary income. Going forward, you also lose the accelerated method and must switch to the alternative depreciation system for the remaining life of the asset.⁶ Contemporaneous records, especially mileage logs, are what protect the deduction under audit.

Vehicles: Weight Thresholds and Luxury Auto Caps

Vehicles have their own layer of rules under IRC Section 280F. A “passenger automobile” is a four-wheeled vehicle manufactured primarily for use on public roads and rated at 6,000 pounds unloaded gross vehicle weight or less. For trucks and vans, the test uses gross vehicle weight rather than unloaded weight.⁶ Anything meeting that passenger-automobile definition is subject to annual dollar caps no matter what you paid.

For passenger automobiles placed in service in 2026, the first-year depreciation limit is $20,300 when bonus depreciation applies and $12,300 when it does not.⁷ A $55,000 sedan is therefore capped at a $20,300 write-off in year one even with 100% bonus depreciation available; the rest gets recovered over later years subject to their own caps.

Vehicles rated above the 6,000-pound weight threshold escape the caps entirely. A heavy pickup or full-size SUV over 6,000 pounds can take 100% bonus depreciation on its full cost, which is why year-end tax planning conversations often circle back to the 6,000-pound rule. The statute also carves out ambulances, hearses, and vehicles used directly in the trade or business of transporting people or property for hire.⁶ Confirm the exact weight rating from the manufacturer’s specifications before assuming a borderline vehicle qualifies.

Electing Out

Bonus depreciation applies automatically to every eligible asset. If you would rather spread the deduction over the regular MACRS life, you have to affirmatively elect out. The election is not asset-by-asset; it applies to all qualifying property within the same MACRS class placed in service in that tax year, and you make it by attaching a statement to Form 4562 filed by the due date including extensions.³ For property placed in service during the first tax year ending after January 19, 2025, the IRS also offers an interim 40% election as a middle option rather than all-or-nothing.¹

How Section 179 Differs

Section 179 expensing covers much of the same property but works differently. Section 179 has a dollar cap ($2,560,000 for tax years beginning in 2026, phasing out once qualifying property exceeds $4,090,000); bonus depreciation has no dollar limit. Section 179 cannot create a net operating loss, since it is capped at business taxable income; bonus depreciation can. Section 179 is elective asset-by-asset; bonus depreciation is all-or-nothing by property class. When both apply, Section 179 comes off first, and bonus depreciation then applies to the remaining basis unless you have elected out for that class.

Recapture When You Sell

A large first-year deduction has a back end. Any gain on the sale of depreciable personal property (Section 1245 property) is recaptured as ordinary income to the extent of all prior depreciation, including bonus depreciation and Section 179.⁸ Take a $100,000 bonus deduction on equipment, sell it later for $40,000, and the full $40,000 gain is ordinary income at your regular rate rather than a capital gain. Depreciable real property (Section 1250) recaptures only the excess of accelerated over straight-line depreciation as ordinary income. Recapture is reported on Form 4797, Part III.⁹

State Conformity

A federal bonus depreciation deduction does not automatically reduce your state taxable income. Many states decouple from federal bonus depreciation and require an addback, in whole or in part, when computing state tax. If your business files in multiple states, you may need separate depreciation schedules for federal and state purposes for every qualifying asset. Check each state’s conformity rules before projecting the tax savings on a large purchase.

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. Additional First Year Depreciation Deduction (Bonus) – FAQ
4
Internal Revenue Service. Notice 2026-11, Interim Guidance on Additional First Year Depreciation Deduction
5
Internal Revenue Service. About Form 4562, Depreciation and Amortization
6
Office of the Law Revision Counsel. 26 USC 280F – Limitation on Depreciation for Luxury Automobiles
7
Internal Revenue Service. Revenue Procedure 2026-15, Depreciation Limitations for Passenger Automobiles
8
Office of the Law Revision Counsel. 26 USC 1245 – Gain From Dispositions of Certain Depreciable Property
9
Internal Revenue Service. 2025 Instructions for Form 4797 – Sales of Business Property