What assets qualify for bonus depreciation?

You deduct the whole cost of a qualifying asset in the year you put it to work, instead of spreading it across its useful life. Publication 946 gives the recovery period for each kind of asset, and section 168(k) sets the 20 year line those periods have to clear.

Which recovery period makes an asset qualify

Check the recovery period the tax rules assign the asset. At 20 years or less you can claim bonus depreciation on it, and above 20 years you cannot.

You claim bonus depreciation across a whole asset class or not at all. You cannot take it on one machine and skip another in the same class, which is where it differs most from Section 179.

Which asset classes qualify

• Three year property.Certain tools, manufacturing molds and over the road tractor units.
• Five year property.Computers, office equipment, appliances, most manufacturing equipment and most business vehicles.
• Seven year property.Office furniture and fixtures, agricultural machinery and railroad track.
• Ten year property.Barges, tugboats and some food processing equipment.
• Fifteen year property.Qualified improvement property, and land improvements such as fencing, sidewalks and parking areas.
• Twenty year property.Farm buildings and municipal sewers.

Whether improvements to a commercial building qualify

Interior improvements you make to a nonresidential building after it opens carry a 15 year recovery period, so you can claim bonus depreciation on them in full. The tax rules call this qualified improvement property.

• What counts.Interior work such as tenant fit outs, lighting, flooring, ceilings, interior walls and interior heating and cooling.
• What does not count.Enlarging the building, elevators and escalators, and anything that changes the internal structural framework.
• Residential rental property.You get no qualified improvement property here, because the definition covers nonresidential buildings only.

When used property qualifies

You claim bonus depreciation on used assets on the same terms as new ones, and you have to clear five conditions on how you acquired the asset.

• You did not use it before.Neither you nor a predecessor used the asset in the five years before you placed it in service.
• You did not buy it from a related party.That rules out purchases from a related person and from a member of the same controlled group.
• You did not take over the seller’s basis.A carryover basis transaction fails this test.
• You did not inherit it.Property you take from a decedent fails on the same principle.
• Your cost does not trace back to property you already held.

Buy a machine personally, claim bonus depreciation on it, then contribute it to an LLC, and the LLC gets nothing. The contribution hands the LLC your basis, which fails the third condition. The same happens when you drop property into a corporation.

Bonus depreciation on vehicles

A vehicle over 6,000 pounds gross weight qualifies on its full business cost. Below that weight you fall under the passenger automobile caps and deduct far less in year one, whatever the bonus rate allows.

• Business percentage.You claim only the share of the cost that matches your business use.
• If business use falls later.Let it drop to half or below and the IRS recaptures part of what you deducted as ordinary income.

What does not qualify for bonus depreciation

• The building itself.You recover a commercial building over 39 years and a residential rental over 27.5, both above the 20 year line.
• Land.Land is not depreciable, so there is nothing to accelerate.
• Inventory.You hold it for sale, so it is not a depreciable asset.
• Property you have to depreciate under the alternative system.Certain foreign use, tax exempt use and electing farm or real property businesses all fall here.
• Listed property you use half the time or less for business.You lose bonus depreciation on it and you claim regular depreciation instead.

When a manufacturing building does qualify

You can claim 100% bonus depreciation under section 168(n) on the part of a nonresidential building you use in manufacturing, production or refining. Two date windows both have to close around the project. Construction has to begin after January 19, 2025 and before January 1, 2029, and you have to place the building in service after July 4, 2025 and before January 1, 2031.

• Lessors get nothing.Own the building and lease it to a manufacturer, and the IRS does not treat the manufacturer’s use as yours.
• Only the production part counts.You cannot count offices, administrative space, lodging, parking, sales, research, software development or engineering, so you have to allocate the cost of a mixed facility.
• What counts as production.You qualify on agricultural and chemical production only, and the product has to be tangible personal property. You cannot claim it on food and drink you prepare and sell at the same retail site.
• Ten year recapture.Stop using the property in a qualifying activity within ten years and the IRS takes the benefit back.

Buying an existing building can work, on a separate route with its own conditions. You cannot use that route for a building that was already in production use during the lookback period, which catches the working factory a buyer would assume is the best candidate.

How to find qualifying assets inside a building you already own

In a cost segregation study, an engineer breaks the purchase price of a building into its components and assigns each one its own recovery period. Carpet, cabinetry, specialty wiring, signage and site work go to the five, seven and fifteen year classes, all of which are under the 20 year line.

You buy the building and you cannot claim bonus depreciation on it. You study the building and you can claim it on the parts that qualify.

The 2026 bonus depreciation rate

Bonus depreciation is at 100% and permanent for qualified property acquired after January 19, 2025.

Public law 119-21 ended the phase down that had taken the rate to 40% for 2025 and would have dropped it to 20% for 2026. The IRS issued interim guidance you can rely on in Notice 2026-11, on January 14, 2026.

Property you acquired on or before January 19, 2025, or under a written binding contract you entered into before January 20, 2025, stays on the old reduced schedule.

Check the acquisition date, since that is what puts an asset on one schedule or the other.

How to use Section 179 alongside bonus depreciation

You can claim both on the same purchase, in a set order, and you can claim Section 179 on some assets that fall outside bonus depreciation.

The order is fixed, and it is not a preference

First Section 179, if you elect itAsset by asset, up to the annual cap, and it cannot take you below zero. Any amount blocked by the income limit carries forward.

Then Bonus depreciation, automaticallyApplies to whatever basis is left, with no dollar cap and no income limit. It can create a loss, and you have to elect out if you do not want it.

Finally MACRS on the remainderWhatever survives the first two layers depreciates normally over its recovery period.

Why the order decides the answer Section 179 stops at your taxable income. Bonus does not. A business at break even gets nothing from an election it cannot use, and everything from the allowance it did not have to claim.

You elect Section 179 asset by asset, and you apply bonus depreciation to whatever basis is left.

What you can claim under Section 179 but not under bonus depreciation

You can claim Section 179 on several improvements to a nonresidential building that fall outside qualified improvement property. Roofs, heating and air conditioning, fire protection and alarm systems, and security systems all qualify for Section 179 and not for bonus depreciation.

You elect Section 179 asset by asset, so you can take it on one item and skip the next. You also stop at your taxable business income for the year, and bonus depreciation has no such limit.

	Section 179	Bonus depreciation
Annual cap	$2,560,000 for 2026	None
Phases out	Above $4,090,000 of purchases	Does not
Can create a loss	No	Yes
How you get it	You elect it	Automatic unless you elect out
Used property	Qualifies, with conditions	Qualifies, with conditions
Applied	Asset by asset	By class of property
How you reverse it	Revocable by you, no IRS consent	Only with IRS consent, by letter ruling

Both apply to the same purchase, in the order the figure above shows. This is not a choice between one and the other.

How much of a bonus depreciation loss you can use this year

You can set a business loss against your wages and investment income only up to $256,000 for 2026, or $512,000 on a joint return. You carry the rest forward as a net operating loss. You face this cap as an individual, a partner or an S corporation shareholder, and only after the basis, at risk and passive rules have already run.

• What the cap does.You lose nothing permanently, and you move the excess into a later year.
• What the carryforward costs you.A net operating loss offsets no more than 80% of your taxable income in the year you use it, so a dollar deferred is worth less than a dollar taken now.

When electing out of bonus depreciation is the right call

Bonus depreciation is automatic. If you do not want it you have to elect out, by class of property, and you can only reverse that election with IRS consent, through a private letter ruling.

• A low income year, where you would set the deduction against nothing
• A state that does not follow the federal rules, where you give part of the federal saving back on the state return
• A business expecting materially higher rates ahead, where you get more from spreading the deduction than from taking it now
• A pass through where basis or at risk limits at the owner level would suspend a large loss

What this work costs

Usually part of preparing the return rather than a separate engagement. What it depends on:

• Number of assets and whether a fixed asset register exists
• Whether state conformity has to be modeled alongside the federal position
• Whether the entity has owners whose basis limits need checking

These are the factors, not a quote.

Why use us on the asset review

Our licensed CPAs and Enrolled Agents file the return the deduction goes on, so we check the asset list against the rules before anything is committed.

That differs from most tax services because most tax services are quite cookie cutter. So we’re going to actually take a look at the person’s goals, what they’re looking for in the short term, what they’re looking for in their long-term, family planning, retirement planning, a holistic tax approach.

George Dimov, CPA · Founder, Dimov Tax

As a small business owner, all of my questions were answered and my business and personal taxes were filed without any issues.

Daniel C. · Albany, NY · Yelp review