Bonus Depreciation, Explained
Which bonus depreciation rate applies to a purchase depends on when it was acquired and placed in service. Each rule below is checked against its primary source, with the citation beside it, and your CPA applies them to your dates.
The Rate in the Code Today
What the Code says about the rate today.
- Qualified property gets a first year bonus depreciation allowance equal to 100 percent of its adjusted basis in the year it is placed in service. This is the Code text after the 2025 law, which applies to property acquired after January 19, 2025. Source: IRC section 168(k)(1)(A), as amended by P.L. 119-21 section 70301(b)(1)(A)
- Section 70301 of the 2025 reconciliation act (Public Law 119-21, enacted July 4, 2025) replaced the words the applicable percentage with 100 percent in section 168(k)(1)(A) and struck paragraphs (6) and (8), which held the phase down schedules. Source: P.L. 119-21 section 70301(b)(1), 139 Stat. 189
- Bonus depreciation is the default. The 100 percent allowance applies to qualified property acquired and placed in service after January 19, 2025 unless the taxpayer elects out for a class of property. For the first tax year ending after January 19, 2025 only, the taxpayer may instead elect a reduced 40 percent rate (60 percent for long production period property and certain aircraft). Source: IRC section 168(k)(1), (k)(7) and (k)(10); IRS Publication 946 (2025), chapter 3
Which Rate Applies to Your Purchase
The table shows the rate our estimate engine applies for the dates shown; the rules behind it follow.
| Acquired | Placed in service | Bonus rate |
|---|---|---|
| June 2, 2025 | June 2, 2025 | 100% |
| March 2, 2026 | March 2, 2026 | 100% |
| December 2, 2024 | June 2, 2025 | 40% |
| December 2, 2024 | June 1, 2026 | 20% |
| December 2, 2024 | June 1, 2027 | 0% |
- The 100 percent rate applies only to property acquired after January 19, 2025. Property acquired on or before that date stays under the prior phase down rules. Source: P.L. 119-21 section 70301(c)(1), 139 Stat. 190 (26 U.S.C. 168 note)
- For property acquired after September 27, 2017 and before January 20, 2025, the old schedule still applies: 40 percent if placed in service in 2025 and 20 percent if placed in service in 2026. Long production period property and certain aircraft run one year behind (60 percent in 2025, 40 percent in 2026, 20 percent in 2027). Source: IRC section 168(k)(6)(A)(iv) and (v) and (B), as enacted by P.L. 115-97 section 13201(a)(2), before repeal by P.L. 119-21 section 70301(b)(1)(B)
- Under the prior law that still governs property acquired before January 20, 2025, bonus depreciation was available only for property placed in service before January 1, 2027. Such property placed in service in 2027 or later gets no bonus, except long production period property and certain aircraft, which had until before January 1, 2028. Source: IRC section 168(k)(2)(A)(iii) as in effect before P.L. 119-21 (date set by P.L. 115-97 section 13201(b)(1)); described in IRS Notice 2026-11 section 2.01
When a Written Binding Contract Sets the Date
How a written binding contract fixes the acquisition date.
- For the January 19, 2025 test, property is not treated as acquired after the date a written binding contract for its acquisition was entered into. Property bought under a written binding contract whose acquisition date falls on or before January 19, 2025 therefore does not get the new 100 percent rate. Under the IRS interim guidance, that acquisition date is the latest of the date the contract was entered into, the date it became enforceable under state law, the date all cancellation periods ended (if the contract has any) and the date all conditions subject to its contingency clauses were satisfied (if it has any), so the signing date alone does not always decide the question. Source: P.L. 119-21 section 70301(c)(4), 139 Stat. 190 (26 U.S.C. 168 note); IRS Notice 2026-11 sections 2.03(2)(b) and 3.03
- Under the existing regulations that the notice carries forward, the acquisition date of property bought under a written binding contract is the latest of these dates: when the contract was entered into; when it became enforceable under state law; if the contract has cancellation periods, when all of them ended; and if the contract has contingency clauses, when all conditions subject to those clauses were satisfied. The regulation defines a contingency clause as one that provides for a condition or action within the control of any party or a predecessor. Source: Treas. Reg. section 1.168(k)-2(b)(5)(ii)(B), as described in IRS Notice 2026-11 section 2.03(2)(b) and applied by section 3.03
- The IRS interim guidance is Notice 2026-11, titled Interim Guidance on Additional First Year Depreciation Deduction under section 168(k). The IRS announced it on January 14, 2026 in news release IR-2026-06 and published it in Internal Revenue Bulletin 2026-6, dated February 2, 2026, at page 491. The notice PDF itself carries no issue date. Source: IRS Notice 2026-11, 2026-6 I.R.B. 491; IRS news release IR-2026-06 (Jan. 14, 2026)
- Notice 2026-11 says Treasury and the IRS intend to issue proposed regulations. In the interim, to decide whether property was acquired after January 19, 2025, taxpayers apply rules consistent with Treasury Regulation sections 1.168(k)-2(b)(5) and 1.1502-68(a) through (d), with January 19, 2025 substituted for September 27, 2017 and January 20, 2025 substituted for September 28, 2017. A taxpayer may rely on sections 3 through 5 of the notice for eligible property placed in service in a tax year that begins before the proposed regulations are published in the Federal Register, if the taxpayer follows those sections in their entirety for all eligible property placed in service in those years. Source: IRS Notice 2026-11, sections 1, 3.03 and 6.02
The One Year Reduced Rate Election
The one year election of a lower rate.
- For qualified property placed in service during the first tax year ending after January 19, 2025, a taxpayer may elect to apply 40 percent instead of 100 percent (60 percent for long production period property and certain aircraft). The election exists only for that first tax year. Source: IRC section 168(k)(10)(A), as amended by P.L. 119-21 section 70301(b)(3); effective date section 70301(c)(3)
- Notice 2026-11 describes the reduced rate election as made under Treasury Regulation section 1.168(k)-2(f)(3), which it says requires a statement attached to the timely filed federal return (including extensions) for the tax year that includes January 20, 2025, in the manner provided in the instructions for Form 4562. Source: IRS Notice 2026-11 sections 4.03 and 7; Treas. Reg. section 1.168(k)-2(f)(3)
What Qualifies
Which property can take the allowance.
- Bonus depreciation can apply to property that has a recovery period of 20 years or less, as long as the property also meets the other tests, such as the original use or used property rule. That covers the 5 year, 7 year and 15 year components a cost segregation study identifies. It does not cover the 27.5 year or 39 year building itself. Source: IRC section 168(k)(2)(A)(i)(I)
- Used property can qualify for bonus depreciation if the taxpayer never used it before acquiring it and the purchase meets the acquisition rules borrowed from section 179(d). Source: IRC section 168(k)(2)(A)(ii) and (E)(i)
Bonus Depreciation and Section 179
How section 179 differs from bonus depreciation.
- The section 179 deduction cannot exceed the taxpayer's taxable income from the active conduct of a trade or business for the year; any disallowed amount carries over. Section 168(k) contains no comparable dollar cap or income limit in its text. Source: IRC section 179(b)(3)(A) and (B)
- Section 179 requires property acquired for use in a trade or business. The IRS says property held only for the production of income, including rental property when renting is not the owner's trade or business, does not qualify for section 179. Source: IRS Publication 946 (2025), chapter 2, Property Acquired for Business Use
The rules on this page were checked against their sources on October 1, 2026.
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