IRC §168(k) Bonus Depreciation

Where this comes from

Congress first added bonus depreciation in 2002 to spur investment, and it has been changed many times since. The 2017 Tax Cuts and Jobs Act made it 100 percent and, importantly, extended it to used property, which made buying an existing building far more attractive.

The 2017 version was set to phase out: 80 percent for property placed in service in 2023, 60 percent in 2024, 40 percent in 2025. Then the One Big Beautiful Bill Act, Public Law 119-21, signed in July 2025, restored 100 percent bonus depreciation permanently for qualifying property acquired after January 19, 2025.

What it established

Section 168(k) allows an additional first-year depreciation deduction on qualified property. The core requirement is a MACRS recovery period of 20 years or less. Buildings at 27.5 or 39 years never qualify on their own. The 5, 7, and 15-year property inside them does.

Used property qualifies if the taxpayer had not used it before and did not buy it from a related party. That is why bonus depreciation works on an acquisition of a decades-old building: the property is used, but it is new to the buyer.

The applicable percentage turns on when the property was acquired and placed in service, and binding contract rules can fix the acquisition date earlier than closing. Under the OBBBA changes, property acquired on or before January 19, 2025 stays on the old phase-down schedule, which is why that date gets checked carefully.

How it shows up in a study

Bonus depreciation is the engine that turns a study's reclassifications into a large first-year deduction. Without a study, a purchased building is one 27.5 or 39-year asset and gets no bonus. With a study, the 5, 7, and 15-year property is separately identified, and all of it can be eligible for bonus in the year placed in service.

The study file documents the acquisition date, the contract timeline, and the placed-in-service date, because those facts pick the bonus percentage. For a look-back study, the bonus rules of the original year still apply, and the catch-up comes through Form 3115.

What it does not mean

Bonus depreciation does not apply to the building itself. The long-life structure and structural components are outside section 168(k) no matter what a marketing pitch says. Only the short-life property a study properly supports gets there.

It is also not extra deduction, just earlier deduction. Total depreciation over the life of the property is the same; bonus moves it forward. And taking the deduction does not guarantee you can use it this year. The passive activity rules in section 469 decide whether the loss offsets your other income now or waits.