15.4 Bonus Depreciation
Key Takeaways
- OBBBA restored 100% bonus depreciation PERMANENTLY for property acquired AND placed in service after January 19, 2025.
- Tax Year 2025 is BIFURCATED: 40% bonus for property acquired & placed in service on or before Jan 19, 2025; 100% bonus after.
- Taxpayers may elect to use the 40% rate for the full 2025 year (§168(k)(10) election).
- Applies to property with MACRS recovery ≤20 years (most equipment, QIP).
- NEW: §168(n) Qualified Production Property — 100% bonus for new domestic manufacturing real property (placed in service through 2032).
- Both new and used property qualify (subject to anti-churning rules); CAN create or increase an NOL.
- 2025 luxury auto §280F first-year cap: $20,400 with bonus, $12,400 without.
Why This Matters for the Exam
Bonus depreciation is the single largest depreciation change for the 2026-2027 testing window. The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, permanently restored 100% bonus depreciation for property acquired AND placed in service after January 19, 2025, overriding the TCJA phase-down schedule that would have set 2025 at 40%, 2026 at 20%, and 2027 at 0%.
Tax Year 2025 is bifurcated — the cutoff date and the election are heavily testable. Expect at least 4-5 questions on bonus depreciation.
Bonus Depreciation Rates — Bifurcated 2025
| Period | Rate |
|---|---|
| 2022 | 100% |
| 2023 | 80% |
| 2024 | 60% |
| Acquired AND placed in service on or before Jan 19, 2025 | 40% |
| Acquired AND placed in service after Jan 19, 2025 | 100% (OBBBA — PERMANENT) |
| 2026+ | 100% (PERMANENT under OBBBA) |
Critical: Both the acquisition (or binding contract) date AND the placed-in-service date must occur after January 19, 2025 to qualify for 100%. If property was acquired before Jan 20, 2025 but placed in service later, it stays at 40%.
§168(k)(10) Election — 40% for Full Year 2025
If the bifurcation is unhelpful, a taxpayer may elect to apply the 40% rate to ALL qualified property placed in service during the 2025 tax year, regardless of date. The election is made on a per-class basis and is irrevocable. Useful when:
- Taxpayer wants to spread deductions to higher-rate future years.
- Taxpayer is in a low marginal bracket in 2025.
NEW — §168(n) Qualified Production Property (QPP)
OBBBA created an entirely new category of bonus-eligible property. §168(n) Qualified Production Property allows 100% bonus depreciation on certain new domestic manufacturing real property — even though real property normally is NOT bonus-eligible.
| Element | Rule |
|---|---|
| Property | New nonresidential real property used in qualified production (US-based manufacturing, refining, agricultural production, chemical production) |
| Placed in service | Generally 2025 through December 31, 2032 |
| Bonus rate | 100% |
| Election | Per-property election by the taxpayer |
| Purpose | Reshore domestic manufacturing |
Expect at least one exam question on the existence of §168(n) QPP as a carve-out from the general rule that real property is not bonus-eligible.
Qualifying Property (General §168(k))
| Requirement | Description |
|---|---|
| MACRS recovery | ≤20 years |
| New or used | Yes (used qualifies if first use by taxpayer) |
| Original use | Must be taxpayer's first use OR purchased used from unrelated party |
| QIP | Qualifies (15-year) |
| §168(n) QPP | 100% bonus even though real property (new carve-out) |
Anti-Churning Rules (Used Property)
| Rule | Description |
|---|---|
| Not previously used | By taxpayer or predecessor |
| Not from related party | Spouse, >50% owned entity, controlled group |
| Not by gift / inheritance | Must be purchased |
Bonus vs. §179 Comparison (Post-OBBBA)
| Feature | Section 179 | Bonus Depreciation |
|---|---|---|
| Mechanism | Election (asset-by-asset) | Automatic (elect out per class) |
| Dollar cap | $2,500,000 (after Jan 19, 2025) | None |
| Phase-out | $4,000,000 (after Jan 19, 2025) | None |
| NOL impact | Cannot create NOL | CAN create / increase NOL |
| Asset selection | Pick specific assets | Per-class only |
| Real property | QIP + HVAC/roofs/security/fire | §168(n) QPP plus QIP |
| 2025 rate | 100% (within $2.5M cap) | 100% post-Jan 19, 2025 (or 40% pre-/election) |
Elect Out
| Rule | Description |
|---|---|
| Election | Per MACRS class (all 5-year, all 7-year, etc.) |
| Irrevocable | Once made for that year |
| Why elect out? | Save deductions for higher-rate years; avoid creating an NOL with a short carryforward |
Listed Property (Luxury Autos) — 2025 §280F Caps
| Year | First-Year Cap |
|---|---|
| Year 1 with bonus | $20,400 |
| Year 1 without bonus | $12,400 |
| Year 2 | $19,800 |
| Year 3 | $11,900 |
| Year 4+ | $7,160 |
These caps apply to passenger autos under 6,000 lbs GVWR; heavy SUVs/trucks (>6,000 lbs GVWR) are NOT subject to §280F.
Calculation Example — Post-OBBBA (Tax Year 2025)
Scenario: Equipment cost $1,000,000 (7-year MACRS), placed in service March 1, 2025. No §179 election.
| Item | Amount |
|---|---|
| Equipment cost | $1,000,000 |
| Bonus (100% — post-Jan 19) | $1,000,000 |
| Remaining basis | $0 |
| MACRS Year 1 | $0 |
Calculation Example — Pre-OBBBA Bifurcation (Tax Year 2025)
Scenario: Equipment cost $1,000,000 (7-year MACRS), placed in service January 10, 2025. No §179 election.
| Item | Amount |
|---|---|
| Equipment cost | $1,000,000 |
| Bonus (40% — pre-Jan 20 placement) | $400,000 |
| Remaining basis for MACRS | $600,000 |
| MACRS Year 1 (7-yr, half-year, 14.29%) | $85,740 |
| Total Year 1 depreciation | $485,740 |
On the Exam
Expect 4-5 questions on bonus, typically:
- Rate / Cutoff Questions: "What is the bonus rate for equipment placed in service on March 15, 2025?"
- Bifurcation Questions: "Equipment acquired Dec 2024 and placed in service Feb 2025 — bonus rate?" (40% — both dates must be after Jan 19, 2025 for 100%.)
- §168(n) Questions: "What new real property carve-out did OBBBA create?"
- Comparison Questions: "Can bonus create an NOL?" (Yes — unlike §179.)
The key is to remember: 100% bonus PERMANENTLY restored by OBBBA for property acquired AND placed in service AFTER January 19, 2025. Pre-Jan 20, 2025 placements use 40%. Taxpayer may elect 40% for full year 2025. NEW §168(n) Qualified Production Property = 100% bonus for new domestic manufacturing real property (through 2032). 2025 luxury auto Year 1 cap: $20,400 with bonus / $12,400 without.
Taxpayer wants bonus for 7-year property but not 5-year property in 2025. Allowed?
Equipment is acquired AND placed in service on March 15, 2025. What is the bonus depreciation rate?
Equipment was acquired December 2024 and placed in service February 1, 2025. What bonus rate applies?
OBBBA created a new 100% bonus depreciation carve-out for which type of property?