Qualified Property for Economic Stimulus: OBBBA Rate and Section 179

Qualified property for the economic stimulus deduction — bonus depreciation under Internal Revenue Code Section 168(k) — is business-use tangible property with a MACRS recovery period of 20 years or less, along with off-the-shelf computer software, certain water utility property, qualified film, television, live theatrical, and sound recording productions, and qualified improvement property. For assets acquired after January 19, 2025, the One Big Beautiful Bill Act (OBBBA) locked the deduction in at 100% of cost, permanently, so a qualifying purchase can be written off entirely in the year it’s placed in service.¹

What Counts as Qualified Property

Section 168(k) draws the eligibility line around a handful of categories:²

Tangible property with a MACRS recovery period of 20 years or less. This is the broad bucket that captures most business equipment, machinery, furniture, and many land improvements.
Off-the-shelf computer software depreciated under Section 167(f)(1)(B). Software amortized as a Section 197 intangible does not qualify.
Water utility property, which qualifies despite its 25-year recovery period under regular MACRS.
Qualified film, television, live theatrical, and sound recording productions under Section 181.

The property must be used in your trade or business; personal-use assets are out. It must also be either brand new to you (original use begins with you) or used property that clears the separate acquisition tests below.³

The Used-Property Rules That Trip People Up

Since the Tax Cuts and Jobs Act, used property can qualify alongside new property, but only if three conditions are met. You must not have used the asset yourself before acquiring it. You must not buy it from a related party or a member of the same controlled group. And your basis in the property must not be figured by reference to the seller’s basis, which knocks out like-kind exchanges, gifts, and other transfers where basis carries over.⁴

The related-party rule catches transactions people assume are routine. Buying equipment from a business owned by your spouse or parent, or from a corporation where you own more than 50%, disqualifies the purchase. The IRS tests the relationship at the time of acquisition and, in chains of related transactions, looks at the relationship with the original transferor too.⁴

Qualified Improvement Property

Qualified improvement property (QIP) is any improvement to the interior of a nonresidential building made after the building was first placed in service. Renovating an office lobby, replacing retail flooring, upgrading lighting, or installing new HVAC, fire protection, or security systems inside a commercial building all fit. QIP does not include spending on building enlargements, elevators or escalators, or the internal structural framework.²

QIP has a 15-year recovery period, which puts it inside the 20-year ceiling and makes it eligible for the full 100% write-off when placed in service after January 19, 2025. It’s also eligible for Section 179 expensing, so smaller businesses have flexibility in how they structure the deduction.

Vehicles and the 6,000-Pound Line

Business vehicles can qualify, but passenger automobiles run into the Section 280F annual cap. For 2026, the first-year depreciation limit on a passenger vehicle with bonus depreciation is $20,300; without bonus depreciation, it’s $12,300.⁵

Vehicles with a gross vehicle weight rating above 6,000 pounds are exempt from the 280F caps, so heavy SUVs and pickups can receive full bonus depreciation on their entire cost. Section 179 imposes its own $32,000 cap on SUVs rated between 6,001 and 14,000 pounds GVWR, so the most tax-efficient play for heavy vehicles often pairs a $32,000 Section 179 deduction with bonus depreciation on the remaining basis.⁶

Listed Property and the 50% Business-Use Test

Vehicles, home computers, and other assets with mixed business and personal uses are classified as listed property. To qualify for bonus depreciation or Section 179, listed property must be used more than 50% for business in the year it’s placed in service.⁷

Watch that threshold in later years too. If business use drops to 50% or below after you’ve claimed bonus depreciation, part of the deduction is recaptured as ordinary income in the year business use falls, and you report it on Form 4797.⁷

Property That Does Not Qualify

Several categories are excluded even when they otherwise look eligible:²

Property required to use the Alternative Depreciation System, including property used predominantly outside the United States, tax-exempt use property, tax-exempt bond-financed property, and certain farming property when the taxpayer has elected out of the interest deduction limit.
Property used predominantly outside the United States.
Certain regulated utility property.
Property with a recovery period longer than 20 years, which sweeps in nonresidential real property (39-year) and residential rental property (27.5-year). QIP, at its 15-year life, is the notable carve-in.

Land is never depreciable and never qualifies. Inventory held for sale isn’t depreciable property either, so it’s out as well.

Placed-in-Service Timing

Bonus depreciation runs off the placed-in-service date, meaning the date the asset is ready and available for its intended use, not the date you paid for it or the date it was delivered. It doesn’t need to be actively running; it needs to be operationally ready.

The distinction can move a deduction across tax years. A machine bought in November that takes eight weeks to install isn’t placed in service until January, and the deduction lands in the following year. Projects completed in stages follow a proportional rule: each functional segment qualifies when that segment is ready, so a facility adding three production lines over 18 months deducts each line as it comes online.

How the OBBBA Changed the Rate

The Tax Cuts and Jobs Act originally set the deduction at 100% but built in a phase-down that had already dropped the rate to 80% for 2023, 60% for 2024, and 40% for 2025, headed to zero after 2026. The OBBBA erased that schedule. For property acquired after January 19, 2025, 100% bonus depreciation is permanent with no expiration.¹

Notice 2026-11 confirmed that the OBBBA removed the pre-2027 placed-in-service deadline, the extended deadline for long-production-period property and certain aircraft, and the annual reduction in the applicable percentage.⁸

Acquisition date, not just placed-in-service date, drives the rate. Acquisition generally means the date you entered a binding written contract. A purchase agreement signed before January 20, 2025, falls under the old TCJA phase-down rates even if the property isn’t placed in service until 2026.

One transition option is worth flagging. For property placed in service during the first tax year ending after January 19, 2025, you can elect the old 40% TCJA rate instead of 100%. Some businesses prefer a smaller current-year deduction to avoid stranding a net operating loss they can’t use efficiently.¹

Bonus Depreciation vs. Section 179

Section 179 is a separate first-year expensing provision. For 2026, the maximum Section 179 deduction is $2,560,000, phasing out dollar-for-dollar once total Section 179 property purchases exceed $4,090,000 for the year.⁶

The two run in a set order. Section 179 comes off first, up to the allowable amount. Bonus depreciation applies to whatever basis remains. Regular MACRS depreciation handles anything left after that.⁷

They differ in three ways that affect planning:

Section 179 cannot create a net loss; the deduction is capped at aggregate business taxable income. Bonus depreciation has no income limitation and can generate or increase a net operating loss that carries forward.⁹
Section 179 carries the $2,560,000 annual dollar ceiling. Bonus depreciation has no dollar cap.
Section 179 is asset-by-asset; you choose which specific purchases receive it. Bonus depreciation applies automatically across an entire asset class unless you elect out for the whole class.

Smaller and mid-sized businesses often lean on Section 179 for its selectivity. Larger firms making capital investments well beyond $2.5 million typically rely on bonus depreciation to absorb the full cost in one year.

Electing Out of Bonus Depreciation

Bonus depreciation is the default. If your property qualifies, you get it unless you affirmatively elect out. Common reasons to opt out include expiring tax credits that need taxable income to absorb them, a low current-year bracket with higher rates expected later, or a deduction so large it would create an unusable net operating loss.

The election applies to an entire class of property placed in service during the tax year, not to individual assets within a class. File the statement with Form 4562 by the due date of your federal return, including extensions.³

Electing out of bonus depreciation for a class doesn’t shut off Section 179 on individual assets in that class, and regular MACRS still runs on the rest.

Recapture When You Sell

Writing off the full cost in year one doesn’t eliminate the tax on later disposition. When you sell property that received bonus depreciation, gain attributable to prior depreciation deductions is taxed as ordinary income rather than at capital gains rates. This is depreciation recapture under Section 1245.¹⁰

The arithmetic is straightforward. Buy a $200,000 machine, deduct the full cost through bonus depreciation, and your adjusted basis is zero. Sell it three years later for $80,000 and the entire $80,000 is ordinary income, because all of the gain traces back to depreciation you’ve already deducted. Spreading the deduction over the asset’s normal recovery period would have left a higher basis and a smaller recapture figure.

Recapture applies regardless of holding period. Gifts and transfers at death are excepted; sales, exchanges, and involuntary conversions trigger it.¹⁰

Recapture doesn’t make bonus depreciation a bad deal. You collected the full tax benefit up front, when the cash flow was likely most useful. Factor the eventual recapture into the decision when you’re comparing immediate expensing against a slower deduction schedule, especially for property you expect to sell within a few years.

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 U.S. Code 168 – Accelerated Cost Recovery System
3
Internal Revenue Service. Additional First Year Depreciation Deduction (Bonus) – FAQ
4
eCFR. 26 CFR 1.168(k)-2 – Additional First Year Depreciation Deduction
5
Internal Revenue Service. Rev. Proc. 2026-15
6
Internal Revenue Service. Rev. Proc. 2025-32
7
Internal Revenue Service. Instructions for Form 4562
8
Internal Revenue Service. Notice 2026-11 – Interim Guidance on Additional First Year Depreciation Deduction
9
Office of the Law Revision Counsel. 26 U.S. Code 179 – Election to Expense Certain Depreciable Business Assets
10
Office of the Law Revision Counsel. 26 U.S. Code 1245 – Gain From Dispositions of Certain Depreciable Property