Code section · 2025
OBBBA — Permanent 100% Bonus Depreciation (IRC 168(k))
Pub. L. No. 119-21 (July 4, 2025), amending IRC 168(k)
Internal Revenue Code
Audio summary
A short audio walkthrough of this rule: what it says and why it matters for your study.
What it holds
The One Big Beautiful Bill Act permanently restored 100% additional first-year (bonus) depreciation under IRC Section 168(k) for qualified property acquired and placed in service after January 19, 2025. This removed the TCJA phasedown that had reduced the rate to 60% in 2024 and 40% in 2025. An election allows a taxpayer to use 40% instead (60% for long-production-period property) for the first taxable year ending after January 19, 2025.
Why it matters for your study: This is the engine of cost segregation value today. Every component a study reclassifies into 5, 7, or 15-year MACRS is now 100% bonus-eligible, making the full reclassified cost immediately deductible in the placed-in-service year.
Where this comes from
Congress first added bonus depreciation in 2002. The 2017 Tax Cuts and Jobs Act raised it to 100% and extended it to used property for the first time. That change made buying an existing building far more attractive for cost segregation.
The TCJA rate was always set to phase out: 80% for 2023, 60% for 2024, 40% for 2025, and eventually zero. The One Big Beautiful Bill Act, signed July 4, 2025 as Public Law 119-21, stopped that decline and made 100% permanent.
What it establishes
Section 168(k) allows an additional first-year depreciation deduction on qualified property. The core rule 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 you had not used it before and did not buy it from a related party. That is why bonus depreciation works on an existing building: the property is used, but it is new to you.
The applicable rate turns on when the property was acquired. For property acquired after January 19, 2025, the rate is 100%. For property acquired on or before that date, the old TCJA phasedown schedule still applies. A binding contract can fix the acquisition date earlier than closing, so those dates get documented carefully.
How it shows up in a study
Bonus depreciation is what turns a study's reclassifications into a large first-year deduction. Without a study, a purchased building is one 39-year asset with no bonus. With a study, the 5, 7, and 15-year components are separately identified and all of them can be 100% deductible in the year placed in service.
The study file documents the acquisition date, the contract timeline, and the placed-in-service date. For a look-back study on a prior year, 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 27.5 or 39-year structure is outside Section 168(k) no matter what. Only the short-life property a study properly supports gets the immediate deduction.
It is also earlier deduction, not extra deduction. Total depreciation over the life of the property is the same. Bonus just moves it to year one. 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.
Primary source
Read the official text for yourself, or share it with your advisor.
- Category
- Bonus depreciation & expensing
- Applies to
- All property types
- Status
- Vetted
This page explains a tax authority in plain words. It is not tax advice for your situation. The way this authority applies to your property is reviewed by a licensed tax professional. Citation is provided so you or your advisor can read the primary source.