Tax Cuts and Jobs Act of 2017, Section 13201

Where this comes from

The Tax Cuts and Jobs Act of 2017 was the largest tax overhaul in a generation. Congress signed it on December 22, 2017. Section 13201 rewrote the Section 168(k) bonus depreciation rules entirely.

Before the TCJA, bonus depreciation was set to phase down to zero by 2020 under the PATH Act schedule. The TCJA replaced that phase-down with a new 100% rate for a five-year window. It also made a change that had never appeared in prior law: used property became eligible.

What it established

Section 13201 set the additional first-year depreciation rate at 100% for qualified property acquired after September 27, 2017 and placed in service before January 1, 2023. Property had to have a MACRS recovery period of 20 years or less to qualify. That covers the 5-year, 7-year, and 15-year property a cost segregation study identifies.

The used property expansion was new. Property that a taxpayer had not used before qualified, provided the acquisition was not from a related party. That made the TCJA rules apply to buyers of existing commercial real estate, not just developers of new buildings.

After 2022, the rate phases down: 80% for property placed in service in 2023, 60% for 2024, 40% for 2025, and 20% for 2026. New elections were added: Section 168(k)(7) lets a taxpayer elect out of bonus for all property in a particular class, and Section 168(k)(10) lets a taxpayer elect 50% instead of 100% for a specific year.

How it shows up in a study

For property placed in service from late 2017 through 2022, a cost segregation study could produce a 100% first-year deduction on every reclassified component. The study breaks out 5-year, 7-year, and 15-year property from the building's total cost. Under the TCJA rules, every dollar in those buckets could be taken in year one.

The used property expansion opened the TCJA benefit to acquisition studies. A buyer who purchased an existing office building, warehouse, or retail center could do a study and claim 100% bonus on the short-life components found, even though the building had prior owners.

The phase-down rules matter for studies covering 2023 and later property. The applicable rate depends on when the property was placed in service and whether any binding contract rules move the acquisition date earlier.

What it does not mean

The 100% bonus applied only to the short-life components a study properly identifies. The building shell at 27.5 or 39 years never qualifies for bonus. The improvement is in the study's reclassifications, not in the building itself.

The deduction is also a timing benefit, not a permanent savings. Total depreciation over the property's life stays the same. Bonus moves it forward. Recapture rules apply at sale. And the passive activity rules in Section 469 determine whether a loss from the bonus deduction can offset your other income this year or must wait.

For property placed in service after January 19, 2025, the One Big Beautiful Bill Act (OBBBA, Pub. L. 119-21, July 2025) restored permanent 100% bonus. The phase-down schedule from the TCJA applies only to property placed in service before that date.