What types of assets qualify for bonus depreciation in 2025?
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For tax year 2025, the types of assets that qualify for bonus depreciation are governed by the Internal Revenue Code (IRC) § 168(k), as amended by the One Big Beautiful Bill Act (OBBBA), which permanently restored 100% bonus depreciation for most qualified property acquired after January 19, 2025. Here is a detailed breakdown of the qualifying assets and the relevant legal requirements:
1. General Qualified Property (IRC § 168(k))
a. Tangible Property with a Recovery Period of 20 Years or Less- This includes most tangible personal property such as machinery, equipment, computers, vehicles, and certain land improvements.- The property must be depreciable under MACRS (Modified Accelerated Cost Recovery System) and have a class life of 20 years or less.
b. Computer Software- Computer software defined in and depreciated under IRC § 167(f)(1) qualifies, provided it is not amortizable as a section 197 intangible.
c. Water Utility Property- Water utility property as defined in IRC § 168(e)(5) is eligible.
d. Qualified Film, Television, and Live Theatrical Productions- As defined in IRC §§ 181(d) and (e), these are eligible for bonus depreciation.
e. Certain Plants Bearing Fruits and Nuts- Specified plants (trees or vines bearing fruits or nuts, or other plants with a preproductive period of more than 2 years) are eligible if planted or grafted after January 19, 2025.
f. Used Property- Used property can qualify if it was not previously used by the taxpayer or a related party, and meets all other requirements of IRC § 168(k).
2. Qualified Production Property (New under OBBBA)
- The OBBBA introduces a new, temporary full expensing provision for “qualified production property,” which is a category of building property typically excluded from bonus depreciation due to its 39-year class life.
- To qualify, the property must:
- Be used as an integral part of a qualified production activity (e.g., manufacturing, refining, or production)
- Be placed in service in the United States or a U.S. possession
- Have its original use commence with the taxpayer
- Have construction begin after January 19, 2025, and before January 1, 2029
- Be designated by election
- Be placed in service before January 1, 2031
- Leased property does not qualify, and portions of buildings used for nonproduction purposes (such as offices or R&D) are excluded.
3. Exclusions and Limitations
Certain property is specifically excluded from bonus depreciation, including:- Property required to be depreciated under the Alternative Depreciation System (ADS), such as property used predominantly outside the U.S., tax-exempt use property, tax-exempt bond-financed property, and imported property from certain countries.- Property for which the taxpayer elected out of bonus depreciation for the applicable class of property.- Property acquired under a binding contract entered into before January 20, 2025, is treated as acquired on the contract date, which may make it ineligible for 100% bonus depreciation under the OBBBA.
4. Summary Table of Eligible Property for 2025
5. Procedural Notes
- Taxpayers may elect out of bonus depreciation for any class of property by attaching a statement to their timely filed return.
- The order of deductions is: Section 179 expensing first, then bonus depreciation, then regular MACRS depreciation.
In summary: For 2025, 100% bonus depreciation is available for most new and used tangible property with a recovery period of 20 years or less, certain computer software, water utility property, qualified film/TV/theatrical productions, certain fruit/nut plants, and, under new OBBBA rules, certain qualified production property (building property used in production activities and meeting specific requirements). Exclusions apply for property required to use ADS, property acquired under pre-1/20/2025 contracts, and certain other categories.
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