Can individuals benefit from OBBBA bonus depreciation changes, or is it limited to businesses?
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Individuals can benefit from the bonus depreciation changes enacted by the One Big Beautiful Bill Act (OBBBA), but only to the extent that they own depreciable property used in a trade or business or for the production of income. The bonus depreciation regime under IRC §168(k), as amended by OBBBA, is not limited solely to corporations or large businesses; it is available to any taxpayer—including individuals, partnerships, S corporations, and C corporations—who places qualifying property in service and uses it in a qualifying activity.
Key Legal Details
1. Eligibility for Bonus Depreciation
- Section 168(k) provides that the bonus depreciation deduction is available to "any taxpayer" who places "qualified property" in service. The statute does not restrict eligibility to corporations or businesses; individuals who own and use qualifying property in a trade or business or for the production of income are also eligible.
- The property must be used in a trade or business or held for the production of income. Personal-use property (such as a car used solely for commuting or a personal residence) does not qualify for bonus depreciation.
2. Types of Property and Activities
- Qualified property generally includes tangible property with a recovery period of 20 years or less, certain computer software, water utility property, and certain improvements to nonresidential real property (such as qualified improvement property).
- Individuals who own rental real estate, operate a sole proprietorship, or are partners in a partnership or shareholders in an S corporation can claim bonus depreciation on qualifying property used in those activities.
3. Section 179 vs. Bonus Depreciation
- Section 179 expensing is subject to annual dollar limits and is phased out for larger investments, and it is not available to estates and trusts. In contrast, bonus depreciation under §168(k) has no dollar limit and is available to all taxpayers, including individuals, estates, and trusts, provided the property is used in a qualifying activity.
4. OBBBA Changes
- OBBBA made 100% bonus depreciation permanent for qualified property acquired and placed in service after January 19, 2025, with certain transitional rules for property acquired earlier in 2025.
- The law did not introduce any new restrictions that would limit bonus depreciation to businesses or corporations; the eligibility rules remain as described above.
5. Partnerships and S Corporations
- If an individual is a partner in a partnership or a shareholder in an S corporation, the entity claims the bonus depreciation at the entity level, and the deduction flows through to the individual on their Schedule K-1.
6. Limitations
- The property must be used in a trade or business or for the production of income. Property used solely for personal purposes does not qualify.
- Certain property, such as property used outside the United States, tax-exempt use property, and property acquired from related parties, may be excluded from bonus depreciation.
Conclusion
Individuals can benefit from the OBBBA bonus depreciation changes if they own and place in service qualified property used in a trade or business or for the production of income. The rules are not limited to businesses or corporations; they apply broadly to all taxpayers, including individuals, subject to the general requirements and limitations of IRC §168(k).
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