How does the new tax law impact the eligibility of used property for 100% bonus depreciation in tax years 2023 and 2024?
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The eligibility of used property for 100% bonus depreciation in tax years 2023 and 2024 is affected by both the phase-down schedule under prior law and the changes made by the new tax law, P.L. 119-21 (H.R. 1, One Big Beautiful Bill Act, OBBBA).
1. Background: Bonus Depreciation for Used Property (Pre-OBBBA)
Under IRC §168(k), as amended by the Tax Cuts and Jobs Act (TCJA), "qualified property" eligible for bonus depreciation includes both new and used property, provided the taxpayer had not previously used the property and the acquisition meets certain requirements (e.g., not acquired from a related party, not acquired in a tax-free exchange).- The bonus depreciation rate was 100% for property acquired and placed in service after September 27, 2017, and before January 1, 2023. The rate then phased down: 80% for 2023, 60% for 2024, 40% for 2025, 20% for 2026, and 0% for 2027 and later.
2. Changes Under the New Law (OBBBA)
The new law, effective for property acquired after January 19, 2025, restores 100% bonus depreciation for "qualified property," including eligible used property, on a permanent basis.- For property acquired under a binding contract before January 20, 2025, or actually acquired before that date, the original TCJA phase-down schedule continues to apply. This means that for property acquired and placed in service in 2023, the bonus depreciation rate is 80%; for 2024, it is 60%.
3. Eligibility of Used Property for 100% Bonus Depreciation in 2023 and 2024
- In tax years 2023 and 2024, used property is eligible for bonus depreciation if it meets the requirements of IRC §168(k), but the applicable bonus depreciation rates are 80% for 2023 and 60% for 2024, not 100%.
- The 100% bonus depreciation rate does not apply to property acquired in 2023 or 2024. The new law’s restoration of 100% bonus depreciation applies only to property acquired after January 19, 2025.
- The definition of "qualified property" continues to include eligible used property, provided the acquisition is not from a related party, not acquired in a tax-free exchange, and the taxpayer has not previously used the property.
4. Summary Table of Bonus Depreciation Rates for Used Property (Acquired and Placed in Service After September 27, 2017)
2023: 80%- 2024: 60%- 2025: 40% (unless acquired after January 19, 2025, in which case 100% applies)
2026: 20%- 2027 and later: 0% (unless acquired after January 19, 2025, in which case 100% applies)
5. Conclusion
For tax years 2023 and 2024, used property that meets the requirements of IRC §168(k) is eligible for bonus depreciation, but the rate is 80% in 2023 and 60% in 2024. The new law does not retroactively restore 100% bonus depreciation for used property acquired in those years; the 100% rate is only available for property acquired after January 19, 2025.
Citations:
IRC §168(k) as amended; P.L. 119-21 (H.R. 1, OBBBA)
MACRS Depreciation Guide
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