Taxterity research

Section 179 or bonus depreciation: pinning the rule to the acquisition date

Reviewed 2026-09-15 · AI-assisted draft and editing; sources and limitations remain visible for independent review.

Answer: Two questions decide this, and the first one is the one most files skip. Which version of section 168(k) governs the asset? Public Law 119-21, enacted July 4, 2025, set the additional first-year allowance at 100 percent and struck the paragraph that carried the phase-down schedule; but the act's own effective-date provision applies that change only to property acquired after January 19, 2025, and provides that property is not treated as acquired after the date a written binding contract for the acquisition was entered into. Property acquired on or before that date stays under the earlier percentages, which no longer appear anywhere in the current statutory text. Only then does the familiar comparison matter. Section 179 is an elective, item-by-item deduction with a dollar cap, a placed-in-service reduction threshold, and a ceiling tied to taxable income from the active conduct of a trade or business, with the disallowed amount carried forward. The section 168(k) allowance has no dollar cap and no income ceiling, applies unless the taxpayer elects out for an entire class of property, and can create or enlarge a loss. Their reach also differs: section 179 can be elected for qualified real property such as roofs and heating, ventilation and air-conditioning property added to nonresidential real property, while section 168(k) turns on a recovery period of 20 years or less and on the used-property acquisition conditions. Every dollar figure below is tied to a named tax year, because carrying a figure across years is the most common error in this area.

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Scope

Jurisdiction: United States — federal

Tax periods: Tax years beginning in 2025, Tax years beginning in 2026, Property acquired after 2025-01-19, Property acquired before 2025-01-20

Assumptions

Exclusions

1. Fix the acquisition date before reading any percentage

The controlling instrument here is not the Code text on the screen. It is the effective-date provision of the amending act. Section 70301(c)(1) of Public Law 119-21 applies the 2025 amendments to property acquired after January 19, 2025. Section 70301(c)(4) adds that, for that purpose, property is not treated as acquired after the date on which a written binding contract for the acquisition was entered into. A machine delivered and placed in service in 2026 under a contract signed in November 2024 is therefore governed by pre-amendment law, even though the placed-in-service year is well after the amendment.

That matters because the repeal removed the schedule from the statute. The Amendments notes on the section 168 page record what section 70301 of Public Law 119-21 actually did: section 70301(b)(1)(A) substituted "100 percent" for "the applicable percentage" in section 168(k)(1)(A), and section 70301(b)(1)(B) struck paragraphs (6) and (8), which the note describes as having defined the term "applicable percentage" and provided a phase down for qualified property acquired before September 28, 2017. Both paragraphs now appear only as bracketed repeal notes. A researcher who reads only the current section 168 will find 100 percent and nothing else, and will have no way to price an earlier acquisition. For that property the percentages have to come from the pre-amendment text or from IRS material that still reproduces the schedule. The IRS Cost Segregation Audit Technique Guide revised in February 2025 sets out both tables, and Publication 946 for 2025 states a 40 percent allowance for certain qualified property acquired after September 27, 2017 and before January 20, 2025 and placed in service in 2025, and a 60 percent allowance for property with a long production period and certain aircraft placed in service in 2025.

One further change is easy to miss and matters to planning. The same Amendments notes record that section 70301(a)(1) struck section 168(k)(2)(A)(iii), which had read "which is placed in service by the taxpayer before January 1, 2027," and that section 70301(a)(2)(A) struck the parallel January 1, 2028 placed-in-service and January 1, 2027 acquisition limits from the longer-production-period rules in section 168(k)(2)(B)(i). Section 70301(a)(4) made the corresponding change for specified plants. The result is that the qualified-property definition no longer carries a placed-in-service expiry date, so for property acquired after January 19, 2025 the analysis turns on the acquisition date and the property tests rather than on a sunset.

2. Note the single-year election that can lower the allowance

Section 168(k)(10) lets a taxpayer elect, for the first taxable year ending after January 19, 2025, to substitute 40 percent for 100 percent, or 60 percent in the case of property described in section 168(k)(2)(B) or (C). Section 70301(c)(3) of the act applies that transitional election to taxable years ending after January 19, 2025. It is a one-year election, made at the time and in the form and manner the Secretary prescribes, and it is a different instrument from the general election out.

The general election out is the older mechanism and has its own consequences. Section 168(k)(7) makes it apply to all qualified property in the elected class placed in service during that taxable year, and permits revocation only with the Secretary's consent. Regulation section 1.168(k)-2(f)(1) requires the election by the due date of the return including extensions, in the manner prescribed on Form 4562 and its instructions, and states that a taxpayer who does not make it in that time and manner must compute depreciation taking the allowance into account, and cannot reach the same result through a request to change a method of accounting.

3. Compare the limits, which is where the two provisions really diverge

Section 179 has three stacked limits. Subsection (b)(1) caps the aggregate cost taken into account. Subsection (b)(2) reduces that cap dollar for dollar as the cost of section 179 property placed in service during the year exceeds a threshold. Subsection (b)(3)(A) then limits the deduction to taxable income from the active conduct of any trade or business, computed without regard to the section 179 deduction itself, with subsection (b)(3)(B) carrying the disallowed amount into later years. Aggregation rules can tighten all of this: subsection (d)(6) treats all component members of a controlled group as one taxpayer, subsection (b)(4) treats a married couple filing separately as one taxpayer, and subsection (d)(8) applies the limits at both the partnership or S corporation level and the owner level.

Section 168(k) has none of those limits, which is exactly why it can produce a loss, but it has exclusions section 179 does not. Section 168(k)(2)(D) removes property to which the alternative depreciation system applies. Section 168(k)(9) removes property primarily used in a trade or business described in section 163(j)(7)(A)(iv), and property used in a trade or business that has had floor plan financing indebtedness where the related interest was taken into account under section 163(j)(1)(C). Those exclusions are entity-level facts, not asset-level facts, and they are easy to miss on a fixed-asset schedule.

4. Test eligibility item by item, not by invoice heading

For section 179, subsection (d)(1) requires tangible property to which section 168 applies, or certain computer software; the property must be section 1245 property or, at the taxpayer's election, qualified real property; and it must be acquired by purchase for use in the active conduct of a trade or business. Subsection (d)(2) defines purchase by exclusion, ruling out acquisitions from related persons under sections 267 or 707(b), acquisitions between component members of a controlled group, and acquisitions with a carryover or date-of-death basis. Subsection (e) defines qualified real property as qualified improvement property described in section 168(e)(6) plus four named improvements to nonresidential real property placed in service after the building was first placed in service: roofs, heating, ventilation and air-conditioning property, fire protection and alarm systems, and security systems. Estates and trusts are excluded by subsection (d)(4), and noncorporate lessors face the separate conditions in subsection (d)(5).

For section 168(k), subsection (k)(2)(A)(i) requires a recovery period of 20 years or less, with named alternatives for computer software, water utility property, and qualified film, television, live theatrical and sound recording productions. Subsection (k)(2)(A)(ii) then requires either original use beginning with the taxpayer or an acquisition meeting subsection (k)(2)(E)(i), which asks two things: that the property was not used by the taxpayer at any time before the acquisition, and that the acquisition satisfies the purchase conditions in section 179(d)(2)(A) through (C) and (d)(3). Separately, section 168(n), added by the same 2025 act, provides an elective 100 percent allowance for qualified production property, a defined portion of nonresidential real property whose construction begins after January 19, 2025 and before January 1, 2029 and which is placed in service before January 1, 2031. Real property is normally outside section 168(k) altogether, so that provision is worth checking before concluding that a building has no first-year allowance.

5. The figures, and the years they belong to

Section 179(b)(1) reads $2,500,000 and section 179(b)(2) reads $4,000,000 in the current text, as substituted by section 70306(a) of Public Law 119-21. Section 70306(c) applies that change to property placed in service in taxable years beginning after December 31, 2024. Section 179(b)(6)(A), as amended, begins the inflation adjustment for the paragraph (1) and paragraph (2) amounts with taxable years beginning after 2025, measured from calendar year 2024, so those two statutory amounts are the figures for a taxable year beginning in 2025 without adjustment.

For taxable years beginning in 2026 the adjusted amounts come from Revenue Procedure 2025-32, section 4.24, published in Internal Revenue Bulletin 2025-45: a $2,560,000 expensing limit, a $4,090,000 reduction threshold, and a $32,000 limit on the cost of a sport utility vehicle under section 179(b)(5)(A). The revenue procedure states that it sets forth inflation-adjusted items for 2026 for Code provisions as in effect on October 9, 2025, and tells readers to consult later guidance if the Code is amended for 2025 or 2026 after that date. Publication 946 for 2025 gives the corresponding sport utility vehicle figure of $31,300 for tax years beginning in 2025. No 2027 figure is stated on this page, because none was verified.

6. What this page is not, and where to take it next

This is a sequencing and law-pinning page. It does not pick a provision for a taxpayer, model a multi-year schedule, or test whether a particular asset is section 1245 property. Two sibling pages pick up from here. Placed in service: the evidence that proves readiness and availability handles the date itself, which is a separate question from the acquisition date discussed in step 1. Cost segregation studies: what the IRS audit guide expects you to support handles the classification and substantiation work that determines what basis is even eligible.

A practical next step is to state the acquisition date, the contract date, and the placed-in-service date for each asset, then ask Taxterity a research question about which version of section 168(k) those dates put the asset under, or have it assemble a Federal Tax Memo comparing the two provisions on your facts; then read the effective-date provision and the current section text yourself before you rely on either.

Related research

Official sources

  1. 26 U.S.C. § 179 — Election to expense certain depreciable business assets — § 179(b)(1)-(b)(4), (b)(6)(A), (c)(2), (d)(1), (d)(2), (d)(4)-(d)(6), (d)(8), (e); Editorial Notes, Amendments 2025 (Pub. L. 119-21 § 70306(a)(1)-(2), (b)(1)-(2)); Effective Date of 2025 Amendment note, § 70306(c)
  2. 26 U.S.C. § 168 — Accelerated cost recovery system — § 168(k)(1)(A), (k)(2)(A), (k)(2)(D), (k)(2)(E)(i), (k)(7), (k)(9), (k)(10), (n); Amendments 2025 notes (Pub. L. 119-21 §§ 70301(a)(1)-(4), (b)(1), (b)(3); 70307(a)); Effective Date of 2025 Amendment note, § 70301(c)(1), (3), (4)
  3. IRS Publication 946 (2025), How To Depreciate Property — What's New for 2025 (phase down for property acquired before January 20, 2025; reinstated 100 percent allowance; qualified production property) and What's New for 2026 (section 179 dollar limits)
  4. Internal Revenue Bulletin 2025-45 — Rev. Proc. 2025-32 — Rev. Proc. 2025-32, Section 1 (purpose; items as in effect on October 9, 2025) and Section 4.24, Election to Expense Certain Depreciable Assets, for taxable years beginning in 2026
  5. 26 CFR 1.168(k)-2 — Additional first year depreciation deduction — Paragraph (f)(1)(i) through (iv), election not to deduct additional first year depreciation by class of property; paragraph (h)(1), applicability dates; source note (last amended T.D. 9916, November 10, 2020)
  6. 26 CFR 1.179-5 — Time and manner of making election — Paragraph (a), election on the first or an amended return with the total deduction and the portion allocable to each item; paragraph (b), revocation only with the Commissioner's consent; source note (last amended T.D. 9209, July 13, 2005)

Limitations