Bonus Depreciation Timeline Tool: What Rate Applies to Your Property?

The Jan 19, 2025 cliff

OBBBA permanently reset bonus depreciation to 100% for property whose binding acquisition contract is signed after January 19, 2025. Property under a binding contract entered before that date remains subject to the phase-down: 40% in 2025, 20% in 2026, and 0% thereafter. IRS Notice 2026-11 provides interim guidance.

The 40% election

For the first tax year ending after January 19, 2025, taxpayers may elect 40% bonus depreciation (60% for long-production-period property). The election is useful when an otherwise-100% deduction would waste a net operating loss.

Frequently asked questions

What is the January 19, 2025 cliff in OBBBA?

OBBBA (Public Law 119-21, signed July 4, 2025) permanently restored 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025. Property under a binding acquisition contract signed on or before January 19, 2025 stays on the legacy phase-down: 40% in 2025, 20% in 2026, and 0% thereafter. The acquisition date, not the closing date, controls.

What counts as a binding contract for the acquisition date test?

A binding contract is a written agreement enforceable under state law that specifies price and property, with no material contingencies giving either party a unilateral exit. Purchase and sale agreements with standard financing, inspection, and title contingencies typically qualify once those contingencies are satisfied or waived. Letters of intent and non-binding term sheets do not qualify.

What is the difference between acquisition date and placed-in-service date?

Acquisition date is the date the binding contract is signed. Placed-in-service date is the date the property is ready and available for its intended income-producing use, typically the closing date for turnkey properties or the certificate-of-occupancy date for new construction. Both dates matter under OBBBA: acquisition determines the rate class, placed-in-service determines the tax year.

What is the 40% election and when does it help?

For the first tax year ending after January 19, 2025, taxpayers may elect 40% bonus depreciation (60% for long-production-period property) instead of the default 100%. The election is useful when a 100% deduction would waste a net operating loss carryforward, drop taxable income below available credits, or push the taxpayer under a QBI deduction threshold. The election is made under IRC Section 168(k)(10).

What is the bonus rate for property acquired before January 20, 2025?

Property under a binding contract signed on or before January 19, 2025 stays on the pre-OBBBA phase-down schedule: 60% in 2024, 40% in 2025, 20% in 2026, and 0% in 2027 and later. A property with a December 2024 binding contract placed in service in March 2025 receives 40% bonus. The same property with a February 2025 contract receives 100%.

Does OBBBA also affect Section 179 expensing?

Yes. OBBBA raised the Section 179 cap to $2.5M with a $4M phaseout threshold beginning in 2025. Section 179 remains limited by business taxable income and cannot create a loss, unlike Section 168(k) bonus. Section 179 applies to qualifying property placed in service after the effective date regardless of when the acquisition contract was signed.

What IRS guidance interprets the OBBBA bonus depreciation rules?

IRS Notice 2026-11, issued January 14, 2026, provides interim guidance on the amended Section 168(k) including the transition rules for pre-January-20-2025 binding contracts, the mechanics of the 40% election, and the interaction with Section 168(n) Qualified Production Property. Final regulations are expected in 2026 and 2027 following the notice-and-comment period.