Accelerated Depreciation Under the One Big Beautiful Bill Act (OBBBA): What Qualifies in Tax Year 2025?

For tax year 2025, the One Big Beautiful Bill Act (OBBBA) makes significant changes to the rules for accelerated (bonus) depreciation. The Act both restores and expands 100% bonus depreciation for certain assets and introduces a new category of property—qualified production property (QPP)—that is eligible for immediate expensing. The definition of a “qualified asset” for purposes of accelerated depreciation under the OBBBA depends on which provision is being applied: the general 100% bonus depreciation under IRC §168(k), or the new 100% expensing for QPP under IRC §168(n).

Below is a detailed explanation of what constitutes a qualified asset for each provision for tax year 2025, including the relevant legal requirements, acquisition and placed-in-service rules, and any exceptions or caveats.

1. Qualified Property for 100% Bonus Depreciation under IRC §168(k) (as amended by OBBBA)

General Rule

For property acquired and placed in service after January 19, 2025, the OBBBA permanently restores 100% bonus depreciation for “qualified property.” The definition of qualified property is as follows:

• Tangible property with a recovery period of 20 years or less under MACRS (Modified Accelerated Cost Recovery System). This includes most machinery, equipment, furniture, fixtures, and land improvements.
• Computer software as defined in IRC §167(f)(1).
• Qualified improvement property (QIP), which is any improvement to the interior portion of a nonresidential building, placed in service after the building was first placed in service, excluding enlargements, elevators/escalators, and internal structural framework.
• Water utility property as defined in IRC §168(e)(5).
• Specified plants (for farming businesses), if the taxpayer elects to claim bonus depreciation in the year the plant is planted or grafted.

Original use of the property must begin with the taxpayer, or, for used property, the following requirements must be met:

• The property was not previously used by the taxpayer or a predecessor (using a five-year lookback rule).
• The property is acquired by purchase (not from a related party or as part of a carryover basis transaction).
• The basis of the property is not determined by reference to the basis of other property held by the taxpayer.

Acquisition and Placed-in-Service Rules:

• The property must be both acquired (as defined below) and placed in service after January 19, 2025.
• For acquired property, the acquisition date is the later of (a) the date a written binding contract is entered into, or (b) the date the contract becomes enforceable under state law. If the contract has cancellation or contingency clauses, the acquisition date is when those end or are satisfied.
• For self-constructed property, the acquisition date is when physical work of a significant nature begins (not preliminary activities like planning or design). Under a safe harbor, this is when more than 10% of the total expected construction costs (excluding land and preliminary activities) are incurred.

Exclusions:

• Property acquired before January 20, 2025, or subject to a binding contract entered into before that date, is not eligible for the new 100% rate and is subject to the phase-down rates in effect prior to the OBBBA (e.g., 40% for property placed in service before the end of 2025, 20% for property placed in service before the end of 2026) 
• Property required to be depreciated under the alternative depreciation system (ADS) is not eligible.
• Property used by the taxpayer or a predecessor at any time prior to acquisition (within the five-year lookback) is not eligible as “used property.”

Special Election:

• Taxpayers may elect to claim 40% (or 60% for certain long production period property and certain aircraft) bonus depreciation instead of 100% for the first tax year ending after January 19, 2025 

2. Qualified Production Property (QPP) under IRC §168(n) (as added by OBBBA)

New 100% Expensing for QPP

The OBBBA introduces a new, elective 100% depreciation deduction for “qualified production property” (QPP), which is a subset of nonresidential real property that would otherwise be depreciated over 39 years. This provision is temporary and applies to property meeting the following requirements:

• Construction of the property begins after January 19, 2025, and before January 1, 2029.
• Placed in service in the United States or a U.S. possession before January 1, 2031.
• Used by the taxpayer as an integral part of a qualified production activity (manufacturing, agricultural production, chemical production, or refining of a qualified product).
• Original use of the property commences with the taxpayer, unless the property qualifies under the used property exception (see below).
• Designated by election on the taxpayer’s return for the year the property is placed in service.
• Not required to use ADS (alternative depreciation system).

Qualified Production Activity:

• Includes manufacturing, production (limited to agricultural and chemical production), and refining of a qualified product.
• A “qualified product” is generally tangible personal property, but excludes food and beverages prepared in the same building as a retail establishment in which they are sold.
• The activity must result in a “substantial transformation” of the property, consistent with the meaning in IRC §954(d) and related regulations.

Exclusions:

• Any portion of a building used for non-production purposes (offices, administrative services, lodging, parking, sales, research, software development, engineering, etc.) is not eligible.
• Leased property does not qualify (use by the lessee does not count as use by the taxpayer for purposes of a qualified production activity).
• Property required to use ADS is not eligible.

Used Property Exception:

• QPP includes certain used property if:
  • The property is acquired after January 19, 2025, and before January 1, 2029.
  • The property was not used in a qualified production activity by any person between January 1, 2021, and May 12, 2025.
  • The property was not used by the taxpayer at any time prior to its acquisition.
  • The property was not acquired from a related party or in a carryover basis transaction.

Acquisition Date:

• For QPP, property is treated as acquired no later than the date on which the taxpayer enters a written binding contract for such acquisition 

Recapture:

• If QPP ceases to be used as part of a qualified production activity within 10 years after being placed in service, the accelerated depreciation is subject to recapture as ordinary income under IRC §1245 

Election:

• Taxpayers must affirmatively elect QPP expensing for each taxable year it is claimed. The election is irrevocable for the year made.

3. Section 179 Expensing (as expanded by OBBBA)

• The OBBBA increases the maximum Section 179 deduction to $2.5 million, reduced dollar-for-dollar by the amount by which the cost of qualifying property exceeds $4 million, for property placed in service after December 31, 2024. These amounts are indexed for inflation in future years 
• Section 179 property includes most tangible personal property, off-the-shelf computer software, and certain qualified real property (e.g., qualified improvement property, roofs, HVAC, fire protection, and security systems for nonresidential real property).

4. Special Rules for Specified Plants (Farming Businesses)

• The OBBBA retains and permanently restores the 100% bonus depreciation election for specified plants (e.g., fruit or nut trees, vines, or other plants with a pre-productive period of more than two years) if the taxpayer elects to claim bonus depreciation in the year the plant is planted or grafted, rather than when placed in service 

Summary Table: Qualified Assets for Accelerated Depreciation under OBBBA for Tax Year 2025

Key Caveats and Considerations

• Acquisition Date is Critical: For both bonus depreciation and QPP expensing, the acquisition date is generally the date of the written binding contract or when construction begins (10% test for self-constructed property). Property acquired or under contract before Jan. 20, 2025, is not eligible for the new 100% rate.
• Used Property: Used property can qualify if it meets the five-year lookback and other requirements (not previously used by the taxpayer, not acquired from a related party, etc.).
• QPP Excludes Non-Production Areas: For QPP, only the portion of a building used for qualified production activity is eligible. Offices, sales, R&D, and other non-production areas are excluded.
• Leased Property: Leased property does not qualify for QPP expensing.
• Recapture: QPP is subject to a 10-year recapture rule if the property ceases to be used in a qualified production activity.
• Election Required for QPP: Taxpayers must affirmatively elect QPP expensing each year.
• Section 179 and Bonus Depreciation: Section 179 can be used in combination with bonus depreciation, but has its own dollar and investment limits.

In summary:
A qualified asset for accelerated depreciation under the OBBBA for tax year 2025 is generally any tangible property with a recovery period of 20 years or less, computer software, qualified improvement property, or specified plant, acquired and placed in service after January 19, 2025, and meeting the original use or used property requirements. For the new 100% expensing of qualified production property, it is the portion of nonresidential real property used as an integral part of a qualified production activity, with construction beginning after January 19, 2025, and before January 1, 2029, and placed in service before January 1, 2031, subject to the exclusions and requirements described above.