Illustrative Bonus Depreciation Comparison
Why two properties with the same components can have different first-year bonus: acquisition date, binding contracts, and used-property rules. Educational information, not tax advice.
Educational information, not tax advice.
Updated 2026-10-14
Assumptions
- Educational information, not tax advice.
- As of Notice 2026-11 (interim guidance after Public Law 119-21). Proposed regulations had not been published when this page was written.
- The two kitchen packages below are invented identical assets. No dollar benefit is shown. This page does not compute a taxpayer’s tax.
- State decoupling can reverse the federal picture. California’s nonconformity is illustrated by FTB 3885 instructions, not as a survey of all states.
Key takeaways
- 100% additional first-year depreciation applies to qualified property acquired after January 19, 2025, as of Notice 2026-11.
- A pre-January 20, 2025 binding contract stays on the phase-down. Property is not treated as acquired after the contract date.
- Used property has extra tests, including related-party use. Classification of the asset is not the bonus rate.
- The study classifies both packages the same way. The bonus rate is a dated statutory overlay, not a classification result.
Two identical 5-year kitchen packages are placed in service in 2026. Package A was acquired in March 2025. Package B was acquired under a December 2024 binding contract. Under current law, A is in the 100% regime; B remains on the phase-down applicable to pre-January 20, 2025 acquisitions (20% for 2026 placements).
The study classifies both packages the same way. The bonus rate is a dated statutory overlay, not a classification result. Notice 2026-11 is the interim IRS guidance. This illustration does not compute a taxpayer’s tax and does not present a benefit as typical.
Order of operations is easy to invert, and that inversion is the error this page is for. First classify the asset (here, 5-year kitchen equipment under the restaurant matrix and §168). Then ask whether it is qualified property under §168(k). Then ask when it was acquired, including binding-contract and self-constructed rules. Then apply the rate for that acquisition date and placed-in-service year. Then the CPA decides whether to elect out, and how state law treats the same property.
What is not compared
No dollar benefit is shown. State decoupling, such as California’s nonconformity, can reverse the federal picture on a state return. FTB 3885 instructions are the California source in this library; other states differ. Keep state claims general unless that state’s revenue department source is open.
Suppose, for arithmetic only, each package cost $1. The federal additional first-year allowance on A would be 100% of qualified basis if all other tests are met; on B it would be 20% for a 2026 placement under the phase-down. Those $1 figures are invented for the rate contrast. They are not a client result and not a claim about kitchen packages in general.
The January 19, 2025 line
Section 70301 of Public Law 119-21, enacted July 4, 2025, makes the additional first-year depreciation allowance 100% for qualified property acquired after January 19, 2025. Property is not treated as acquired after the date a written binding contract for its acquisition is entered into. Notice 2026-11 applies the existing acquisition-date rules of Treas. Reg. §1.168(k)-2(b)(5) with the new dates. Proposed regulations had not been published when this page was written.
Property acquired after September 27, 2017 and before January 20, 2025 remains on the prior phase-down: 40% if placed in service in 2025 and 20% if placed in service in 2026. Package B is in that world even though it is placed in service in 2026 next to Package A.
Binding contracts and self-constructed property
As summarized in Notice 2026-11, the acquisition date under a written binding contract is the latest of the date the contract is entered into, the date it becomes enforceable under state law, the end of any cancellation period, and the date all contingencies are satisfied. A contract that limits damages to a specified amount, such as liquidated damages, is generally not binding for this purpose. Contract analysis is fact-specific. Have a CPA or attorney read the kitchen-package purchase order before relying on 100%.
Self-constructed property is acquired when physical work of a significant nature begins. A safe harbor treats that as the date more than 10% of total cost, excluding land and preliminary activities, has been paid or incurred. Notice 2026-11 also allows a component election for some components of larger projects begun before January 20, 2025. A restaurant build-out can therefore have some components at 100% and some on the phase-down. The study should date the components. The CPA applies the rates.
Used property and related parties
Used property can qualify if the taxpayer did not previously use it and the acquisition meets the related-party and other limits in §168(k). The 2025 law renumbered the used-property rule; Notice 2026-11 tells taxpayers to apply the existing regulation with the January 19, 2025 substitutions. A used cook line bought from a related seller can fail those tests even if it is 5-year property. Classification survived; bonus did not.
Electing out of bonus, taxable-income limitations, and listed-property rules are CPA overlays. They are not hidden inside the 5-year label on the asset schedule.
What the schedule should show
Both packages should appear as 5-year class 57.0 kitchen equipment if that is the supported class. The bonus percentage is a separate column or a return election, not a reason to relabel B as 39-year property. The CPA files Form 4562. Educational information, not tax advice.
CostSeg SI does not claim an operational agent that computes bonus. This page is a dated comparison of statutory regimes.
Sources
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- 2Public Law 119-21 (July 4, 2025), §§70301, 70306, 70307(opens in a new tab)
The 2025 reconciliation law, which the IRS describes as commonly known as the One, Big, Beautiful Bill Act.
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