Related-Party Acquisition Considerations
Buying from a related party can deny bonus depreciation on used property and can deny the §179 election. The tests are statutory purchase rules in §179(d)(2), used by §168(k). A cost segregation study does not override them. Educational information, not tax advice.
Educational information, not tax advice.
Updated 2026-10-14
Key takeaways
- Used property is bonus-eligible only if acquired by “purchase” under §179(d)(2).
- Related-party status follows §§267 and 707(b), with family limited to spouse, ancestors, and lineal descendants for this purpose.
- Controlled-group acquisitions use a more-than-50% test. Carryover basis and §1014 basis also fail “purchase.”
- The used-property bonus rule is now §168(k)(2)(E)(i) after the 2025 renumbering.
- Notice 2026-16 related-party lease details for qualified production property have not been extracted for this page.
After the 2017 law, bonus depreciation can apply to used property if original-use and used-property acquisition requirements are met. One of those requirements is that the property be acquired by purchase under §179(d)(2). Treasury Regulation §1.168(k)-2 implements the used-property tests, including related-party and predecessor-use limitations.
Section 179(d)(2) defines purchase as an acquisition of property only if three conditions are met. The property is not acquired from a person whose relationship to the acquirer would result in the disallowance of losses under §267 or §707(b). For this section, §267(c)(4) is treated as including only the spouse, ancestors, and lineal descendants. The property is not acquired by one component member of a controlled group from another member of the same group. And the acquirer’s basis is not determined by reference to the transferor’s basis, or under §1014(a) from a decedent.
The 2025 law renumbered the bonus used-property rule. What used to be §168(k)(2)(E)(ii) is now §168(k)(2)(E)(i). Notice 2026-11 tells taxpayers to apply the existing regulation with the January 19, 2025 acquisition-date substitutions. Related-party status does not change because the paragraph number changed.
Publication 946 gives a plain example: machines bought from one’s father do not qualify for §179. The same purchase definition is the one bonus depreciation uses for used property. A cost segregation study that reclassifies those machines does not create eligibility that the acquisition failed.
This page is educational information, not tax advice. Whether two parties are related is a legal determination under the Code sections that §179(d)(2) incorporates. This page does not apply those tests to any transaction.
The purchase definition
Family, for this purpose, is narrower than everyday language and narrower than some other §267 uses. Siblings are not listed in the modified §267(c)(4) rule that §179(d)(2) adopts. Ancestors and lineal descendants are. Do not expand the circle without reading the statute.
Controlled groups use §1563(a) with “more than 50 percent” substituted for “at least 80 percent.” A majority-owned subsidiary sale can fail even when it would not be an 80-percent group for other Code sections.
Carryover-basis transfers — contributions to a corporation or partnership, for example — are not purchases. Inherited property with a §1014 basis is also not a purchase. The heir can still depreciate the property under §167 and §168. The heir generally cannot expense it under §179 or take used-property bonus on that acquisition.
What a study cannot fix
Related-party status is an acquisition fact. It is not a classification fact. Splitting a building into 5-year components does not make those components newly purchased from an unrelated seller.
Predecessor use also matters. Property the taxpayer or a predecessor already used fails the used-property bonus rule even if the paper seller is unrelated. Treas. Reg. §1.168(k)-2 states that limitation.
Land and building allocations under §1012 or §1060 are a different analysis. A related-party deal can still need a land split. Eligibility for first-year allowances is the overlay.
Section 179 parallels
The same purchase definition limits §179. Related-party and controlled-group acquisitions are outside the election. The dollar limits for tax years beginning in 2026 ($2,560,000 / $4,090,000) never come into play if the acquisition is not a purchase.
Estates and trusts cannot elect §179 at all. Noncorporate lessors have additional statutory limits. Those boundaries are on the §179 page.
California does not conform to the enhanced federal §179 election. Related-party status and state conformity are independent issues. See the federal-versus-state page for California only.
What this page does not decide
This page restates the statutory tests. It does not list every relationship in §267 or apply attribution rules to a family chart.
Notice 2026-16 discusses qualified production property. Any related-party lease exceptions in that notice have not been extracted for this page. QPP is elective and temporary. No eligibility conclusion is reached for any reader.
Partnership related-party rules under §707(b) and the more-than-50-percent capital or profits tests should be reviewed by the taxpayer’s CPA when the seller or buyer is a partnership.
As of October 16, 2026, the 100 percent bonus rate for property acquired after January 19, 2025 does not apply if the used-property purchase test fails. Rate and eligibility are separate. A related-party closing after that date can still be ineligible. Educational information, not tax advice.
Sources
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- 5Public 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.