Key Takeaways
- The One Big Beautiful Bill Act (OBBBA) permanently restored 100% bonus depreciation for qualifying property acquired and placed in service after January 19, 2025, reversing a phase-down that had dropped the rate to 60% in 2024.
- The Section 179 deduction for tax years beginning in 2025 allows up to $2,500,000 in immediate expensing, phasing out dollar-for-dollar above $4,000,000 in qualifying property placed in service.
- Bottom line: The OBBBA did not create a single uniform write-off for building purchases. It layered three distinct mechanisms, each with its own qualifying conditions, elections, and limitations. The business owner who understands the architecture gets the full benefit.
When a business owner buys or builds a commercial property, the natural assumption is that the building depreciates over time and the tax benefit arrives slowly. That assumption was accurate for decades. The OBBBA significantly changed it, but not uniformly and not simply. The rules for building purchase tax write-offs in 2026 depend on what kind of property you’re dealing with, what use it’s put to, when construction started, and which elections you make on the return. Getting that analysis right before the transaction closes is where the value is.
What Section 179 Actually Covers on a Building
Section 179 is the provision most business owners think of first when they want to expense a capital purchase immediately. For building-related expenditures, the scope is precise and frequently misunderstood.
Section 179 does not apply to the building itself, its structural shell, or its core structural components. You cannot expense a newly acquired commercial building under Section 179. What it does cover, in the context of nonresidential real property, is four specific improvement categories placed in service after the building was first placed in service: roofs, HVAC systems, fire protection and alarm systems, and security systems. Qualified Improvement Property, which covers interior improvements to nonresidential buildings excluding enlargements, elevators and escalators, and internal structural framework work, also qualifies.
For tax years beginning in 2025, the maximum Section 179 deduction is $2,500,000. That ceiling phases out dollar-for-dollar once the total qualifying property placed in service during the year exceeds $4,000,000, and disappears entirely at $6,500,000 in qualifying purchases. Business owners near or above those thresholds need to model the interaction carefully, since the phase-out applies across all Section 179 property, not just real estate improvements.
One hard constraint: Section 179 generally cannot create or increase a taxable loss from the trade or business. Any disallowed amount carries forward to the following year. Business owners in a lower-income year, or those structuring significant improvement spend, need to account for this income floor when deciding how to sequence Section 179 and bonus depreciation elections. Section 179 must be applied before bonus depreciation on the same property, and the order matters for the net outcome.
Bonus Depreciation: What the OBBBA Restored and Where It Applies
Bonus depreciation under IRC Section 168(k) was restored to 100% for qualifying property acquired and placed in service after January 19, 2025, per IRS Notice 2026-11. Under the prior phase-down schedule put in motion by the Tax Cuts and Jobs Act, the rate had fallen to 60% in 2024 and was heading lower. The OBBBA reversed that trajectory permanently.
The restoration of 100% bonus depreciation is significant for business owners purchasing commercial property because of its interaction with cost segregation. A commercial building is a single acquisition, but it contains components with different tax lives. The structural building itself is 39-year nonresidential real property. Components that a cost segregation study reclassifies as personal property or land improvements, including items like specialized lighting systems, process piping, electrical systems serving specific equipment, and certain flooring, fall into 5-, 7-, or 15-year recovery periods. At 100% bonus depreciation, those reclassified components can be fully expensed in year one.
For a $4 million commercial acquisition in which an engineering-based cost segregation analysis identifies $1.5 million in shorter-life components, the first-year depreciation deduction for those components is $1.5 million, not a fraction of it spread over years. The remaining $2.5 million of the 39-year structural basis depreciates on the standard schedule.
One critical timing note: property subject to a written binding contract on or before January 19, 2025, is treated as acquired under the prior rules. For those properties, the applicable bonus rate for most assets placed in service in 2025 is 40%, not 100%. The acquisition date governs, not the placed-in-service date, and this distinction requires careful review for any property that was recently closed or is currently under development.
Unlike Section 179, bonus depreciation has no income floor. It can create or increase a net operating loss, which carries forward under applicable rules.
QPP: The Provision That Changes the Math for Production Facilities
For business owners who operate manufacturing, chemical production, agricultural production, or refining operations, the OBBBA created a third mechanism that is materially more powerful than either Section 179 or standard bonus depreciation for the right fact pattern.
Qualified Production Property under IRC Section 168(n) allows 100% first-year expensing for qualifying production facility real property, meaning the building’s structural components themselves, in the year placed in service. This is the provision that allows a manufacturer to deduct the full depreciable basis of a new production facility in year one rather than recover it over 39 years.
QPP is not automatic. It requires an affirmative election on a timely filed return, with a detailed statement identifying the property’s address, eligible production areas, and the specific basis amount designated as QPP. Construction must begin after January 19, 2025, and before January 1, 2029. The property must be placed in service after July 4, 2025, and before January 1, 2031. A 10-year recapture period applies: if the property ceases to be used in a qualified production activity within that window, the excess depreciation is recognized as ordinary income in the year the use changes.
Only production-related space qualifies. Offices, administrative areas, finished-goods storage, and research and development space do not. When at least 95% of a facility’s physical space is used for qualified production activities, the taxpayer may elect to treat 100% of the building as QPP.
Retroactive Opportunities for Buildings Already Owned
Business owners who purchased commercial property in prior years without commissioning a cost segregation study may have accumulated missed depreciation that can still be captured. Under the change-in-accounting-method rules, filing Form 3115 allows the taxpayer to reclassify components and recognize a catch-up adjustment for all missed depreciation in the current taxable year, without amending prior returns. A single-year catch-up for a property held eight years can represent a material deduction, the precise value of which depends on the reclassifiable basis and the year-of-change income position.
Coordinating the Three Tools Before the Return Is Filed
The three mechanisms described here, Section 179 for specific improvements, bonus depreciation for reclassified shorter-life components, and QPP for qualifying production real property, apply in different scenarios, require different elections, and carry different compliance obligations. They are not interchangeable and not always available on the same property.
The sequencing of elections, the interaction with income limitations and NOL carryforward rules, and the long-term recapture implications all need to be modeled before elections are made, not defaulted into at filing.
Wiss works with business owners to evaluate building acquisition and improvement strategies with full tax visibility, coordinating depreciation elections, cost segregation analysis referrals, and QPP planning as part of a complete capital expenditure tax strategy. If your business is purchasing, building, or improving commercial property in 2026, contact Wiss before the transaction closes.
This article reflects federal tax law as of the date of publication. State tax treatment varies significantly and should be evaluated separately. Consult a qualified tax advisor before making any depreciation elections or capital acquisition decisions.
Previous
Share
