Bonus Depreciation in 2025: TCJA vs. OBBBA Implications for Self-Constructed Property

Key Takeaways: 

• Timing drives bonus depreciation outcomes in 2025. 
• The 10% Safe Harbor determines whether TCJA or OBBBA rules apply. 
• Component elections may allow 100% bonus depreciation for qualifying assets. 
• Strong cost and timing documentation is essential. 

Bonus Depreciation in 2025: TCJA vs. OBBBA Implications for Self‑Constructed Property 

For 2025, the applicable IRC Sec. 168(k) bonus depreciation rules are determined by both the Tax Cuts and Jobs Act (TCJA) and the amendments made by the One Big Beautiful Bill Act (OBBBA), as clarified in IRS Notice 2026‑11. Under the TCJA phase‑down, qualified property acquired before January 20, 2025, and placed in service during 2025 is generally subject to a 40% bonus depreciation rate. In contrast, for qualified property acquired after January 19, 2025, the OBBBA provides a permanent 100% bonus depreciation rate that generally applies. 

How the Start‑of‑Construction Rules Affect Bonus Depreciation 

For construction projects and self‑constructed assets, the determination of when manufacturing, construction, or production begins is a critical factor. For self-constructed property, the “beginning of construction” is determined by either: 

1. Physical work of a significant nature, or  
2. The 10% “Safe Harbor” as defined in Treasury Reg. Sec.1.168(k)-2(b)(5)(iv)(B)(2).  

Notice 2026-11 incorporates the 10% Safe Harbor, as updated for the relevant dates under the OBBBA. Under the 10% Safe Harbor, if more than 10% of total hard costs (excluding land and preliminary activities such as planning, design, securing financing, exploratory work, or research) are incurred or paid before January 20, 2025, then construction is treated as having begun prior to that date. In that case, the project is subject to the TCJA phase‑down, and property placed in service in 2025 will generally qualify only for 40% bonus depreciation. Conversely, if the 10% threshold is not exceeded as of January 19, 2025, the property is treated as not having begun construction, and the OBBBA permanent 100% bonus rate applies once placed in service. 

Using the Component Election to Maximize Bonus Depreciation 

Importantly, IRS Notice 2026‑11 also confirms the continued availability of the component election under Treasury Reg. Sec. 1.168(k)-2(c). This election allows taxpayers to treat different components of a larger self‑constructed property as separate units of property for bonus depreciation purposes. As a result, even if the overall project exceeds the 10% Safe Harbor threshold before January 20, 2025 (and is therefore subject to the 40% rate), individual components that do not exceed the 10% threshold by that date may independently qualify for the OBBBA’s 100% bonus depreciation rate once placed in service. 

Final Considerations for 2025 Bonus Depreciation 

In summary, for 2025, taxpayers should carefully examine and document when hard costs were incurred or paid for purposes of the 10% Safe Harbor, as doing so may allow a self‑constructed asset — or certain components of it — to qualify for the OBBBA 100% bonus depreciation regime rather than the TCJA 40% phase‑down rate. By strategically using the component election, taxpayers may maximize the portion of a project eligible for 100% bonus depreciation. Accurate documentation and cost allocation remain essential under the interim guidance provided in IRS Notice 2026‑11.