Used property qualifies, and that single change is why cost segregation became mainstream. Before the TCJA, bonus depreciation required original use to begin with you, so only new construction and new assets qualified. For acquisitions after September 27, 2017, IRC section 168(k)(2)(E)(ii) swaps that for a first-use-by-the-taxpayer standard. A 1998 office building is used property to the world, but its carpet, millwork, and parking lot are new to the fund that just bought them, and they qualify for bonus at the full rate the acquisition date supports.
The 3 acquisition tests
Used property must clear all 3:
- No prior use by you. Neither you nor a predecessor used the property before acquiring it. A building you leased and then purchased can trip this test for assets you already had depreciable interest in.
- Unrelated seller. The purchase cannot come from a related party under the attribution rules of IRC sections 267 and 707(b). Buying a building from your own family partnership does not create bonus eligibility.
- Cost basis, not carryover basis. The acquisition must be a purchase with a fresh cost basis. Gifts carry the donor's basis, inherited property is not acquired by purchase, and basis that carries over in a nonrecognition transaction, such as a partnership contribution under IRC section 721, does not qualify.
The 1031 exchange nuance
A like-kind exchange splits the replacement property's basis in 2. The exchanged basis that carried over from the relinquished property is not eligible for bonus depreciation. The excess basis, the new money you added to trade up, is treated as newly purchased and is bonus-eligible. A fund that sells a $1,000,000 property and buys a $1,600,000 replacement can take bonus only on short-life assets allocable to the roughly $600,000 of new basis.
Worked example
A fund buys a $2,000,000 suburban office building constructed in 1998 from an unrelated seller in 2026, with $400,000 allocated to land. Every component is 28 years old, and none of it has ever been used by the fund, so the acquisition tests pass. An engineering-based cost segregation study allocates $320,000 of the $1,600,000 depreciable basis to 5-year and 7-year property and 15-year land improvements. Because the property was acquired after January 19, 2025, the permanent 100% rate under OBBBA applies, and the fund deducts $320,000 in year 1. The age of the assets never enters the calculation; only their classification and condition-adjusted cost do.
When used property fails
Related-party rollups, inherited buildings, contributed property inside fund structures, and the carryover slice of 1031 basis all fall outside IRC section 168(k). Those deals can still benefit from cost segregation, since shorter MACRS lives accelerate deductions even without bonus. Amadae's cost segregation screen flags which bucket an acquisition lands in before you commission a study, and Amadae prepares the return, including Form 3115 catch-up math when the property has been owned and misdepreciated for years.