The January 19 Deadline: What You Need to Know

The big change: The One Big Beautiful Bill Act made 100% bonus depreciation permanent for property placed in service after January 19, 2025.

Before January 20: Only 40% bonus depreciation
After January 19: 100% bonus depreciation (permanent!)

The catch: For construction projects that started before January 20, there's a "10% completion test."

If your project was more than 10% complete before January 20, 2025, it doesn't qualify for 100% bonus depreciation—even if you finish it months or years later.

This could cost you $100,000+ in lost tax savings.

Practitioner note (Overline): We’ve advised owners and contractors on timing the 10% test—cost records and scope separation are what decide outcomes.

How Much Could This Cost You?

Example: $500K qualifying renovation/equipment

When You QualifyBonus RateYear-1 DeductionTax Savings (37% rate)
After Jan 19 ✅100%$500K$185,000
Before Jan 19 ❌40%$200K$74,000
Difference$111,000 lost

That's a six-figure difference based solely on timing.

The 10% Completion Test Explained (Simply)

The rule: If more than 10% of your construction project was done before January 20, 2025, the entire project only gets 40% bonus depreciation.

What counts as "completion": Actual construction work—"shoveling dirt," pouring concrete, framing, etc.

What doesn't count: Planning, permits, architectural fees, surveys—these "soft costs" don't count toward the 10%.

How to Calculate

Formula: Costs incurred before Jan 20 ÷ Total expected project cost

Example that FAILS:

  • Total project budget: $2M
  • Work done by January 19: $250K (foundation, site work)
  • Percentage: $250K ÷ $2M = 12.5%
  • Result: Disqualified (over 10%)
  • Gets only 40% bonus, not 100%

Example that QUALIFIES:

  • Total project budget: $2M
  • Work done by January 19: $180K (mostly planning, some site work)
  • Percentage: $180K ÷ $2M = 9%
  • Result: Qualified! (under 10%)
  • Gets 100% bonus when complete

What Counts Toward the 10%?

✅ COUNTS (Physical Construction)

  • Excavation and foundation work
  • Concrete and steel installation
  • Framing and construction
  • Plumbing and electrical rough-in
  • Roofing
  • Any actual building work

❌ DOESN'T COUNT (Soft Costs)

  • Architectural fees
  • Engineering fees
  • Permits
  • Surveys
  • Legal costs
  • Planning and design

The key: Physical construction counts. Paperwork doesn't.

Real Example: The $111K Mistake

Project: $2M office building

  • Contract signed: November 2024
  • Foundation work started: December 2024
  • Completion: June 2026

By January 19, 2025:

  • Foundation and site work completed: $250K
  • Percentage done: $250K ÷ $2M = 12.5%

Result: FAILED the 10% test (over 10%)

The damage:

  • Can only use 40% bonus depreciation
  • Loses out on 100% bonus
  • Cost segregation identifies $500K of qualifying property
  • Lost tax savings: $111,000

If they'd kept it under 10%:

  • Would qualify for 100% bonus
  • Would save an extra $111K in taxes
  • Same building, different timing

What If Your Project Started Before January 19?

Option 1: Slow Down (If Possible)

Keep work under 10% completion before January 20, then resume full speed.

Works for: Projects with flexible timelines

Option 2: Phase It

Break the project into separate phases with separate contracts.

  • Phase 1: Accept 40% bonus
  • Phase 2: Starts fresh after January 19 → gets 100% bonus

Works for: Large projects that can be logically separated

Option 3: Accept the 40%

If you're already over 10%, just accept 40% bonus and move forward.

Reality check: 40% is still better than the 0-20% rates that were coming before the One Big Beautiful Bill Act.

For New Projects Started After January 19

You're in the clear! No 10% test to worry about. Just:

  • Complete the project
  • Get a cost segregation study
  • Claim 100% bonus depreciation on qualifying property
  • Enjoy massive year-one deductions

Forever: Since 100% bonus is now permanent, this isn't a limited-time opportunity. You can plan long-term around these tax benefits.

Common Questions

Q: My project was 8% done by January 19. Do I qualify?

A: Yes! Under 10% means you qualify for 100% bonus depreciation.

Q: How do I know what percentage my project was complete?

A: Your contractor should have cost records. Add up all costs incurred before January 20, divide by total project budget. Only count actual construction costs, not design/permits.

Q: Can I split one project into multiple contracts to game the system?

A: The IRS may treat related contracts as one project if they're obviously connected. Don't try to artificially split. Get professional advice.

Q: What types of property qualify for bonus depreciation?

A: Equipment, machinery, furniture, fixtures, and certain building improvements (like HVAC, lighting, flooring). Generally, anything with a 20-year or shorter depreciation life.

Q: Is this mandatory or can I opt out?

A: Optional. Some businesses prefer to spread deductions over multiple years rather than taking everything in year one.

Your Action Plan

If you're planning construction:

  • Understand the January 19 deadline rules
  • Work with your tax advisor on timing
  • Plan for cost segregation to identify qualifying property
  • Consider starting after January 19 for simplicity

If your project started before January 19:

  • Calculate your completion percentage
  • If under 10%: You're good!
  • If over 10%: Accept 40% bonus or consider phasing

For all projects:

  • Get a cost segregation study
  • Maximize bonus depreciation benefits
  • Document everything
  • Work with tax professionals

For a quick cost segregation estimate, try Modern CFO's free calculator. For cost segregation vs bonus depreciation analysis, see Modern CFO's bonus depreciation guide.

Sources

Disclaimer: Tax rules are complex. This is educational content only. Consult qualified tax professionals for your specific situation.