Section 168(m) Special Depreciation

Businesses that invest in equipment used to reuse, recycle, or recover materials may qualify for a valuable tax break under Internal Revenue Code Section 168(m). Created as part of the One Big Beautiful Bill Act (OBBBA), this provision allows eligible taxpayers to claim a 100% first-year depreciation deduction for certain qualified reuse and recycling property.

For taxpayers who operate recycling facilities or businesses that recover valuable materials from waste streams, Section 168(m) can significantly reduce the after-tax cost of new investments.

What Is Section 168(m)?

Section 168(m) provides a special depreciation allowance for qualified reuse and recycling property.

Instead of recovering the cost of eligible property over several years through regular depreciation, taxpayers may be able to deduct the entire cost in the first year the property is placed in service. This accelerated deduction encourages investment in recycling infrastructure and material recovery operations.

The provision is separate from the general bonus depreciation rules under Section 168(k), although both allow taxpayers to accelerate cost recovery.

What Is Qualified Reuse and Recycling Property?

Qualified reuse and recycling property generally includes depreciable property used primarily to:

• Collect recyclable materials
• Sort recyclable materials
• Process recyclable materials
• Clean or prepare materials for reuse
• Recover usable materials from waste streams
• Convert recovered materials into feedstock for manufacturing

The property must be used in a qualifying reuse or recycling activity and meet all requirements established under Section 168(m).

Examples of Potentially Qualifying Property

Examples may include:

• Recycling machinery
• Material sorting systems
• Conveyor systems
• Shredders and crushers
• Optical sorting equipment
• Baling equipment
• Material recovery facility equipment
• Certain specialized vehicles used directly in recycling operations
• Equipment used to process recovered materials for reuse

Land and certain nonqualifying assets generally do not qualify for depreciation and therefore are not eligible for the special depreciation allowance.

How Does the Deduction Work?

If property qualifies under Section 168(m), a taxpayer can generally deduct 100% of the property's eligible basis in the year it is placed in service.

Example

Suppose a sole proprietor purchases qualifying recycling equipment for $250,000 during 2026.

Without Section 168(m), the equipment would generally be depreciated over its regular recovery period.

If the property qualifies for the Section 168(m) special depreciation allowance:

• Cost of equipment: $250,000
• Special depreciation percentage: 100%
• First-year deduction: $250,000

The entire cost could potentially be deducted in the year the equipment is placed in service, reducing taxable income immediately.

Who Can Claim the Deduction?

The deduction may be available to:

• Sole proprietors
• Farmers
• Partnerships
• S corporations
• C corporations
• Limited liability companies taxed as businesses

Individual taxpayers can benefit from the deduction when they own or participate in a business that places qualified reuse and recycling property in service.

Most wage earners who do not own a business will not qualify for this deduction.

What Records Should You Keep?

If you claim Section 168(m) depreciation, maintain documentation showing:

• The purchase price of the property
• The date the property was placed in service
• The property's business use
• The recycling or reuse activities performed
• Asset invoices and purchase agreements
• Depreciation records and elections

Good records can help support the deduction if the IRS requests additional information.

How Do You Report Section 168(m) Depreciation?

The deduction is generally reported on Form 4562, Depreciation and Amortization.

Taxpayers should also retain any supporting schedules and elections required under the applicable IRS guidance.

Most tax software will walk you through the depreciation interview and calculate the allowable deduction based on the property's classification and eligibility.

Section 168(m) vs. Section 168(k) Bonus Depreciation

Although both provisions allow accelerated cost recovery, they serve different purposes.

Businesses involved in reuse and recycling activities should review both provisions because certain assets may qualify under one provision, the other, or both depending on the applicable rules.