UBIA Defined: Unadjusted Basis After Acquisition for Qualified Property

This process guide explains how to work out UBIA—the unadjusted basis, immediately after acquisition—of qualified property for tax purposes, and how it ties to depreciation rules and the Section 199A deduction. You’ll see the full journey, from identifying property that counts to timing rules that can include 45-day, 60-day, 120-day, and multi-year periods. The tone is steady and practical, with clear actions at each step and plain words for complex terms.

What UBIA Means and Basic Requirements

UBIA is the original cost basis of depreciable tangible property on the date you place it in service. In short, it’s your cost at that starting point, and the basis is not reduced by depreciation later. Improvements are treated as separate items with their own UBIA.

Qualified property must be all of the following:
– Depreciable, tangible, and used in a qualified trade or business
– Held and available for use at the end of the tax year
– Used at some point during the year to produce qualified business income (QBI)
– Still within its depreciable period at year-end

The depreciable period ends on the later of:
– 10 years after placed-in-service, or
– The end of the full recovery period under Section 168.

Note: Bonus depreciation and other first-year deductions do not shorten that recovery period or change UBIA.

Important year-end rule: property bought within 60 days of year-end, then disposed of within 120 days, and not used in the business for at least 45 days, generally does not count as qualified property.

Starting January 19, 2025, permanent 100% bonus depreciation returned for qualified property with a recovery period of 20 years or less. This helps cash flow but does not change UBIA or how the depreciable period is measured.

Step-by-Step: Determining UBIA and Qualified Property Status

1) Confirm the property fits the basic tests

• Is it tangible and depreciable?
• Is it used in your qualified trade or business?
• Was it used at any point during the taxable year to produce qualified business income?

If yes, you’re closer to qualifying. At this stage, keep invoices and proof of use. Authorities will look to the law’s definitions; focus on what the property is, how it’s used, and whether its depreciable period is still open.

Timeframe markers set by law:
– Use must occur during the taxable year.
– Property must be held and available for use at the close of that year.

2) Identify the placed-in-service date

This is the date the property is ready and available for use. UBIA is measured on that exact date and reflects the original cost basis. Because UBIA is unadjusted, do not reduce it for depreciation, including bonus depreciation.

Your actions:
– Record the placed-in-service date and original cost.
– Keep vendor contracts and service start confirmations.
– Treat improvements as separate property—track each improvement with its own date and cost.

3) Establish UBIA as the unadjusted basis

• UBIA = original cost at the placed-in-service date.
• Do not subtract any depreciation.
• Improvements are separate, each with its own UBIA and placed-in-service date.

Your action: Maintain a fixed asset list that shows:
– Description of asset or improvement
– Placed-in-service date
– Original cost (UBIA)
– Asset class and recovery period reference under Section 168

Authorities rely on the statutory framework that UBIA remains unadjusted by depreciation and that improvements stand on their own.

4) Apply the depreciable period test

The property must still be within its depreciable period at year-end to count as qualified property.

The depreciable period ends on the later of:
– 10 years after the placed-in-service date, or
– The end of the full recovery period under Section 168.

Common recovery periods: 3, 5, 7, 10, 15, 20 years. Real property examples: 27.5 years (residential rental) and 39 years (nonresidential).

Your action:
– For each asset, map the placed-in-service date and calculate the later end date using the 10-year rule and the Section 168 recovery period.
– If the asset is still within that window at year-end, it may qualify.
– If it has passed both the 10-year mark and its recovery period by year-end, it will not qualify.

5) Check special year-end acquisition and disposal rules

If you acquire property within 60 days of year-end and dispose of it within 120 days, and you did not use it for at least 45 days, that property generally isn’t qualified property.

Your action:
– Flag any late-year purchases.
– Confirm continuous business use for at least 45 days.
– If you cannot prove that threshold before a quick disposal, remove the asset from your qualified property list for the year.

6) Factor in bonus depreciation without changing UBIA

With permanent 100% bonus depreciation effective January 19, 2025, many businesses will expense assets immediately. This supports faster deductions but does not affect UBIA or shorten the Section 168 recovery period.

Your action:
– Keep two tracks in your records:
1. Tax depreciation (may be fully expensed for tax purposes)
2. UBIA (remains at original cost)
– Authorities will evaluate UBIA based on original cost at the placed-in-service date, ignoring any depreciation or expensing.

7) Align with Section 199A purposes

UBIA matters for the qualified business income deduction (Section 199A). The deduction can depend on the UBIA of qualified property used in the trade or business, so accuracy in steps 1–6 is key.

Your action:
– Tie each qualified asset’s UBIA to your Section 199A workpapers.
– Confirm the asset was used during the year to produce QBI, held and available at year-end, and within the depreciable period.

Estimated Timelines and What to Expect

• Placed-in-service: When the asset is ready and available for use; that date sets your UBIA.
• Year-end status: Property must be held and available for use at the close of the taxable year.
• Use during the year: At least some business use must occur during the taxable year for QBI purposes.
• Year-end acquisition checks: The 60-day acquisition window, 120-day disposal window, and 45-day minimum use apply to late-year property.
• Long-term tests: The depreciable period ends at the later of 10 years after placed-in-service or the full Section 168 recovery period.

From the government’s side, the rules are clear that bonus depreciation—whether 100% or otherwise—does not change UBIA or the length of the recovery period for qualified property tests.

Common Scenarios and How to Handle Them

• You buy equipment in March and place it in service right away. You can claim 100% bonus depreciation (if eligible) but still keep UBIA equal to the original cost on that March date. The depreciable period test still uses the regular Section 168 timeline and the 10-year rule.

• You add a major improvement in July. That improvement is separate qualified property with its own unadjusted basis and placed-in-service date. Track it separately for UBIA and for the depreciable period.

• You buy an asset on December 10, then sell it on February 15 without 45 days of business use. Because it was acquired within 60 days before year-end and disposed within 120 days without enough use, it generally doesn’t count as qualified property for that year.

According to analysis by VisaVerge.com, keeping a clean asset register that separates tax depreciation from UBIA helps you avoid errors when applying the qualified property tests, especially when improvements and late-year purchases are involved.

Practical Records Checklist

Keep these records current and readily accessible:
– Proof of original cost for each asset and each improvement
– Placed-in-service date for each item
– Evidence of use during the taxable year for producing qualified business income
– Year-end asset listing showing the property is held and available for use
– Recovery period references under Section 168
– Calculations showing the later of the 10-year date or the end of the recovery period
– Flags for assets acquired within 60 days of year-end, with notes on use days and any disposal within 120 days

The law’s tests tie to the placed-in-service date, year-end status, use during the year, and the multi-year depreciable period—so organized records are essential.

Official References

For official guidance on depreciation methods and recovery periods under Section 168, review IRS resources at the IRS Depreciation (MACRS) page. This supports the recovery period framework that helps determine when the depreciable period ends and whether property remains qualified at year-end.

Key takeaway: UBIA stays at original cost on the placed-in-service date. Depreciation (including 100% bonus depreciation) affects tax deductions but does not change UBIA or the depreciable period used to test whether property is qualified for Section 199A purposes.

Key Reminders for the 2025 Landscape

• UBIA stays at original cost on the placed-in-service date. Do not reduce UBIA by depreciation, including bonus depreciation.
• Improvements are separate qualified property with their own basis and dates.
• Depreciable period ends on the later of 10 years or the full Section 168 recovery period.
• Late-year property acquired within 60 days and disposed within 120 days without 45 days of use generally doesn’t qualify.
• Permanent 100% bonus depreciation (effective January 19, 2025) affects deductions but does not change UBIA or the recovery period for qualified property status.

By following this step-by-step process and keeping placed-in-service dates, unadjusted basis figures, and use records aligned with the law’s timing rules, you can assess UBIA and qualified property status with confidence and prepare accurate Section 199A computations anchored in the correct depreciation framework.