Bonus depreciation, also called the special depreciation allowance, lets businesses deduct a large portion of the cost of qualifying business property in the year it's placed in service instead of spreading the deduction over several years.
For many businesses, this can significantly reduce taxable income and provide a larger tax deduction upfront.
What Is Bonus Depreciation?
Bonus depreciation is an accelerated depreciation method that allows an immediate deduction for qualifying property used in a business.
In most cases, the deduction applies automatically unless you choose to opt out.
Bonus Depreciation Rates Before the OBBBA Changes
Under the Tax Cuts and Jobs Act (TCJA), bonus depreciation was scheduled to phase down over several years.
| Tax Year | Bonus Depreciation Rate |
|---|---|
| 2023 | 80% |
| 2024 | 60% |
These phase-down rates no longer apply to most qualifying property acquired after January 19, 2025.
Property That Qualifies for Bonus Depreciation
The following types of property generally qualify:
- Tangible property with a MACRS recovery period of 20 years or less
- Certain computer software
- Water utility property
- Qualified Improvement Property (QIP)
- New or used property, provided it was not previously used by the taxpayer
Property That Does Not Qualify
The following property generally does not qualify:
- Real estate (other than Qualified Improvement Property)
- Property received as a gift or inheritance
- Property converted from personal use to business use
- Listed property used 50% or less for business purposes
Major Bonus Depreciation Changes Under OBBBA
The One Big Beautiful Bill Act (OBBBA), signed on July 4, 2025, permanently changed the bonus depreciation rules.
Permanent 100% Bonus Depreciation
OBBBA restored 100% bonus depreciation for qualifying property acquired after January 19, 2025.
This eliminates the scheduled phase-down that would have reduced bonus depreciation in future years.
What this means:
- Qualifying property acquired and placed in service after January 19, 2025 may be eligible for a 100% first-year deduction.
- Businesses can generally expense the entire cost of eligible assets in the year the asset is placed in service.
- The previously scheduled reduction and eventual expiration of bonus depreciation no longer apply for qualifying property covered by the new law.
Eligibility Rules Remain Broad
OBBBA did not significantly narrow the types of property eligible for bonus depreciation.
Qualifying assets may include:
- Equipment, machinery, and tools
- Business vehicles that meet depreciation rules
- Certain computer software
- Qualified Improvement Property (QIP)
- New or used property that meets the acquisition requirements
Acquisition Date Matters
To qualify for the permanent 100% bonus depreciation rules:
- The property generally must be acquired after January 19, 2025.
- The acquisition date often depends on when a binding written contract was entered into.
- Placement-in-service rules must also be met.
Transitional Rules for Older Acquisitions
Special transition rules apply to property acquired before January 20, 2025.
For example, certain qualifying property acquired before that date may still be subject to the phase-down percentages that existed under prior law, even if it was placed in service later.
Additional Property Categories Added by OBBBA
OBBBA expanded bonus depreciation eligibility in certain situations.
Qualified Sound Recording Productions
Certain qualified sound recording productions may now be eligible for 100% bonus depreciation.
Specified Plants
Eligible farming businesses may continue to elect bonus depreciation for certain specified plants when they are planted or grafted.
Section 179 Deduction: A Separate Tax Benefit
Section 179 is different from bonus depreciation, but both can help businesses deduct the cost of assets.
For tax years beginning in 2025, the maximum Section 179 deduction increased to $2.5 million, with a phase-out threshold beginning at $4 million of qualifying property placed in service.
If an asset doesn't qualify for bonus depreciation, Section 179 may still provide an immediate deduction.
Example of Bonus Depreciation
A business purchases equipment for $50,000 on March 1, 2025 and places it in service immediately.
If the equipment meets all bonus depreciation requirements and qualifies under the post-January 19, 2025 rules, the business may be able to deduct:
100% × $50,000 = $50,000 deduction in the first year
This allows the full cost of the asset to be deducted right away rather than depreciated over multiple years.
How to Claim Bonus Depreciation
- Edit your business activity (Schedule C, Schedule E, or Schedule F).
- Go to Depreciation / Assets.
- Enter the asset description, cost, placed-in-service date, and business-use percentage.
- The software will calculate available depreciation and apply bonus depreciation when eligible, unless you elect to opt out.