Bonus depreciation allows businesses to immediately deduct a large percentage of the cost of eligible property (like equipment, machinery, or software) in the year it is placed in service, rather than depreciating it over several years.
Tax Year 2024
- Bonus depreciation is 60% for qualified property placed in service in 2024.
- This is part of a phaseout schedule originally set by the Tax Cuts and Jobs Act (TCJA).
Tax Year 2025
- Two rules apply, depending on when the property is placed in service and when the acquisition contract was signed:
Before January 19, 2025:
- Bonus depreciation is 40% under the TCJA phaseout.
On or After January 19, 2025:
- Bonus depreciation is restored to 100% under the One Big Beautiful Bill Act (OBBBA).
This means businesses can fully deduct the cost of eligible property placed in service after this date, as long as the acquisition contract was also signed after January 19, 2025.
Tax Year 2026
For qualifying property:
- 100% bonus depreciation remains available in 2026.
- Businesses may generally deduct the entire cost of eligible property in the year it is placed in service.
- The property generally must have been acquired after January 19, 2025 to qualify under the permanent 100% rules.
This allows businesses to deduct the full cost of qualifying property in the year it is placed in service rather than recovering the cost over multiple years. Taxpayers may elect out of bonus depreciation and use regular depreciation methods if that better fits their tax situation.
Eligible Property
- Must have a MACRS recovery period of 20 years or less
- Includes:
- Equipment, furniture, fixtures
- Qualified Improvement Property (QIP)
- Interior finishes, flooring, lighting
- Used property (if not previously used by the taxpayer)
Example:
A business buys equipment for $100,000:
- Placed in service on Jan 15, 2025 → 40% bonus depreciation = $40,000 deduction
- Placed in service on Jan 22, 2025 → 100% bonus depreciation = $100,000 deduction
Planning Tips
- Pay close attention to placed-in-service dates and contract signing dates
- Bonus depreciation can be elected out if a taxpayer prefers regular depreciation