Definition
Bonus depreciation lets businesses deduct a large percentage of the cost of qualifying assets in the year they are placed in service, rather than spreading the deduction across the asset's life.
How It Works
Qualifying assets generally have a recovery period of 20 years or less, such as equipment, machinery, and shorter-life building components identified by a cost segregation study. Under recent law, 100% bonus depreciation is available for most qualifying business property acquired and placed in service after January 19, 2025, subject to eligibility rules.
Example
A business that places $200,000 of qualifying equipment in service may be able to deduct the full qualifying cost in year one, subject to eligibility rules.
When It Works Best
It pairs especially well with cost segregation on real estate, and with businesses making significant equipment or property purchases in a high-income year.
Who It Applies To
Businesses and real estate owners placing qualifying property in service.
Watch-Outs
Bonus depreciation can create or deepen a business loss, but passive activity, at-risk, basis, and other rules can limit who can use the deduction. Like all accelerated depreciation, it may increase recapture when the asset is sold.
