Glossary term
Bonus Depreciation
Bonus depreciation is an accelerated tax deduction that lets businesses deduct a large share of qualified property costs sooner.
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What Is Bonus Depreciation?
Bonus depreciation is an accelerated tax deduction for certain qualified business property. Instead of deducting the cost over the asset's regular depreciation schedule, a business may be able to deduct a large percentage in the year the property is placed in service.
The rules change over time. IRS Publication 946 refers to bonus depreciation as the special depreciation allowance. As of current IRS guidance for 2026, recent law restored a 100% special depreciation allowance for certain qualified property acquired and placed in service after January 19, 2025, subject to detailed rules and elections.
Key Takeaways
- Bonus depreciation accelerates tax deductions for certain qualified property.
- It affects tax timing, not the true economic cost of the asset.
- Eligibility depends on property type, acquisition date, placed-in-service date, and tax rules.
- Bonus depreciation is different from Section 179 expensing.
- Businesses should coordinate tax, accounting, cash-flow, and state-tax effects.
How Bonus Depreciation Works
Depreciation normally spreads an asset's cost over its useful life for tax purposes. Bonus depreciation moves more of that deduction into the first year. This can reduce taxable income sooner and improve near-term cash flow.
The deduction does not make the asset free. It accelerates when the deduction is taken. A larger deduction now usually means less depreciation remaining in later years.
Bonus Depreciation Versus Section 179
Feature | Bonus depreciation | Section 179 |
|---|---|---|
Purpose | Accelerates depreciation for qualified property | Allows elective expensing for eligible property |
Limits | Depends on current law and property rules | Subject to annual dollar and business-income limits |
Tax planning | Can create or increase a loss in many cases | Often limited by taxable business income |
State treatment | May differ from federal rules | May also differ by state |
Why It Matters
Bonus depreciation can materially affect the timing of taxes for businesses that buy equipment, machinery, vehicles, technology, or other qualified property. A larger first-year deduction can free up cash, but it can also reduce deductions in later years.
It also matters for budgeting and investment decisions. Tax timing may improve a project's after-tax cash flow, but the purchase should still make business sense without relying only on the deduction.
Limits and Misunderstandings
Bonus depreciation is not available for every asset. Real property, used property rules, listed property, related-party acquisitions, placed-in-service dates, and elections can all affect the result.
It is also not financial-statement depreciation. Tax depreciation and book depreciation can differ, creating deferred tax effects and differences between taxable income and accounting income.
The Bottom Line
Bonus depreciation is a tax-timing tool that can accelerate deductions for qualified property. Because the rules change and state treatment can differ, it should be evaluated with current tax guidance and the business's broader cash-flow plan.