Bonus Depreciation
A tax incentive allowing businesses to immediately deduct a large percentage of the cost of qualifying assets in the first year. Was phasing down under TCJA (100%→80%→60%→40%) but the One Big Beautiful Bill Act (OBBBA, 2025) permanently restored the 100% rate for property ACQUIRED after January 19, 2025 — the test is the acquisition date, not the date placed in service.
Bonus depreciation (formally, the additional first-year depreciation deduction under IRC Section 168(k)) allows businesses to immediately expense a percentage of the cost of new and used qualifying property in the year it is placed in service. Unlike Section 179, bonus depreciation is not capped at business income and can create a net operating loss.
Under TCJA, the bonus depreciation rate was phasing down: 100% for property placed in service before January 1, 2023; 80% in 2023; 60% in 2024. The One Big Beautiful Bill Act (OBBBA), signed July 2025, permanently restored the 100% rate. 100% bonus depreciation applies to qualified property ACQUIRED after January 19, 2025 (OBBBA §70301(c)(1)) — not to property merely placed in service after that date; a written binding contract fixes the acquisition date (§70301(c)(4)). Property acquired on or before January 19, 2025 stays on the pre-OBBBA §168(k)(6)(A) ladder no matter when it is placed in service — 40% for a 2025 placed-in-service year, 20% for 2026, and 0% from 2027. Qualifying property generally includes most tangible personal property with a recovery period of 20 years or less, computer software, and qualified improvement property.
Bonus depreciation is applied after Section 179 expensing and is calculated on the remaining cost basis of qualifying assets. Because bonus depreciation has no income limitation, a business that makes large capital purchases can generate a loss that offsets other income. However, taxpayers must weigh the immediate benefit against potential depreciation recapture upon sale of the asset and the loss of future MACRS deductions.
How it works
Bonus depreciation lets a business immediately expense a percentage of the cost of qualifying new or used property in the year it's placed in service. Under prior law the rate was scheduled to phase down — 100% before 2023, 80% in 2023, 60% in 2024 — but the One Big Beautiful Bill Act, signed July 2025, permanently restored the 100% rate. 100% bonus depreciation applies to qualified property ACQUIRED after January 19, 2025 (OBBBA §70301(c)(1)) — not to property merely placed in service after that date; a written binding contract fixes the acquisition date (§70301(c)(4)). Property acquired on or before January 19, 2025 stays on the pre-OBBBA §168(k)(6)(A) ladder no matter when it is placed in service — 40% for a 2025 placed-in-service year, 20% for 2026, and 0% from 2027.
You claim it on Form 4562, and unlike Section 179 it isn't capped at the business's taxable income, so it can generate or deepen a net operating loss. It's applied after any Section 179 election, calculated on whatever cost basis remains once Section 179 has been taken. Qualifying property generally includes tangible personal property with a recovery period of 20 years or less, computer software, and qualified improvement property.
Because bonus depreciation has no income limitation, a business making large capital purchases can use it to create a loss that offsets other income in the current year — a materially different planning lever than Section 179's income-capped version. The tradeoff is that claiming the full deduction up front means smaller (or no) MACRS deductions in later years and a bigger potential depreciation-recapture bill if the asset is later sold for more than its remaining basis.
Example: OBBBA's restored 100% rate
A business buys $100,000 of qualifying equipment and places it in service in March 2025, after the January 19 cutoff. Under the OBBBA-restored 100% bonus depreciation rate, the entire $100,000 is deductible in the first year.
Had the same purchase happened under the prior-law 2024 rate of 60%, only $60,000 would have been immediately deductible, with the remaining $40,000 basis recovered later through regular MACRS depreciation. OBBBA's permanent restoration of the 100% rate is worth that extra $40,000 of first-year deduction on this purchase alone.
Frequently asked questions
Is bonus depreciation still 100% in 2025?
Can bonus depreciation create a business loss?
Does bonus depreciation apply before or after Section 179?
Related Terms
MACRS Depreciation
Modified Accelerated Cost Recovery System — the standard IRS method for depreciating business assets, using predetermined recovery periods and front-loaded deduction schedules.
Section 179 Deduction
An IRS provision allowing businesses to immediately deduct the full cost of qualifying equipment and property in the year it is placed in service, rather than depreciating it over time. The 2025 limit is $2,500,000 (raised by OBBBA).
Depreciation
A tax deduction that spreads the cost of a business asset over its useful life. Section 179 and bonus depreciation may allow full first-year expensing for qualifying assets.
Business Expenses
Costs incurred in running a business that are deductible on your tax return if they are ordinary (common in your industry) and necessary (helpful and appropriate for your trade).