Finance term
Bonus Depreciation
Also known as: additional first-year depreciation, 100% bonus depreciation
Definition
Bonus depreciation lets businesses immediately deduct 100% of the cost of qualifying assets in the year placed in service — permanently restored to 100% by the One Big Beautiful Bill Act for property placed in service after January 19, 2025, reversing the Tax Cuts and Jobs Act's scheduled phase-down.
Detailed explanation
Bonus depreciation (also called 'additional first-year depreciation') is an accelerated depreciation incentive that lets businesses deduct a percentage of qualifying property cost in year one, beyond Section 179 limits and without Section 179's income limitation. The Tax Cuts and Jobs Act of 2017 set bonus depreciation at 100% through 2022, then began a scheduled phase-down: 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026, heading to 0% in 2027. The One Big Beautiful Bill Act (P.L. 119-21) reversed that phase-down: for qualifying property acquired and placed in service after January 19, 2025, bonus depreciation is permanently restored to 100%, with no scheduled expiration.
Unlike Section 179, bonus depreciation can create or deepen a net operating loss (NOL), which can then be carried forward indefinitely (though limited to 80% of future taxable income under current law). Bonus depreciation applies to both new and used qualifying property — an expansion that dates to the original 2017 TCJA — provided the taxpayer did not use the property before acquiring it. It's automatic unless the business affirmatively elects out for a given asset class.
For equipment-financing decisions, bonus depreciation combines with Section 179 to produce large first-year deductions. Section 179 applies first (up to its income limit and dollar cap); 100% bonus depreciation then applies to whatever basis remains, so most equipment purchases — financed or cash — are now fully expensed in year one regardless of size.
Source: IRS guidance on the One Big Beautiful Bill Act's depreciation provisions (https://www.irs.gov/newsroom/treasury-irs-issue-guidance-on-the-additional-first-year-depreciation-deduction-amended-as-part-of-the-one-big-beautiful-bill).
◈ Worked example
- A business buys $200,000 in used 5-year MACRS equipment in March 2026 (after the January 19, 2025 cutoff). After applying $0 in Section 179, 100% bonus depreciation deducts the full $200,000 in year one — no multi-year MACRS schedule.
- Pre-OBBBA phase-down (property placed in service before January 20, 2025): 60% bonus in 2024, 40% scheduled for 2025. Post-OBBBA: 100% permanently for property placed in service January 20, 2025 onward — the phase-down no longer applies to new purchases.
- A company with $0 taxable income uses 100% bonus depreciation on a $150,000 asset to create a $150,000 NOL (limited to offsetting 80% of future taxable income), then carries it forward to offset income in profitable years.
Common questions
The most-asked questions about Bonus Depreciation — answered straightforwardly.
What is the bonus depreciation rate now? +
100%, permanently, for qualifying property acquired and placed in service after January 19, 2025 — restored by the One Big Beautiful Bill Act (P.L. 119-21). This reversed the Tax Cuts and Jobs Act's scheduled phase-down (which had reached 40% for 2025 and was headed to 20% in 2026 and 0% in 2027 under prior law). Property placed in service before January 20, 2025 remains subject to the old phase-down percentage for that year.
Can I use bonus depreciation on used equipment? +
Yes. Since the 2017 Tax Cuts and Jobs Act, bonus depreciation applies to used property that is new to the taxpayer — the business acquiring it must not have previously used it. This expanded bonus depreciation significantly versus pre-2017 rules that restricted it to new property, and the One Big Beautiful Bill Act's 100% restoration carries the same new-to-the-taxpayer standard forward.
How does bonus depreciation differ from Section 179? +
Key differences: (1) Bonus depreciation can create a net operating loss; Section 179 cannot exceed taxable income. (2) Bonus depreciation has no dollar cap; Section 179 caps at $2,560,000 for 2026, phasing out above $4,090,000 of qualifying purchases. (3) Section 179 is elective per asset; bonus depreciation applies automatically unless you elect out. Both now deliver the same practical result — full first-year expensing — for most small-business equipment purchases, since bonus depreciation is 100%.
Further reading
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