Useful life: To qualify for bonus depreciation, the asset must have a useful life of 20 years or less. For example, a building wouldn't be eligible for bonus depreciation, but a vehicle or piece of equipment would be. Listed property: This type of asset can be used for business and personal purposes.
Bonus depreciation typically applies to tangible personal property, such as machinery, equipment, furniture, and vehicles, as well as certain qualified improvement property and specific types of real property improvements. These assets must have a useful life of 20 years or less.
Only depreciable assets are considered eligible assets under the bonus depreciation deduction. Some examples of depreciable assets include: Modified Accelerated Cost Recovery Systems: This includes items like office furniture and computers. These assets must have a recovery period of 20 years or less to qualify.
Bonus Depreciation: main points and limitations
There is no maximum amount, and no limit on purchases. You can deduct your entire asset or vehicle fleet regardless of how much you paid for the vehicles. Bonus Depreciation ramped down to 80% in 2023, and will be reduced to 60% for 2024.
A residential rental property itself does not qualify. But there are several other asset types that you can claim bonus depreciation on. These fall into two main categories: personal property and land improvements.
Based on the 2024 Section 179 rules, Section 179 gives you more flexibility on when you get your deduction, while bonus depreciation can apply to more spending per year.
For example, if an agriculture company wanted to invest $1 million in new equipment to assist in farming, 100 percent bonus depreciation would allow the firm to exclude the entirety of the investment from its taxable income in the first year.
Schiff: Section 179 allows business owners to deduct the purchase price of equipment and/or software put into service during the year. In order to qualify for this tax deduction, the equipment must be placed into service on or before Dec. 31.
A big tax benefit from 2017's TCJA began phasing out at the end of 2022. The 100% bonus depreciation continues downward with qualifying property getting 80% for 2023, 60% for 2024, and now 40% for 2025.
You can calculate bonus depreciation by following this process: Step 1: Reduce the original cost by any section 179 expense deducted for the year. Original cost includes line items such as sales tax and delivery fees. Step 2: Further reduce the cost by any credits you claimed (e.g., energy credit).
Con: as mentioned above, if you decide to use 100% bonus depreciation in one year, you have then lost the deductions that could have been used in the future. Depending on your tax situation, the year the company doesn't buy any fixed assets is generally the year that income is down or cash flow is lower.
Class life is the number of years over which an asset can be depreciated. The tax law has defined a specific class life for each type of asset. Real Property is 39 year property, office furniture is 7 year property and autos and trucks are 5 year property. See Publication 946, How to Depreciate Property.
Year of inheritance:
You can have a cost segregation study done and enjoy the similar benefits as if you just purchased or renovated the property. However, inherited property does not qualify for bonus depreciation since you did not purchase it.
Work Trucks & Vans (>6,000 lbs. GVWR, Beds 6+ Feet Long): Vehicles that meet these criteria—such as certain cargo vans, heavy-duty pickups, and box trucks—may qualify for 100% Section 179 expensing, meaning you can deduct the full purchase price in the year you place them in service.
You can use it for all kinds of hardware, including computers, servers, office printers, switches, routers, cabling, and phone systems. You can also use it for software purchases. There are a few requirements for software to qualify.
Useful life: To qualify for bonus depreciation, the asset must have a useful life of 20 years or less. For example, a building wouldn't be eligible for bonus depreciation, but a vehicle or piece of equipment would be. Listed property: This type of asset can be used for business and personal purposes.
Eligible Assets
179 real property includes non-residential roofs, HVACs, security and fire alarm systems. When applying Section 179, the assets must be used primarily for business purposes. Bonus depreciation is allowed on farm buildings and land improvements, whereas Section 179 is not.
Both §179 and bonus depreciation enable taxpayers to deduct the cost of newly acquired property the year they put the property into service. For assets placed in service in 2023, §179 allows up to 100% of the cost as a current-year deduction, while bonus depreciation only includes 80% of the cost of the property.
Advantages and Disadvantages of Taking Section 179
Section 179 lets businesses maximize deductions today and avoid delaying deductions to the future when the business may no longer exist. Two of the major disadvantages are as your income increases, it will move into a higher tax rate.
Bonus Depreciation Is Set to Phase Out by 2027. Bonus depreciation, one of the many business provisions in the Tax Cuts and Jobs Act of 2017 (TCJA), is phasing out and expiring in 2027. Access Warren Averett's guide: The Top 7 Expiring Tax Provisions to Watch in 2025.