Bonus depreciation is a U.S. federal additional first-year deduction for eligible depreciable property placed in service by a business.
Bonus depreciation is a U.S. federal additional first-year deduction under Internal Revenue Code Section 168(k) for eligible depreciable property placed in service by a business. It accelerates tax cost recovery; it does not determine book depreciation, eliminate the purchase price, or create a tax credit equal to the deduction.
As of August 2026, current federal law generally provides permanent 100% bonus depreciation for qualifying property acquired after January 19, 2025. Acquisition-date, placed-in-service, property-type, related-party, business-use, election, and transition rules still determine whether a particular asset qualifies.
Public Law 119-21, enacted July 4, 2025, replaced the prior phase-down with a permanent 100% additional first-year deduction for qualified property acquired after January 19, 2025. IRS Notice 2026-11 provides interim guidance for applying the amended rule.
Property acquired before January 20, 2025, or subject to older binding-contract and acquisition rules can remain under the prior phase-down. The relevant date is not always the invoice date, payment date, or delivery date. Self-constructed property and components can require additional analysis.
Because tax law changes, readers should verify the IRS guidance and current Form 4562 instructions for the tax year in question rather than rely on an undated percentage summary.
Common categories identified in IRS guidance include:
Both new and certain used property may qualify. Used property is not automatically eligible: the taxpayer’s prior use, acquisition from related parties, carryover-basis transactions, and other statutory restrictions matter.
Land is not depreciable. Buildings with longer recovery periods generally do not qualify merely because business equipment inside them does. Special rules can also limit deductions for listed property, passenger automobiles, mixed personal use, tax-exempt use, and other categories.
A simplified federal sequence is:
The applicable basis can be affected by purchase-price allocation, credits, reimbursements, business-use percentage, prior deductions, and other adjustments.
A calendar-year business buys and places in service eligible equipment for $200,000 after January 19, 2025. Assume, solely for illustration, that:
At a 100% bonus percentage:
The remaining tax basis for regular MACRS depreciation is zero. If the taxpayer’s illustrative marginal tax rate were 25%, the gross timing effect before limitations would be:
The deduction is $200,000, not a $200,000 tax refund. The actual cash-tax effect can be lower, delayed, or offset by losses, credits, limitations, state rules, and the taxpayer’s tax position.
For financial reporting, the equipment may still be capitalized and depreciated over its estimated useful life. The faster tax deduction can create a temporary book-tax difference and deferred tax liability under the applicable reporting framework.
| Feature | Bonus depreciation | Section 179 |
|---|---|---|
| Legal source | IRC Section 168(k) | IRC Section 179 |
| General mechanism | Additional first-year depreciation for qualified property | Election to expense qualifying property |
| Annual dollar limit | No general overall bonus dollar cap, though other limits can apply | Subject to annual deduction and investment limits |
| Taxable-income limit | Can contribute to or increase a tax loss, subject to other rules | Generally limited by taxable income from active trades or businesses, with carryforward rules |
| Election | Generally applies unless taxpayer elects out by property class | Taxpayer elects the amount and eligible property |
| Eligible real-property improvements | Limited to statutory qualified categories | Different and separately defined eligible categories |
The two provisions can be used in the same year, but ordering and eligibility matter. Neither table nor a simple calculator replaces the current return instructions.
Taking the largest immediate deduction is not always the preferred timing. A taxpayer may consider electing out for a class of property when deductions could be more useful in later years, when current losses already defer the benefit, or when federal and state treatment diverges.
Relevant questions include:
This page is educational and provides general U.S. federal information as of August 2026. It does not provide tax, accounting, legal, valuation, or investment advice.