What you need to know about bonus depreciation


Bonus depreciation allows business owners to deduct 100% of qualifying purchased or financed equipment in the first year it is put into service. Unlike Section 179, bonus depreciation is not a permanent part of the tax code.

“Bonus depreciation right now is set to sunset,” says Derek Adams, a partner at the Evansville, Indiana, office of BKD CPAs and Advisors. “If nothing changes after about five years, new legislation would have to be passed for it to continue.”

As of now, bonus depreciation will drop to:

– 80% in 2023

– 60% in 2024

– 40% in 2025

– 20% in 2026

– Will expire in 2027

While Section 179 allows businesses to pick and choose which assets to deduct, bonus depreciation is automatic and all or nothing. However, business owners can elect out of classes with bonus depreciation. If you have five-year property, seven-year property, and 15-year property, you could elect out of all the properties in one of those classes.

“If I had 10 assets that were 15-year properties, I could elect out of bonus depreciation on those 10 assets,” says Adams. “But I couldn’t elect out of five of the 10 assets.”

Finally, unlike Section 179, bonus depreciation can take you into a taxable loss that can be carried forward or, for a limited time, potentially carried back up to five years.

The information contained here is for informational purposes only and not to provide tax, legal, or accounting advice. United Leasing & Finance assumes no obligation to inform readers of changes in tax laws or other changes that could affect the information here. You should always consult your tax professional before making any financial or tax decisions. The information here is not intended for and cannot be used for purposes of avoiding tax penalties that may be imposed on any taxpayer.