Bonus Depreciation: What It Is and How to Claim It

Being a small business owner can come with valuable tax breaks, but sometimes, navigating the complexity of small business taxes can be tricky. One tax deduction that can be particularly confusing is bonus depreciation. In this guide, we’ll cover the ins and outs of bonus depreciation to help you understand this deduction better and ultimately make more informed decisions for your business.

Note: The One Big Beautiful Bill (OBBB) is now also being referred to by lawmakers as the Working Families Tax Cut Act. You may see one or both names used here, but they refer to the same set of tax changes.

At a glance:

Bonus depreciation lets businesses deduct a fixed percentage of an asset’s cost upfront, reducing taxable income.

The One Big Beautiful Bill (OBBB) set bonus depreciation at 100% once again for property placed in service after Jan. 19, 2025.

Only certain types of qualified property are eligible for bonus depreciation.

There are important differences between bonus depreciation and Section 179. Sometimes, you can take both deductions in the same year.

What is bonus depreciation for a business?

Bonus depreciation is an accelerated form of depreciation — it allows you to deduct a fixed percentage of an asset’s cost upfront instead of spreading the deduction out over its useful life. This tax strategy lowers taxable income and can help reduce tax liability.

What are the bonus depreciation tax changes for 2025?

Bonus depreciation tax rules changed recently for 2025, so here’s what you need to know:

For 2024, you could deduct 60% of the cost of qualified assets in the first year.For example, if you bought a qualified asset worth $100,000 in 2024, you could deduct $60,000 right away as bonus depreciation, instead of spreading the cost over several years.

For assets placed in service between Jan. 1 and Jan. 19, 2025, the bonus depreciation rate is 40%.

Due to a tax provision in the One Big Beautiful Bill, assets placed in service Jan. 20, 2025, and after are eligible for 100% bonus depreciation (full expensing). That means you can write off the entire purchase amount the same year you place it in service.

If you don’t want to take 100% bonus depreciation in 2025 (maybe your business had a loss), you can choose to take 40% instead and carry the remaining 60% forward.

If all these changing percentages sound confusing, we get it. Don’t worry, though — TaxAct® can help you claim the correct deduction amount for any new business purchases you make when you file with us.

Is bonus depreciation the same as section 179?

Many first-time small business owners confuse two common forms of depreciation: bonus depreciation and the section 179 deduction. While they may seem similar on the surface, these two depreciation methods are quite different, and each has its own restrictions.

Section 179 allows you to deduct a set dollar amount instead of a fixed percentage when using bonus depreciation. The OBBB also increased the section 179 deduction and expensing limits this year. Under section 179, you can write off the entire cost of an asset (up to $2,500,000 in 2025) as an immediate business expense on your tax return. This deduction starts to phase out if you spend more than $4,000,000 in 2025.

In contrast, bonus depreciation has no cost limit — it can even exceed your business income, creating a net loss. This differs from Section 179, which does not allow you to deduct more than you made. Creating a net loss allows you to carry that loss forward to offset income you make in future tax years.

In certain instances, you may be able to claim both bonus depreciation and section 179 in the same year, but you must take section 179 deductions first before taking bonus depreciation. For example, you can deduct a cost up to the annual limit with section 179 and use bonus depreciation for the rest.

What are the rules for bonus depreciation in 2025?

Tax Cuts and Jobs Act

Before Congress passed the Tax Cuts and Jobs Act (TCJA) of 2017, bonus depreciation rules were much more limited. The TCJA changed that, allowing businesses to immediately write off 100% of the cost of “qualified business property” if it was purchased and placed in service after Sept. 27, 2017, and before Jan. 1, 2023.

However, under the original TCJA rules, bonus depreciation was scheduled to phase down after 2022: 80% for property placed in service in 2023, 60% in 2024, 40% in 2025, and 20% in 2026, then expiring in 2027.

One Big Beautiful Bill Act

In 2025, the OBBB reinstated 100% bonus depreciation. Starting with property placed in service after Jan. 19, 2025, businesses can again deduct 100% of the cost of most qualifying property up front moving forward.

Eligibility rules

To qualify for bonus depreciation, you must meet specific criteria set by the IRS. Only purchases of eligible assets qualify for bonus depreciation. Here are some rules to keep in mind and examples of qualifying property:

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. For instance, if you’re a professional photographer using your camera for personal use, you must use the item for business purposes at least 50% of the time to qualify for bonus depreciation.

Qualified improvement property: This includes improvements made to the interior of a commercial (nonresidential) building, as long as the improvements were made after the building opened for business.

Short-term rentals: This includes vacation rental properties where the average stay is seven days or less.

Other costs: The cost of computer software and certain film, TV, and live theatrical productions can also qualify for bonus depreciation.

You can only claim bonus depreciation for the year you placed the asset in service (started using it). If you’re unsure whether a business asset qualifies for bonus depreciation, the IRS has a detailed FAQ page that can help.

FAQs

Should I take bonus depreciation, or is it better to take Section 179?

Whether you should take the bonus depreciation or the section 179 deduction depends entirely on your tax situation.

Now that bonus depreciation is back at 100%, many small business owners may benefit from taking this deduction in place of section 179. On the other hand, section 179 offers more flexibility, allowing you to choose how much of the asset you want to deduct and when, while bonus depreciation is limited to a set percentage (100% or 40% in 2025).

However, section 179 cannot create a net loss like bonus depreciation can. If your business was not profitable during the year, bonus depreciation may allow you to still write off a business asset, even if its cost exceeds your business income.

Both options can be valuable tax write-offs under the right circumstances. If you’re unsure which deduction is best for you, it may be wise to consult a tax professional.

Is 100% bonus depreciation coming back?

Yep! Under the OBBB passed by President Trump, 100% bonus depreciation is available for qualified business property placed in service beginning Jan. 20, 2025.

Is bonus depreciation still being phased out?

Not right now. A prior law set bonus depreciation to phase down gradually from 2023 to 2027. But the OBBB replaced this schedule for property placed in service after Jan. 19, 2025, bringing back 100% bonus depreciation permanently. For property placed in service before Jan. 20, 2025, the old phaseout percentages (80% for 2023, 60% for 2024, 40% for early 2025) still apply.

How will the bonus depreciation changes in 2025 affect my business taxes?

The 2025 bonus depreciation changes can be a major tax advantage for your business. Thanks to the OBBB, you can deduct the full cost of qualifying business equipment placed in service after Jan. 19, 2025. Unlike section 179, bonus depreciation can actually create or increase a business loss, giving you extra flexibility in your tax planning.

Plus, for 2025, you can choose between deducting the old 40% or the new 100% rate. For example, if you expect a loss in 2025, you can take a smaller deduction now and save the rest for future years. This makes bonus depreciation an effective way to lower your taxable income (and, by extension, your tax bill) and boost your cash flow this year.

How do I report bonus depreciation on my tax return?

To claim bonus depreciation on your income tax return, you’ll need to fill out IRS Form 4562, Depreciation and Amortization. To make the tax filing process easier, TaxAct® can help you claim the bonus depreciation deduction when you file with us.

The bottom line

Bonus depreciation and section 179 can both be valuable tax benefits for small business taxpayers. The key to making them work for you is understanding their differences and the unique advantages each offers based on your business’s needs. But remember, tax laws and regulations can change, and staying informed is crucial to making the right financial decisions and optimizing any tax-saving opportunities for your business. When you file your small business taxes with us at TaxAct, our software will walk you through a broad range of business expenses and situations to help identify the deductions that apply to your situation.

This article is for informational purposes only and not legal or financial advice.

All TaxAct offers, products and services are subject to applicable terms and conditions.

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