Bonus Depreciation
A tax incentive allowing businesses to immediately deduct a large percentage of the cost of eligible property in the year it is placed in service.
FAQs
Should I always take bonus depreciation?
Not necessarily. While front-loading deductions reduces current-year taxes, it also eliminates future deductions, potentially pushing income into higher-bracket years. For businesses expecting significant income growth, spreading deductions may be more valuable. Also, some states don't conform to federal bonus depreciation, creating state addback requirements.
What is the difference between bonus depreciation and Section 179?
Section 179 allows expensing up to $1.22M annually (2024), cannot create an NOL, and requires property be used in active business. Bonus depreciation has no dollar cap, can create NOLs, and applies more broadly (including rental property). Companies typically maximize Section 179 first, then apply bonus depreciation to remaining eligible assets.
Does bonus depreciation apply to real estate?
Residential and commercial real estate (39-year property) does not qualify. However, Qualified Improvement Property (QIP) — improvements to the interior of non-residential buildings — qualifies for 60% bonus depreciation in 2024. Cost segregation studies identify components of a building that qualify as 5, 7, or 15-year property eligible for bonus depreciation.
Related Terms
R&D Tax Credit
A federal and state tax incentive allowing businesses to claim a credit for qualifying research and development expenditures.
Tax Loss Harvesting
An investment strategy of selling assets at a loss to offset capital gains or ordinary income, reducing current tax liability while maintaining portfolio exposure.
Estimated Tax
Quarterly tax payments required from self-employed individuals and businesses that expect to owe $1,000 or more in taxes not covered by withholding.