Bonus Depreciation
Additional first-year depreciation deduction on qualifying business assets.
Bonus depreciation allows businesses to deduct a large percentage of the cost of eligible assets in the first year. The percentage has been phasing down: 80% for 2023, 60% for 2024, 40% for 2025, and 20% for 2026. Unlike Section 179, bonus depreciation has no dollar limit and can create a net operating loss. It applies to new and used assets with a recovery period of 20 years or less.
Example
A business buys $200,000 in equipment in 2024 and claims 60% bonus depreciation, deducting $120,000 immediately and depreciating the remaining $80,000 over the asset's useful life.
Why It Matters for Your Business
Bonus depreciation provides a massive upfront tax benefit for capital investments, but the phase-down schedule means each year it becomes less generous.
Related Terms
More Taxes Terms
Adjusted Gross Income
Gross income minus specific deductions like retirement contributions.
Tax Audit
An examination of tax returns by the IRS to verify accuracy.
Capital Gains
Profit from selling an asset for more than its purchase price.
Capital Loss
Loss from selling an asset for less than its purchase price.
Tax Deduction
An expense that reduces taxable income.
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