Bonus Depreciation Planning

Bonus depreciation vs. Section 179

Both let you expense qualifying property faster than normal MACRS depreciation. Section 179 is elective and capped per year and per business; bonus depreciation is automatic (unless you elect out) and applies to entire asset classes.

• Section 179: elective, per-asset, capped annually, can't create a loss at the business level
• Bonus depreciation: automatic, applies to entire asset class, can create a loss, currently phasing down each year
• You can stack them — Section 179 first, then bonus on the remainder, then regular MACRS

What qualifies

• Tangible personal property with a recovery period of 20 years or less
• Off-the-shelf computer software
• Qualified improvement property (interior improvements to nonresidential buildings)
• Heavy SUVs and trucks >6,000 lb. GVWR (with limits)
• Used property — allowed for bonus, as long as it's new to you

Placed-in-service is the key date

Ordering equipment on December 28 doesn't make it deductible if it doesn't arrive and become operational until February. The property must be both purchased AND placed in service by 12/31.

Year-end planning moves

• Confirm the current year's bonus % — phase-down schedule changes annually
• Time large equipment purchases to land in a high-income year
• Skip Section 179 in a loss year (can't use it); take bonus to create or extend a loss/NOL
• Elect out of bonus for an asset class if you'd rather spread the deduction
• For vehicles >6,000 lb. GVWR, document business-use percentage with a mileage log