What Is Bonus Depreciation? Taxes From A to Z®
Normally, when a business buys property that will last more than one year—such as equipment, machinery, or computers—it can’t deduct the full cost immediately. Instead, the cost is generally recovered over time through depreciation. Bonus depreciation changes that by allowing businesses to deduct a larger portion of the cost of certain qualifying property in the year it is placed in service.
The One Big Beautiful Bill Act (OBBBA) made a significant change to those rules. It permanently restored 100% bonus depreciation for qualifying property acquired and placed in service after January 19, 2025. That means a business may be able to deduct the full cost of qualifying property in the first year rather than spreading the deduction over several years. Qualifying property generally includes equipment, machinery, computers, and other depreciable property with a recovery period of 20 years or less—and certain used property can qualify, too.
The dates matter, especially for businesses preparing 2025 returns now on extension. Property acquired before January 20, 2025, and placed in service in 2025 generally remains subject to the old phase-down rules, which provide a 40% bonus depreciation deduction for most qualifying property.
And since taking the biggest deduction immediately isn’t always the best tax move, businesses can elect out of bonus depreciation. Plus, for the first tax year ending after January 19, 2025, OBBBA also provides an election to use the 40% rate instead of the restored 100% rate.
