Originally published September 2, 2020 – updated April 9, 2025
You’re probably aware of the 100% bonus depreciation tax break that’s available for a wide range of qualifying property. Here are five important points to be aware of when it comes to this powerful tax-saving tool.
1. Bonus depreciation is scheduled to phase out
The 100% bonus depreciation we all enjoyed from the 2017 Tax Cuts and Jobs Act is stepping down year by year.
Here’s where we currently stand:
- 2023: 80%
- 2024: 60%
- 2025: 40% (we are here!)
- 2026: 20%
- 2027 and beyond: 0%
For 2025, this means you can immediately write off 40% of qualifying property’s cost when you place it in service. Some specialized assets (certain longer-production-period property and aircraft) get an extra year before each reduction kicks in.
As of April 2025, Congress hasn’t extended these deadlines, though tax laws can always change.
2. Bonus depreciation is available for new and most used property
Bonus depreciation continues to be available for both new and used property, with a couple of key conditions:
- You haven’t used the property before
- You didn’t acquire it through a related-party transaction or tax-free exchange
This expanded eligibility, introduced in the TCJA, remains a major benefit for businesses acquiring used equipment or assets.
3. Taxpayers should sometimes make the election to turn down bonus depreciation
Did you know you can choose NOT to take bonus depreciation on certain classes of property? This strategy often works well for:
- Sole proprietors
- Partnerships
- S corporations
Why turn down a tax break? If you expect to be in a higher tax bracket in future years, saving those deductions for later might actually save you more money long-term.
Note that business entities taxed as “regular” corporations (in other words, non-S corporations) are taxed at a flat rate.
4. Bonus depreciation is available for certain building improvements
Thanks to a technical correction in the 2020 CARES Act, qualified improvement property (QIP) has been eligible for bonus depreciation since January 2018.
This covers many interior improvements to nonresidential buildings – though structural changes, enlargements, and certain other modifications don’t count.
This correction is still in effect and remains a meaningful opportunity if you’re renovating your office, retail space, or restaurant.
5. 100% bonus depreciation has reduced the importance of “Section 179 expensing”
With bonus depreciation now covering just 40% of costs in 2025, Section 179 expensing is making a comeback as a go-to tax planning tool.
Section 179 allows businesses to deduct the full cost of qualifying equipment, software, and certain improvements (up to certain limits). For 2025, the maximum deduction and phase-out thresholds have increased slightly with inflation but remain a vital tool, especially for smaller businesses.
If you’re planning major purchases this year, it’s worth running the numbers to compare Section 179 expensing and bonus depreciation or use them together strategically.
Need guidance in navigating bonus depreciation?
Bonus depreciation can be a valuable tool, but it’s only one piece of the tax strategy puzzle. If you’re planning major investments, asset purchases, or property improvements this year, it’s worth working with a tax professional to optimize timing and deduction strategy.
