Bonus Depreciation's Phase-Down, Explained

For years, bonus depreciation was simple to explain: 100% of a qualifying asset's cost, deducted in the year it was placed in service, on top of or instead of Section 179. That flat 100% rate has not been a permanent fixture of the law — it's been legislated on a schedule that phases the percentage down over time, and the applicable rate for the current tax year is something that has to be confirmed, not assumed from what a business owner remembers hearing a few years ago.

The distinction between bonus depreciation and Section 179 matters here because they behave differently at the margins. Section 179 has an annual dollar cap and a business-income limitation — it can't create a loss. Bonus depreciation, even at a reduced percentage, generally has no similar income limitation, and can be used to create or increase a net operating loss. That makes bonus depreciation's exact current-year rate directly relevant to how much of a large purchase's cost can actually be deducted immediately, versus carried into future years through standard depreciation.

This changes the calculus around purchase timing in a way it didn't when the rate was a flat, predictable 100%. A vehicle or equipment purchase made near year-end used to be a straightforward 'buy it now for the deduction' decision. With a phasing rate, the same purchase decision now depends on the specific percentage in effect for the year the asset is placed in service — and, depending on where a business sits relative to Section 179's cap and income limitation, sometimes on whether accelerating a purchase into this year or waiting until next year produces the better combined result.

Qualifying property is largely the same as it's always been — tangible personal property with a recovery period of 20 years or less, which covers most equipment, machinery, and qualifying vehicles used in a trade or business. What's changed isn't what qualifies; it's how much of the qualifying cost can actually be deducted in the first year, which is exactly the number that has to be checked against the current year's rate before finalizing a purchase decision.

None of this is a reason to avoid planning around equipment and vehicle purchases — it's a reason to run the numbers against the actual current-year percentage before assuming last year's rate still applies. That's the specific check we run before any client finalizes a major purchase, because the phase-down means the math genuinely changes from year to year now.