The special depreciation allowance, or Bonus Depreciation, allows a business to deduct half of the cost of qualifying property from your tax return for the year it is placed in service.
How it works:
After you take a Section 179 deduction, the bonus depreciation allows you to take an additional deduction of 50% of the property's depreciable basis, or how much it cost. However, unlike a Section 179 deduction, it is only available for new equipment. The equipment must also have been bought and put into use the same year you are filing your tax return for.
The bonus depreciation is generally most helpful for larger businesses that spend a large amount on new equipment each year.
Property that qualifies for Bonus Depreciation:
Property that does not qualify for special depreciation allowance:
- Tangible property depreciated under MACRS with a recovery period of 20 years or less.
- Water utility property.
- Off-the-shelf computer software.
- Qualified leasehold improvement property.
Note: the bonus depreciation provision expires at the end of each year and must be renewed by Congress on an annual basis, so be sure to check that it is available for the year that you are filing.
- Property placed in service and disposed of in the same tax year.
- Property converted from business use to personal use in the same tax year it is acquired. Property converted from personal use to business use in the same or later tax year may qualify
- Property required to be depreciated under the alternative depreciation system (ADS).
- Property included in a class of property for which you elected not to claim the special depreciation allowance.
- Property for which you elected to accelerate certain credits in lieu of the bonus depreciation allowance.