08/28/2024
Businesses must generally write off the costs of assets over their "useful life"—a number of years based on the kind of asset. Practically speaking, that means that you can't claim a tax deduction all at once for certain items and must, instead, claim the deduction in bites according to a schedule.
You can depreciate most types of tangible property (except land), such as buildings, machinery, vehicles, furniture, and equipment. You can also depreciate certain intangible property, such as patents, copyrights, and computer software.
For years, one of the most common forms of depreciation was called straight-line and it's calculated exactly as it sounds: an equal expense each year throughout the asset's useful life until it depreciates to zero.
Bonus depreciation accelerates those deductions by allowing businesses to write off a large percentage—in some cases, 100%—of an eligible asset's cost in the first year.
For years, the amount was limited. In 2017, tax reform changed the rules for bonus depreciation by allowing businesses to immediately write off 100% of the cost of eligible property acquired and placed in service after September 27, 2017, and before January 1, 2023.
The 100% write-off of eligible property expired December 31, 2022. Unless the law changes, the bonus percentage will be reduced by 20 points each year for property placed in service after December 31, 2022, and before January 1, 2027.
A bipartisan tax proposal—the same one that would have expanded the child tax credit—would have restored bonus depreciation for qualified property placed in service after December 31, 2022, and before January 1, 2026 (retroactive to the beginning of 2023). That measure passed in the House but died in the Senate.
Businesses must generally write off the costs of assets over their "useful life"—a number of years based on the kind of asset. Practically speaking, that means that you can't claim a tax deduction all at once for certain items and must, instead, claim the deduction in bites according to a schedule.
You can depreciate most types of tangible property (except land), such as buildings, machinery, vehicles, furniture, and equipment. You can also depreciate certain intangible property, such as patents, copyrights, and computer software.
For years, one of the most common forms of depreciation was called straight-line and it's calculated exactly as it sounds: an equal expense each year throughout the asset's useful life until it depreciates to zero.
Bonus depreciation accelerates those deductions by allowing businesses to write off a large percentage—in some cases, 100%—of an eligible asset's cost in the first year.
For years, the amount was limited. In 2017, tax reform changed the rules for bonus depreciation by allowing businesses to immediately write off 100% of the cost of eligible property acquired and placed in service after September 27, 2017, and before January 1, 2023.
The 100% write-off of eligible property expired December 31, 2022. Unless the law changes, the bonus percentage will be reduced by 20 points each year for property placed in service after December 31, 2022, and before January 1, 2027.
A bipartisan tax proposal—the same one that would have expanded the child tax credit—would have restored bonus depreciation for qualified property placed in service after December 31, 2022, and before January 1, 2026 (retroactive to the beginning of 2023). That measure passed in the House but died in the Senate.
