Bonus depreciation under IRC Section 168(k) lets a business deduct the entire cost of qualifying equipment and other short-lived property in the year it is placed in service, instead of spreading the deduction over the asset's normal MACRS recovery period. It is available to businesses of every size and structure, from a sole proprietor filing Schedule C to a corporation filing Form 1120, and it is claimed on Form 4562. The 2025 tax legislation restored the rate to 100% on a permanent basis for qualifying property acquired after January 19, 2025.
What qualifies and how the deduction works
Qualifying property is generally tangible property with a MACRS recovery period of 20 years or less: computers, cameras, audio and lighting gear, machinery, furniture, trailers, vehicles, and off-the-shelf software. Qualified improvement property, meaning interior improvements to nonresidential buildings, carries a 15-year recovery period and qualifies. Buildings themselves do not, which is why cost segregation studies exist: they carve the 5-, 7-, and 15-year components out of a building's purchase price so those pieces can be bonus-depreciated. Used property qualifies as long as it is new to the taxpayer and not acquired from a related party.
The deduction is automatic. If property qualifies, 100% bonus applies unless you elect out, and the election out is made by asset class (all 5-year property, all 7-year property, and so on) on a timely filed return. Once made, the election is effectively locked in, so the decision deserves real attention before filing.
Order of operations with the other expensing rules: Section 179 applies first to whatever you elect it on, bonus depreciation applies next, and regular MACRS depreciation covers anything left. Unlike Section 179, bonus depreciation has no dollar cap, no phase-out based on total purchases, and no taxable income limitation, which means it can create or deepen a net operating loss that carries forward to future years.
2026 figures
For property acquired after January 19, 2025 and placed in service in 2026, the bonus rate is 100%, with no scheduled phase-down. Property acquired on or before January 19, 2025 stays on the old declining schedule (60% for 2024, 40% for 2025 placements). For comparison, the 2025 legislation also raised the Section 179 expensing limit to $2,500,000 with a phase-out beginning at $4,000,000 of total purchases for property placed in service in 2025, indexed after that.
Passenger automobiles rated 6,000 pounds gross vehicle weight or less remain subject to the Section 280F luxury auto caps regardless of bonus depreciation; the first-year cap with bonus was $20,400 for 2024, and the caps are indexed annually. Vehicles over 6,000 pounds GVWR, which includes many large SUVs and pickups, escape those caps entirely.
For creators and the self-employed
Camera bodies, lenses, lighting rigs, streaming and capture hardware, editing workstations, studio furniture, and a vehicle used for business are the assets this rule usually touches. For a Schedule C filer, the deduction reduces net profit before Schedule SE, so it cuts both income tax and 15.3% self-employment tax in the same year. For an S corporation, the deduction is taken on Form 1120-S and flows to the owner's Schedule K-1, reducing income tax on the pass-through profit.
Timing turns on the placed-in-service date, not the purchase date. Gear bought and actually in use by December 31 is fully deductible that year; gear ordered in December but delivered in January belongs to the next year. Two interactions are worth modeling before a big purchase. A large bonus deduction lowers qualified business income, so the 20% QBI deduction shrinks alongside it. And items costing $2,500 or less usually do not need Section 168(k) at all: the de minimis safe harbor expenses them as supplies with no depreciation schedule and no recapture exposure.
Mistakes that cost money
First, expecting a full write-off on a normal car. A $60,000 sedan used entirely for business is still capped by Section 280F at roughly $20,000 in year one, with the rest spread over later years; buyers who budgeted tax savings on the full price feel that gap immediately. Second, ignoring state decoupling. Many states, California and New York among them, do not conform to bonus depreciation, so the same asset generates an addback on the state return and years of tracking two depreciation schedules; the state bill in year one surprises people every filing season. Third, burning the deduction in a low-income year. A 100% write-off against income taxed at 12% wastes deductions that would have offset 32% or 37% income later; electing out and taking regular MACRS preserves them. Fourth, forgetting recapture. When bonus-depreciated equipment is later sold, gain up to the depreciation taken is taxed as ordinary income under Section 1245, so the benefit is deferral plus rate arbitrage, not a permanent exclusion. Fifth, claiming assets that were not in service. An audit that finds December purchases still in shipping boxes moves the deduction to the next year and adds interest and accuracy penalties.
Electing out and the exit
The election out exists because acceleration is not always optimal: a business expecting rising rates, a QBI limitation, or a state mismatch may prefer even MACRS deductions. It is made class by class, so you can take 100% on 5-year gear while electing out for 7-year property in the same return. On the way out of an asset, recapture follows the depreciation: trading equipment in, selling it used, or converting it to personal use each has a tax consequence tied to the deduction already taken, so the depreciation schedule should be checked before any disposal.
When a purchase is large relative to income, a vehicle is involved, or your state does not conform, model the deduction both ways before the return is filed; the election out is one of the few choices that cannot simply be undone with an amended return later.