Under IRC Section 167, tangible and intangible assets used in a trade or business or held for the production of income are depreciable if they have a determinable useful life and wear out, become obsolete, or lose value over time. This includes machinery, vehicles, buildings, computers, patents, copyrights, and certain software.
Section 167(a) provides as a depreciation deduction a reasonable allowance for the exhaustion and wear and tear (including a reasonable allowance for obsolescence) of property used in a taxpayer's trade or business.
Depreciable property includes machines, vehicles, office buildings, buildings you rent out for income (both residential and commercial property), and other equipment, including computers and other technology.
167(a) permits a depreciation deduction for the exhaustion and wear and tear of property used in a trade or business or held for the production of income. Sec. 168 sets forth the methods, periods, and conventions by which a taxpayer can depreciate tangible property as permitted by Sec. 167(a).
100% bonus depreciation qualifies for new or used tangible business property with a MACRS recovery period of 20 years or less, including equipment, machinery, furniture, certain vehicles, off-the-shelf software, and some building improvements (like QIP), provided the property is acquired and placed in service by specific deadlines, with recent legislation (OBBBA) making it permanent for qualifying assets acquired after Jan 19, 2025, and expanding eligibility to include some used property and specific production property.
In general, the OBBB provides a permanent 100‑percent additional first year depreciation deduction for qualified property acquired, or specified plants that are planted or grafted, after Jan. 19, 2025.
Section 179 eligible property includes:
The main downsides of bonus depreciation include losing future deductions by taking them upfront, potentially increasing future taxable income, facing higher "recapture" taxes if the asset is sold, and dealing with complex rules or state-level nonconformity, making it less beneficial for short-term investors or those in lower tax brackets who might need deductions later. It also creates large upfront tax benefits that might not align with book income, affecting financing, and rules change frequently, requiring constant tax planning.
The four common types of depreciation methods used in accounting are Straight-Line, Double Declining Balance, Units of Production, and Sum-of-the-Years'-Digits, each spreading an asset's cost differently over its useful life to reflect usage or decline in value, with Straight-Line being the simplest and most common.
Yes. The One Big Beautiful Bill Act (OBBBA), signed into law in May 2025, has restored 100% bonus depreciation retroactively for property placed in service after December 31, 2024, and extends this full deduction through December 31, 2029.
Summary Table of Key Section 179 Mistakes to Avoid: Expensing ineligible property (e.g., land, inherited/gifted assets, property from related parties). Exceeding annual dollar and investment limits. Ignoring the business income limitation.
It can also be defined as a fall or decrease in the economic service potential of an assets as a result of wear, tear, usage, obsolescence and inadequate. Depreciable assets: Depreciable assets are items of properties such as motor van, furniture and fitting, plant and machinery, premises and land and building.
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The kinds of property that you can depreciate include machinery, equipment, buildings, vehicles, and furniture. You can't claim depreciation on property held for personal purposes.
Test 1 – asset costs $300 or less
To claim the immediate deduction, the cost of the depreciating asset must be $300 or less. The cost of an asset is generally what you pay for it (the purchase price), and other expenses you incur to buy it – for example, delivery costs.
It then explains 8 different depreciation methods - straight line, sinking fund, sum of years digits, declining balance, double declining balance, working hours, constant unit, and output.
Useful life: To qualify for bonus depreciation, the asset must have a useful life of 20 years or less. For example, a building wouldn't be eligible for bonus depreciation, but a vehicle or piece of equipment would be. Listed property: This type of asset can be used for business and personal purposes.
If the vehicle weighs more than 6,000 pounds and is used more than 50% for business, you can write off up to $28,900 in the first year, and potentially even more with bonus depreciation. Let's break it down: Buy a qualifying vehicle for $60,000, and you could write off a large portion of that cost in year one.
Yes, you can still take 40% bonus depreciation in 2025 for property acquired on or before January 19, 2025, but for property acquired after January 19, 2025, 100% bonus depreciation is generally reinstated under the One Big Beautiful Bill Act (OBBBA) (OBBBA), though you can elect the 40% rate if it's more beneficial. The OBBBA effectively reversed the previous phase-down, making 100% bonus depreciation permanent for new acquisitions after the cutoff date, with options for strategic planning.
If you have a net loss for your business, you are able to claim bonus depreciation (but not the Section 179 deduction). If you have expensive purchases, claim bonus depreciation because you won't face a limit on spending. If you buy assets with a shorter recovery period, use bonus depreciation.
Example (equipment, $2.0M in 2025):
Elect Section 179 on $1.25M. Remaining $750k: if the assets qualify for 100% bonus (acquired ≥ Jan 20, 2025), deduct the full $750k; if acquired earlier, 40% = $300k. Upfront deduction: $2.0M (100% case) or $1.55M (40% case).