Bonus Depreciation Guide for 2024
Bonus depreciation is a powerful tax incentive that allows businesses to deduct a significant percentage of the cost of qualifying assets in the first year they are placed in service. Originally introduced as a temporary stimulus measure and repeatedly extended and expanded by Congress, bonus depreciation became one of the most valuable depreciation tools available to businesses of all sizes after the Tax Cuts and Jobs Act (TCJA) of 2017 increased the rate to 100%.
For property placed in service during the 2024 tax year, the bonus depreciation rate is 60%. This rate applies to the cost basis of qualifying property remaining after any Section 179 deduction has been applied. Together, Section 179 and bonus depreciation can allow businesses to deduct the vast majority of their capital equipment costs in the year of purchase, dramatically reducing their tax liability and improving cash flow.
Bonus Depreciation Phase-Out Schedule (2022-2027)
Under the Tax Cuts and Jobs Act, 100% bonus depreciation was available from 2018 through 2022. Beginning in 2023, the rate decreases by 20 percentage points per year until it reaches zero in 2027. This declining schedule creates urgency for businesses considering capital equipment purchases, as each year of delay reduces the available bonus depreciation benefit. The table below shows the complete phase-out schedule.
| Tax Year | Bonus Rate | Status |
|---|---|---|
| 2022 | 100% | Expired |
| 2023 | 80% | Expired |
| 2024 | 60% | Current Year |
| 2025 | 40% | Upcoming |
| 2026 | 20% | Upcoming |
| 2027 | 0% | Expires |
The declining schedule means that the financial incentive to purchase equipment is strongest now and weakens each subsequent year. A $100,000 equipment purchase in 2024 generates $60,000 in bonus depreciation. The same purchase in 2025 would generate only $40,000, and by 2027 there would be no bonus depreciation at all (absent legislative action). This $20,000-per-year decline in bonus depreciation can translate to $4,800-$7,400 in additional taxes depending on your bracket, for each year you delay the purchase.
Impact of Declining Bonus Rates on Equipment Purchases
The following table illustrates how the declining bonus depreciation rate affects the first-year deduction for a $200,000 equipment purchase (7-year MACRS property) when using only bonus depreciation and regular MACRS (no Section 179 applied). This shows the isolated impact of the bonus rate decline.
| Year | Bonus Rate | Bonus Amount | MACRS Year 1 | Total Year 1 | Year 1 Write-Off % |
|---|---|---|---|---|---|
| 2022 | 100% | $200,000 | $0 | $200,000 | 100.0% |
| 2023 | 80% | $160,000 | $5,716 | $165,716 | 82.9% |
| 2024 | 60% | $120,000 | $11,432 | $131,432 | 65.7% |
| 2025 | 40% | $80,000 | $17,148 | $97,148 | 48.6% |
| 2026 | 20% | $40,000 | $22,864 | $62,864 | 31.4% |
As the table shows, the total first-year write-off drops substantially as the bonus rate declines. In 2024, you can write off about 66% of the cost in the first year through bonus depreciation and MACRS alone. By 2026, this drops to just 31%. Adding Section 179 to the mix can offset some of this decline, but only up to the annual cap.
Section 179 vs Bonus Depreciation: Detailed Comparison
Section 179 and bonus depreciation are complementary provisions that work together to maximize first-year deductions. However, they have important differences that affect which provision is more beneficial in specific situations. Understanding these differences is essential for optimal tax planning.
| Feature | Section 179 | Bonus Depreciation |
|---|---|---|
| Annual dollar limit | $1,220,000 | No limit |
| Phase-out threshold | $3,050,000 total purchases | None |
| 2024 rate | 100% (up to limit) | 60% |
| Can create NOL | No (limited to business income) | Yes |
| Election required | Yes (Form 4562) | Automatic (opt-out available) |
| Minimum business use | > 50% | No minimum |
| New vs used property | Both qualify | Both qualify (since TCJA) |
| Unused deduction | Carries forward | Creates NOL, carries forward |
| Vehicle SUV cap | $30,500 for heavy SUVs | No SUV-specific cap |
| Luxury auto limits | Combined with bonus in year-1 cap | Combined with 179 in year-1 cap |
Optimal Strategy: Combining Section 179 and Bonus Depreciation
For most businesses, the optimal approach is to apply Section 179 first (up to the annual limit of $1,220,000), then apply bonus depreciation to the remaining cost, and finally use regular MACRS depreciation on any residual amount. This three-layer approach maximizes the first-year deduction while respecting the limitations of each provision.
There are specific situations where it may be advantageous to skip or reduce the Section 179 election:
- When business income is low: Since Section 179 cannot create a net operating loss, businesses with limited taxable income may benefit from relying more on bonus depreciation, which can create an NOL that carries forward to future higher-income years.
- When future rates will be higher: If you expect to be in a higher tax bracket in future years, carrying forward some Section 179 deduction could provide greater tax savings later. However, this must be weighed against the time value of money.
- When approaching the phase-out: If total qualifying purchases are near the $3,050,000 threshold, the Section 179 deduction may be partially or fully phased out. In that case, bonus depreciation (which has no phase-out) carries more of the deduction load automatically.
Our Section 179 Calculator automatically applies both deductions in the optimal order, showing you the combined benefit of Section 179, bonus depreciation, and MACRS for your specific purchase.
Property That Qualifies for Bonus Depreciation
Bonus depreciation applies to a broad range of business property. Qualifying property includes MACRS property with a recovery period of 20 years or less (which encompasses virtually all equipment, vehicles, computers, furniture, and machinery), certain computer software, water utility property, and qualified improvement property. The property can be new or used, as long as it is new to the taxpayer (you did not use it before acquiring it).
Property that does not qualify for bonus depreciation includes real property with recovery periods exceeding 20 years (such as commercial buildings with a 39-year life), property acquired from related parties, property acquired in certain tax-free transactions, and property for which the taxpayer elected out of bonus depreciation. Certain regulated utility property is also excluded. Listed property (such as vehicles) qualifies for bonus depreciation but may be subject to additional limitations like luxury auto caps.
One important note: if you elect out of bonus depreciation, the election applies to all property in the same class (same recovery period) placed in service during that tax year. You cannot selectively apply bonus depreciation to some assets and not others within the same class. This election is made on a class-by-class basis on your tax return and is generally irrevocable for that tax year.
Frequently Asked Questions
What is bonus depreciation?
Bonus depreciation is an additional first-year depreciation deduction that allows businesses to deduct a percentage of the cost of qualifying assets in the year they are placed in service. It was expanded to 100% by the Tax Cuts and Jobs Act of 2017 for property placed in service after September 27, 2017 through December 31, 2022. Starting in 2023, the rate began declining by 20% per year until it reaches 0% in 2027.
What is the bonus depreciation rate for 2024?
The bonus depreciation rate for property placed in service in 2024 is 60%. This means 60% of the cost basis remaining after any Section 179 deduction can be deducted as bonus depreciation in the first year. The rate was 80% in 2023 and will decline to 40% in 2025, 20% in 2026, and 0% in 2027 unless Congress extends or modifies the provision.
Can I use both Section 179 and bonus depreciation?
Yes, and most businesses should. Section 179 is applied first, up to the annual limit of $1,220,000 for 2024. Bonus depreciation then applies to the remaining cost after Section 179. Finally, regular MACRS depreciation applies to any residual amount. Using both provisions together maximizes your first-year deduction and tax savings.
What is the difference between Section 179 and bonus depreciation?
The key differences are: (1) Section 179 has a dollar cap ($1,220,000) and a phase-out threshold ($3,050,000); bonus depreciation has no dollar limit. (2) Section 179 cannot create a net operating loss; bonus depreciation can. (3) Section 179 requires an election on your return; bonus depreciation is automatic unless you opt out. (4) Section 179 requires the asset to be used more than 50% for business; bonus depreciation has no minimum business-use requirement.
Will Congress extend 100% bonus depreciation?
As of 2024, there is bipartisan interest in restoring 100% bonus depreciation. The Tax Relief for American Families and Workers Act, which passed the House in January 2024, would have retroactively restored 100% bonus depreciation for 2023-2025. However, it stalled in the Senate. Businesses should plan based on current law (60% for 2024) while remaining aware that legislative changes could retroactively increase the rate.