What Is Bonus Depreciation?

Bonus depreciation, officially the special depreciation allowance, lets a business deduct a large share of a qualifying asset's cost in the first year. Under the One Big Beautiful Bill Act, it's 100% and permanent for property acquired and placed in service after January 19, 2025. Unlike Section 179, it has no dollar cap and can create a loss.

How bonus depreciation works

Under normal depreciation, a $50,000 skid steer is written off over five years. Bonus depreciation lets you deduct an extra share of the cost up front, in the year the asset goes into service. With the rate at 100%, that means the whole business-use cost, in year one.

The IRS calls it the special depreciation allowance, and it lives in section 168(k) of the tax code. You claim it on Form 4562. Unlike Section 179, you don't have to elect it. It applies by default to qualifying property, and you elect out if you don't want it.

What are the bonus depreciation rates?

The acquisition date is the trap. If you signed a binding purchase contract for a truck in December 2024 and it was delivered in March 2025, the IRS treats it as acquired in December 2024, so it gets the old rate, not 100%.

What property qualifies?

• Tangible property depreciated under MACRS with a recovery period of 20 years or less: tools, equipment, trucks, trailers, machinery, office furniture, computers.
• Off-the-shelf computer software.
• Qualified improvement property (interior improvements to a nonresidential building you own), which has a 15-year recovery period.
• New or used property. Used property qualifies if you (or a related party) didn't use it before.

Buildings themselves (27.5 or 39 years), land, property you must depreciate under the alternative depreciation system, and listed property you use 50% or less for business don't qualify.

Bonus depreciation on trucks and vans

Vehicles are where contractors use bonus depreciation most, and where the rules split by weight:

• Over 6,000 lbs GVWR (most full-size work pickups, cargo vans and heavy SUVs): not subject to the passenger auto caps, so the full business-use cost can generally be deducted with 100% bonus. Heavy SUVs are capped at $32,000 under Section 179 for 2026, but bonus depreciation has no SUV cap.
• 6,000 lbs GVWR or less: the passenger auto caps apply. For vehicles placed in service in 2026, total first-year depreciation including bonus is capped at $20,300 (Rev. Proc. 2026-15).
• Business use must be more than 50%. Listed property used 50% or less for business can't take bonus depreciation at all, and if business use later drops to 50% or less, you recapture the excess.

Once you take bonus depreciation on a vehicle, you can't switch that vehicle to the standard mileage rate later. Compare both before you decide. The Section 179 calculator and mileage deduction calculator help.

Bonus depreciation vs. Section 179

When you might not want 100% bonus

• You expect higher income next year. A deduction is worth more in a higher bracket. Electing out spreads the write-off into years when it may save more.
• You want a steady QBI deduction. Big first-year write-offs lower qualified business income, which can shrink the QBI deduction.
• Your state doesn't follow it. Many states don't conform to federal bonus depreciation, so you may track two sets of depreciation. See your state tax guide.
• You'll sell soon. Fully expensed equipment means most of the sale price is taxed as ordinary income through depreciation recapture.

Bonus depreciation by trade

Common mistakes

• Assuming everything bought in 2025 gets 100%. Acquisition date and binding contracts matter.
• Forgetting it's automatic. If you don't want bonus on a class of assets, you have to elect out on a timely filed return.
• Not keeping business-use records for vehicles and other listed property.
• Ignoring state conformity, which can leave you with a surprise state bill.

More on year-end planning in the contractor taxes guide, and on how BRIX bookkeeping and tax help works.