Gary Wilson, CPA​​​​​​​​​​​

Accounting and Tax Preparation                                                 

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Bonus depreciation is a tax incentive that allows small- to mid-sized businesses to take a first year-deduction on purchases of qualified business property in addition to other depreciation. The Section 179 deduction is also a tax incentive for businesses that purchase and use qualified business property, but the two are not the same. In this post we take a look at how both bonus depreciation and Section 179 work and how they differ from each other.

How bonus depreciation works

Generally, the point of depreciation is to spread out the cost of an asset over the life of the asset, rather than take the full cost of the asset in the first year. Bonus depreciation is a kind of accelerated depreciation. In the year qualified property is purchased and put into use, a business is allowed to deduct 100% of the cost of the property in addition to other depreciation that is always available.

Qualified property (or assets) includes:

Property depreciated under the Modified Accelerated Cost Recovery System (MACRS) that has a recovery period of 20 years or less
Computer software
Water utility property
Qualified film or television productions
Qualified live theatrical productions
Specified plants
Qualified improvement property
Some listed property

More specifically, property depreciated under the MACRS that has a recovery period of 20 years or less is generally tangible, personal property such as vehicles, office equipment, heavy equipment, machinery, etc. Land does not count as qualified property. Type your paragraph here.