12/13/2024
What is Bonus Depreciation?
The term bonus depreciation focuses on first-year depreciation, where a business can deduct a large asset purchase related to the business purchased during that tax year from its business taxes. This is ideal for small businesses that may have bought assets and need to use the IRS Form 4562 to record business depreciation. These assets will depreciate downward, with the remaining percent for the next tax year and spread over seven years.
When bonus depreciation was introduced in 2018, it started at $100% and held until 2022. The 2023 tax year saw an 80% bonus depreciation, and it is continuing to depreciate further. For 2024, the current bonus depreciation rate is at 60%. An example is when a piece of equipment is purchased at $100,000, and the business can utilize $60,000 of that depreciation in 2024. The other 40% of the asset value will start a traditional amortization in the 2025 tax year and slowly depreciate for the next seven years.
