Bonus Depreciation (Section 168(k))

How it works

Bonus depreciation, whose statutory name is the additional first-year depreciation deduction, lets a business deduct a fixed percentage of the cost of qualifying property in the year that property is placed in service, instead of spreading the cost over the asset's regular MACRS recovery period. Under current law that percentage is 100%, so the entire cost of a qualifying asset can be deducted in year one (Section 168(k)(1)).

On a single asset, the deduction stack has a fixed order. Section 179 expensing, if elected, comes first (I cover that election on its own in my Section 179 guide). Bonus depreciation then applies to whatever basis is left after any Section 179 amount. Regular MACRS depreciation applies last, to anything still remaining after bonus (Section 168(k)(1)(A); Treas. Reg. Section 1.168(k)-2(e)).

Why this is a timing benefit, not a permanent one

The value here is a present-value benefit, not a permanent one. A 100% deduction pulls the entire cost of the asset into year one, which accelerates the cash-tax benefit, but it does not create a larger total deduction over the asset's life. Basis is reduced dollar for dollar, so what is not depreciated later is depreciation that was already taken now. The other side of that trade shows up on a sale: gain recognized when the property is later disposed of, up to the amount of depreciation claimed against it, comes back as ordinary income under Section 1245's recapture rules for personal property, rather than the capital-gains rate a seller might otherwise expect. If a future sale of the asset matters to how someone is weighing this, that interaction is worth reading alongside my capital-gains rate planning piece.

What this means in Florida

For most Florida owners, this is entirely a federal question. Florida has no individual income tax (Fla. Const. art. VII), so a sole proprietor, a partnership, or an S corporation owner reporting this on a personal return gets the full federal benefit with no Florida-level adjustment to make. A Florida C corporation is a different case: Florida runs its own corporate income tax and conforms to the federal Internal Revenue Code on its own schedule, which is a separate question with its own mechanics that I walk through in my Florida depreciation rules guide.

Current law traces to the One Big Beautiful Bill Act, which permanently restored the 100% rate for qualifying property acquired after January 19, 2025. The 100% figure now sits in Section 168(k)(1)(A) itself; the old applicable-percentage paragraph at Section 168(k)(6) was struck, and the acquisition-date rule lives in the Act's own effective-date provision rather than in the Code. There is no longer any placed-in-service deadline attached to the rate, which is what permanent means here. Before that law, the 100% rate had been legislated to phase down in steps, and property that misses the new cutoff is still governed by that older phase-down, which the next section gets into.

Who this applies to

On the taxpayer side, this is about as broad as a depreciation rule gets. On the property side, it is considerably narrower, and the property is what actually does the filtering.

• The taxpayer. Any taxpayer with a trade or business, or a for-profit rental or investment activity under Section 212, can use bonus depreciation: a sole proprietor filing Schedule C, a rental owner reporting on Schedule E at the level of the individual asset, a partnership, an S corporation, or a C corporation. There is no entity-type gate here.
• The property. Qualifying property has a MACRS recovery period of 20 years or less. That reaches most machinery, equipment, furniture, computers, vehicles, 15-year land improvements, and qualified improvement property. Real property depreciated over 27.5 or 39 years does not qualify directly, no matter who owns it or what it is used for.
• What separates this from Section 179. Section 179 expensing is capped at the amount of the taxpayer's business taxable income for the year. Bonus depreciation carries no such cap and can create or increase a net operating loss on its own. That loss still has to clear the separate noncorporate excess-business-loss limitation before it becomes a carryforward, but nothing about claiming bonus itself is limited by current income the way Section 179 is.

What it requires

Several conditions have to hold at once for a given asset, and the one that trips up 2025 and 2026 purchases most often is the timing rule.

• Original use, or a clean used-property purchase. The property has to be put into use for the first time by anyone, or it has to be used property the taxpayer purchased outright under the anti-churning and related-party rules: it cannot have been previously used by the same taxpayer, and it cannot be bought from a related party (Section 168(k)(2)(E)(i); Section 179(d)(2)).
• The acquisition-date threshold. For the current 100% rate, the property has to be acquired after January 19, 2025. That is the whole test; the statute imposes no separate placed-in-service deadline, which matters because a reader who treats the two as independent hurdles will look for a document that proves nothing. "Acquired" turns on the binding-contract rule: property is treated as acquired no later than the date of a written binding contract to buy it, so property locked in under a contract signed before January 20, 2025 does not get the 100% rate no matter when it is placed in service (Treas. Reg. Section 1.168(k)-2(b)(5)). Property caught by an earlier contract instead follows the older phase-down: 40% if placed in service in 2025, 20% if placed in service in 2026, with one extra year at a higher rate, 60% in 2025 and 40% in 2026, for long-production-period property and certain aircraft.
• Qualified improvement property has its own boundary. An interior improvement to nonresidential real property, made after the building itself was first placed in service, is 15-year qualified improvement property and is bonus-eligible. That excludes an enlargement of the building, elevators and escalators, and the building's internal structural framework, all of which fall back to their own, longer recovery periods (Section 168(e)).
• A shorter list of other eligible property. Certain computer software, water utility property, and qualifying film, television, and live theatrical productions are also bonus-eligible (Section 168(k)(2)(A)). The same law that restored the 100% rate also added a new 100% allowance for qualified production property, certain manufacturing and production real property placed in service before January 1, 2031 if construction began after January 19, 2025 and before January 1, 2029 (Section 168(n)). Both ends of that construction window matter: a project broken ground on in 2029 fails even if it is placed in service well inside the 2031 date.
• No election is required, and opting out runs by class. Bonus depreciation is the default; it is claimed on Form 4562, line 14, without any affirmative election. A taxpayer can elect out of it, but only for an entire class of property placed in service that year, such as all five-year property, never for a single asset inside that class. The election is made by a statement attached to a timely filed original return and is irrevocable without IRS consent (Section 168(k)(7); Treas. Reg. Section 1.168(k)-2(f)). A separate, one-time transition election lets a taxpayer apply 40% (60% for long-production-period property) in place of 100% for the first tax year ending after January 19, 2025, for a taxpayer who would rather not take the entire deduction in the changeover year (Section 168(k)(10)).

What you need to document

The file matters as much as the math here, particularly for the acquisition date, since that is the fact an examiner tests first.

The purchase record

The invoice, and just as important, the underlying written contract. The contract date, not the invoice date, is what the binding-contract rule actually tests, so a purchase order or signed agreement that predates the invoice needs to be kept and dated.

Proof the asset was placed in service

Delivery records, installation records, or whatever else establishes the date the property was actually ready and available for its intended use, which is the year the deduction belongs in. It is not a second eligibility test: the rate turns on the acquisition date alone.

The depreciation schedule

A schedule showing the Section 179, bonus, and regular MACRS amounts claimed on each asset, in that order, so the return can be reconciled back to what was actually elected.

Any election paperwork

The statement making a class-wide election out of bonus, or the statement making the one-time transition election under Section 168(k)(10), attached to the original return on which it was made.

Where it goes wrong

Bonus depreciation is mainstream cost recovery, not a listed or aggressive position, so audit exposure here is mechanical rather than a fight over characterization. The mistakes are almost all timing or classification mistakes.

The transition-year trap

The single most common error for 2025 and 2026 purchases is claiming the 100% rate on property that was actually acquired under a written binding contract signed before January 20, 2025. The placed-in-service date does not control here. A machine delivered and installed in 2026 can still be a 20% legacy asset if the contract to buy it was signed in 2024, and reviewing only the invoice will miss that entirely.

The rate turns on the contract date, not the delivery date. Pull the contract before assuming the current 100% rate applies to anything acquired near the transition.

• Property that does not actually qualify. Bonus claimed on 27.5-year or 39-year real property, on land, or on a building improvement that falls into one of the qualified-improvement-property exclusions: an enlargement, an elevator or escalator, or the building's internal structural framework.
• A used-property or related-party fail. Bonus claimed on property the same taxpayer already used, or property bought from a related party, both outside the original-use and anti-churning rules regardless of how the purchase is documented.
• Business use of a vehicle drops to 50% or less. Passenger vehicles and other listed property have to clear more than 50% business use to support accelerated depreciation in the first place, and a later year where use falls to 50% or less triggers recapture of the bonus and other accelerated depreciation already claimed. A separate first-year dollar cap also limits how much bonus a passenger automobile can absorb, regardless of the vehicle's actual cost.
• Electing out the wrong way. Attempting to elect out of bonus for one asset instead of the whole class it belongs to, or trying to make or unwind the election after the return's filing deadline has passed.
• A state that does not conform. Some states do not follow the federal treatment and require their own addback, so a correct federal Form 4562 can still sit behind an incorrect state return if that adjustment gets missed. Florida has historically required a C corporation to add back and spread federal bonus depreciation on its state return, and the current-year rule is worth confirming against the state's own corporate return instructions before anyone relies on it.

A situation where this comes up

The ordinary version of this is a business that was going to buy the equipment or the vehicle anyway, and bonus depreciation is simply how the cost lands on the return. A trade business replacing aging equipment, or a service business buying vehicles for a growing crew, usually does not need to change anything about the purchase itself for this to apply.

What usually needs attention is narrower than people expect. I want the actual contract date next to the invoice date, not just the invoice. I want to know whether a vehicle's business use is comfortably above half, not sitting right at the line. And if the purchase is a build-out or a leasehold improvement rather than equipment, I want to know whether it is genuinely an interior improvement or whether part of it is an enlargement or something else that falls outside qualified improvement property.

The version that worries me is someone assuming the current 100% rate automatically applies to anything bought recently, without ever checking whether the deal was actually locked in under an older contract, or trying to run a building purchase through bonus depreciation wholesale instead of first identifying which components of it are even short-life property to begin with. Both of those are the kind of assumption that holds up fine until an examiner asks for the contract.