Accelerated Depreciation: Bonus Depreciation (IRC §168(k)) and Section 179 Expensing After the 2025 Law
In Short
Accelerated Depreciation refers to rules — mainly bonus depreciation under IRC §168(k) and Section 179 expensing — that let a business deduct most or all of an asset's cost in the year it is placed in service. It is commonly used by businesses that buy equipment, vehicles, machinery or software.
TL;DR
- The 2025 law made a 100% bonus depreciation deduction permanent for qualified property acquired after January 19, 2025 [1][2].
- For tax years beginning in 2025, the Section 179 limit is $2,500,000, reduced once qualifying purchases exceed $4,000,000 [1][3].
- Passenger vehicles have separate annual depreciation caps, and listed property generally has to be used more than 50% for business [1][4].
- Faster deductions now mean smaller deductions later, and depreciation is generally recaptured as ordinary income when equipment is sold at a gain [5].
Quick Facts
| Legal Reference | IRC §168(k), §179 |
|---|---|
| Complexity | Medium |
| Audit Risk | Medium |
| Setup Cost | Low to moderate — purchase records and depreciation schedules |
| Time to Implement | Decided when the return is prepared; elections are made on the return |
| Illustrative Example | Illustrative example, not a projection. A company buys a $200,000 machine in March 2025 and places it in service the same month. Instead of deducting it over a seven-year recovery period, it claims 100% bonus depreciation and deducts the full cost on its 2025 return. If it sells the machine in 2028 for $120,000, that gain is generally ordinary income under the recapture rules. Actual results depend on the facts and the tax rates involved. |
Key Numbers & Limits
| Item | Limit or Rule | Notes |
|---|---|---|
| Bonus Depreciation, Property Acquired After Jan. 19, 2025 | 100% | Permanent under P.L. 119-21 [1][2]. |
| Bonus Depreciation, Property Acquired Sept. 28, 2017 – Jan. 19, 2025 | 40% for property placed in service in 2025 | 60% for certain long-production-period property and aircraft [1]. |
| Section 179 Maximum (Tax Years Beginning in 2025) | $2,500,000 | Was $1,000,000 before the 2025 law [1][3]. |
| Section 179 Phase-Out Threshold (2025) | $4,000,000 | The limit falls dollar for dollar above this amount [1]. |
| Section 179 Limit for Sport Utility Vehicles (2025) | $31,300 | [1] |
| Passenger Auto First-Year Cap (2025) | $20,200 with bonus; $12,200 without | Later-year caps: $19,600, $11,800, then $7,060 [4]. |
What Is Accelerated Depreciation?
Accelerated depreciation describes tax rules that let a business deduct the cost of business property faster than the normal depreciation schedule. Normally, the cost of equipment is spread over a recovery period of several years. Two rules shorten that: the special depreciation allowance, often called bonus depreciation, under IRC §168(k), and the Section 179 deduction, which lets a business elect to expense the cost of qualifying property [1].
The One Big Beautiful Bill Act (Public Law 119-21, July 4, 2025) made a 100% bonus depreciation deduction permanent for qualified property acquired after January 19, 2025 [2][3]. Before that law, bonus depreciation was phasing down, and property acquired before January 20, 2025 and placed in service in 2025 qualifies for 40% (60% for certain long-production-period property and aircraft) [1]. Treasury and the IRS issued Notice 2026-11 with guidance on the amended rules [2].
The same law raised the Section 179 limit to $2,500,000 for tax years beginning in 2025, reduced by the amount by which qualifying purchases exceed $4,000,000 [1][3]. Unlike bonus depreciation, Section 179 cannot exceed the taxable income from the active conduct of a business; the excess carries forward [1].
How Does Accelerated Depreciation Work?
- The business buys qualifying property — generally tangible property with a recovery period of 20 years or less, such as machinery, equipment, furniture and computers — and places it in service [1].
- Bonus depreciation applies automatically to qualified property unless the business elects out for a class of property; for the first tax year ending after January 19, 2025, it can instead elect 40% (60% for certain property) [1][2].
- Section 179 is an election made on Form 4562; it is limited by the dollar cap, the phase-out threshold and business taxable income [1].
- Vehicles follow separate caps: a passenger automobile placed in service in 2025 is capped at $20,200 of first-year depreciation with bonus, or $12,200 without it [4].
- When the property is later sold, depreciation and Section 179 amounts taken are generally recaptured as ordinary income on Form 4797 [5].
The Good: What Are the Benefits of Accelerated Depreciation?
- A large deduction in the year of purchase reduces taxable income and can improve cash flow in that year [1].
- The 2025 law made 100% bonus depreciation permanent for property acquired after January 19, 2025, which adds planning certainty [2][3].
- Bonus depreciation is not limited by business income, so it can create or increase a loss, subject to other loss rules [1].
- Section 179 lets a business choose specific assets to expense, and the business income limit allows unused amounts to carry forward [1].
The Bad: What Are the Drawbacks of Accelerated Depreciation?
- A deduction taken now is not available later, so taxable income can be higher in later years.
- Section 179 cannot exceed business taxable income for the year [1].
- Passenger vehicles are subject to annual dollar caps, and listed property must be used more than 50% for business to qualify [1][4].
- Many states do not follow federal bonus depreciation or the federal Section 179 limits, so state depreciation schedules can differ from federal ones. State rules vary and are not covered by the IRS sources here.
- Selling the property at a gain generally turns the earlier deductions into ordinary income through recapture [5].
The Ugly: What Are the Serious Risks of Accelerated Depreciation?
- If business use of listed property such as a vehicle drops to 50% or less, part of the earlier Section 179 or bonus deduction is recaptured as income [1].
- Claiming accelerated depreciation on personal-use property, or overstating business-use percentages, can lead to disallowed deductions plus a 20% accuracy-related penalty on the underpayment [6].
- Buying assets mainly to create a deduction can leave a business with equipment it does not need and a tax bill on recapture when the asset is sold.
Who Uses Accelerated Depreciation?
Who It's Commonly Used By
Who It's Generally Not Suited For
What Are the Key Rules & Requirements for Accelerated Depreciation?
- Qualified property acquired after January 19, 2025 is eligible for a 100% special depreciation allowance [1][2].
- A taxpayer may elect out of bonus depreciation for any class of property, or elect 40% (60% for certain property) for the first tax year ending after January 19, 2025 [1][2].
- For tax years beginning in 2025, the Section 179 limit is $2,500,000, reduced by purchases above $4,000,000 [1].
- Section 179 is limited to business taxable income, with the excess carried forward [1].
- Passenger automobiles are subject to annual depreciation caps; for 2025 the first-year cap is $20,200 with bonus depreciation and $12,200 without [4].
- Listed property must be used more than 50% for business to qualify for Section 179 or bonus depreciation [1].
- Depreciation and Section 179 amounts are generally recaptured as ordinary income when section 1245 property is sold at a gain [5].
What Are Common Mistakes & Red Flags With Accelerated Depreciation?
- Claiming 100% bonus depreciation on property acquired before January 20, 2025, which is limited to the phased-down rate [1].
- Expensing vehicles without mileage logs or business-use records [1][4].
- Treating personal-use items as business property.
- Forgetting state depreciation adjustments when the state does not follow federal rules.
- Ignoring recapture when planning to sell or trade in equipment [5].
Frequently Asked Questions
Is 100% Bonus Depreciation Permanent?
Yes, for qualified property acquired after January 19, 2025. The One Big Beautiful Bill Act made the 100% additional first-year depreciation deduction permanent for that property [2][3]. Property acquired earlier and placed in service in 2025 is limited to 40% (60% for certain property) [1].
What Is the Section 179 Limit for 2025?
For tax years beginning in 2025, the maximum Section 179 deduction is $2,500,000, reduced by the amount by which the cost of qualifying property placed in service during the year exceeds $4,000,000 [1]. The deduction also cannot exceed business taxable income [1].
What Is the Difference Between Bonus Depreciation and Section 179?
Bonus depreciation applies automatically to qualified property unless the business elects out, and it is not limited by business income [1]. Section 179 is an election made asset by asset, subject to a dollar cap, a phase-out and a business income limit [1].
What Happens When I Sell Equipment I Expensed?
Gain on the sale of depreciable personal property is generally treated as ordinary income to the extent of depreciation taken, including Section 179, and is reported on Form 4797 [5].
Sources
- Publication 946 (2025), How To Depreciate Property — Internal Revenue Service
- Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One, Big, Beautiful Bill — Internal Revenue Service
- Working Families Tax Cuts: Businesses — Internal Revenue Service
- Publication 463 (2025), Travel, Gift, and Car Expenses — Internal Revenue Service
- Publication 544, Sales and Other Dispositions of Assets — Internal Revenue Service
- 26 U.S. Code §6662 — Imposition of Accuracy-Related Penalty on Underpayments — Legal Information Institute, Cornell Law School
Primary sources only: the Internal Revenue Code, Treasury regulations and official agency guidance. Read how Zentavos researches these reports.