Definition
Bonus depreciation, formally the special depreciation allowance in section 168(k), lets a taxpayer deduct a percentage of the cost of qualified property in the year it is placed in service, before regular MACRS depreciation on the remainder. Under Public Law 119-21, the allowance is 100 percent for qualified property acquired and placed in service after January 19, 2025. Qualified property includes most MACRS property with a recovery period of 20 years or less and computer software. A taxpayer may elect out by class of property on a timely filed return. States often do not conform.
Why it matters in an audit or review
Tax depreciation runs far ahead of book depreciation, so the deferred tax liability grows quickly. Auditors check the acquisition date and placed-in-service date, whether any election out was made, state conformity, and the tie from the fixed asset register to the tax depreciation schedule.
Example
Illustrative: a company buys $240,000 of equipment on March 3, 2026. Tax deduction is $240,000. Book depreciation over five years on a straight-line basis, ignoring partial-year timing, is $48,000. The temporary difference is $192,000. At an assumed 25% blended rate, the deferred tax liability is $48,000.
Common mistakes
- Using the date of purchase order instead of the acquisition date under the binding contract rules.
- Applying federal bonus to states that decouple.
Sources
- Internal Revenue Code section 168(k) and Public Law 119-21 (2025)
- IRS, Publication 946, How To Depreciate Property: https://www.irs.gov/publications/p946
- IRS, Notice 2026-11 (additional first year depreciation deduction)
Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error