Phase-down schedule
The 100% bonus depreciation rate available 2017-2022 is phasing down: 80% (2023), 60% (2024), 40% (2025), 20% (2026), 0% (2027 and later) unless Congress extends. The phase-down applies to property with a recovery period of 20 years or less; longer-life assets follow a one-year-delayed schedule.
Eligible property
Generally any new or used MACRS property with a recovery period of 20 years or less, software, qualified film/TV/theatrical productions, and certain plants bearing fruits and nuts. Real property (27.5 or 39 years) does not qualify, but qualified improvement property (15 years) does.
Election out by class
You may elect out of bonus depreciation on a class-by-class basis. The election is made on the timely-filed return for the year property is placed in service. Common reasons to elect out: state non-conformity, low current-year taxable income, NOL planning.
Compared to Section 179
Bonus has no taxable-income limit (can create a loss), no investment phase-out, and applies to all qualifying property automatically (you elect out, not in). Section 179 is elective, capped, and limited to active trade-or-business taxable income — but lets you fine-tune the deduction to a specific dollar amount.
Vehicle bonus rules
Passenger autos under 6,000 lbs face the luxury-auto depreciation cap, which limits combined bonus + first-year MACRS to a fixed dollar amount (about $20,400 for 2024). Heavy SUVs over 6,000 lbs escape the cap and can take much larger bonus depreciation.
Worked example with numbers
Consider a sole prop with $100,000 in gross receipts and $30,000 in legitimate Schedule C deductions, including this category. Each additional $1,000 of qualifying expense reduces Schedule C net profit by $1,000, which reduces self-employment tax by approximately $1,000 × 92.35% × 15.3% ≈ $141, and reduces income tax by $1,000 × marginal rate. At a 22% federal marginal rate, the combined federal tax savings on each additional $1,000 of legitimate deduction is roughly $361, and state savings sit on top of that. The math is why disciplined categorization throughout the year pays for itself.
Common mistakes that disallow the deduction
The recurring ways this deduction gets disallowed in examination cluster in four categories: (1) personal-use expenses bundled with business (the deduction is disallowed entirely or apportioned downward); (2) inadequate substantiation (no receipt, no invoice, no business-purpose note); (3) the wrong line on Schedule C (not fatal, but it weakens audit defense); and (4) double-counting with another line (for example, deducting an expense on Schedule C and also on Form 8829, or as a personal itemized deduction on Schedule A). The fix in every case is contemporaneous bookkeeping and a clean chart of accounts.