bonus depreciation

Bonus Depreciation Phase Out: Learn How These Changes are Taking Effect and How Section 179 Can Help

February 28th, 2025 | BY Matt Latham | Business Tax Services | Tax | Tax Credits | Construction | Manufacturing | Small & Midsize Businesses
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In 2002, Bonus Deprecation first went into effect, serving as a groundbreaking new tax policy. Instead of traditionally spreading out deprecation over an asset’s useful life, businesses now had the option to accelerate their deprecation by upfronting a portion of their expenses all at once.   In 2017, the Tax Cuts and Jobs Act (TCJA) increased Bonus Deprecation to 100%, further boosting this policy’s tax advantage. Businesses hoping to cash in on these benefits rushed to claim this method. Recently, these benefits have started to dwindle as Bonus Deprecation has entered a phase out. In 2024, Bonus Deprecation dropped to 60% and will continue to decline 20% each year until it hits 0% in 2027.   Businesses should address the phase-out by re-examining whether or not to claim Section 179 on their depreciation and amortization form. Section 179 is an asset expense method that similarly allows businesses to deduct their personal property. When used in combination with Bonus Deprecation, Section 179 can help organizations continue to deduct up to 100% of new qualifying assets.    

Section 179 Vs. Bonus Deprecation  

Similarities:   

Both Section 179 and Bonus Depreciation provide taxpayers with more significant tax savings. This is because newly acquired assets are expensed upfront, which counts as a deduction towards taxable income.    Eligible assets under both methods include intangible personal property, new and used property, and assets with a 20-year class life or shorter.  

Differences:   

There are some differences that need to be reviewed between Bonus Depreciation and Section 179 depreciation. Section 179 can provide some flexibility that Bonus Depreciation cannot. Section 179 expensing can be done on an asset-by-asset basis, provided there are no business income or asset acquisition limits.   Bonus Depreciation has to be done based on class life, so you get all or nothing based on the useful life of an asset. This might allow businesses to manage expenses by writing off longer-life assets first and controlling shorter-life assets a little more.    Controlling expenses might help a business manage by not creating net operating losses where the deduction could be further limited by the NOL Carryover Limits that only permit NOLs to be deducted up to 80% of taxable income.    Section 179 does require taxable income to be utilized, but it can still be used to reduce income to zero, and any excess would be carried forward for future use without being subject to NOL carryover rules.   

Bonus Deprecation for 2024  

To help summarize Bonus Deprecation potential benefits in 2024:  
  • 60% expense rate for assets added in 2024  
  • No taxable income limits (can create a NOL)  
  • Most states require bonus adjustments (Michigan only requires adjustments for corporate income taxes, not flow-through entities).   
  • The expense rate pertains to the calendar year the property was placed in service.   
  • 2023 asset, 80% limit  
  • 2024 asset, 60% limit  
  • 2025 asset, 40% limit  
  • 2026 asset, 20% limit  
  • Must elect out to not take – based on asset class life (exp, can claim on all 5-year assets or no 5-year assets)  

IRS Section 179 for 2024  

To help explain potential Section 179 benefits for 2024:  
  • The max deduction is $1.22 million.  
  • Reduced deduction when property placed in service exceeds $3.05 million.  
  • Limited to taxable income  
  • Adjustments do not apply to Michigan corporate income taxes (CIT) and flow-through entities (FTE). Other states may have 179 adjustments.  
  • Must elect to take – and can take on an asset-by-asset basis & partial assets.  
  • Individuals with irrevocable trust are unable to claim.     

Stay Aware  

As Bonus Depreciation continues to phase out, businesses should consider electing into Section 179 if they haven’t previously. Companies may also find significant tax savings when combining these methods. In most cases, the IRS requires that Section 179 be applied first. Then, excess amounts can be applied to Bonus Depreciation.   Our team of tax credit experts at Maner Costerisan can help evaluate your situation and determine if you should elect into Section 179, Bonus Deprecation, or both. Reach out at maner@manercpa.com or call us at 517.323.7500 to contact our team today.