Bonus depreciation, also known as special depreciation, the additional depreciation allowance, or IRC §168(k) depreciation, is an additional first-year depreciation allowance. Bonus depreciation is technically a depreciation deduction and like other depreciation deductions counts toward accumulated depreciation which reduces basis for purposes of determining gain or loss when an asset is sold and is subject to section 1245 and section 1250 recapture. There are many nuances pertaining to the bonus rules which this topic page will delve into.
Currently, bonus depreciation applies to qualifying property placed in service after December 31, 2007, and before January 1, 2027 (before January 1, 2028, in the case of certain property with a long production period and certain noncommercial aircraft. Bonus depreciation will expire after December 31, 2026, unless extended once again.
Bonus depreciation applies to “qualified property.” Qualified property consists of MACRS property with a recovery period of 20 years or less, certain computer software, qualified leasehold improvement property placed in service before 2016, qualified improvement property placed in service after 2015 and before 2018, specified plants, water utility property, and, for property acquired and placed in service after September 27, 2017, films, television shows, and theatrical productions. Also, for property acquired and placed in service after September 27, 2017, used property may qualify for bonus depreciation. Previously, only new property qualified (i.e., the original use had to begin with the taxpayer).
In the case of property placed in service before 2016, property does not qualify for bonus depreciation if it was acquired before January 1, 2008, the original use began before 2008, the property was acquired pursuant to a contract entered into before 2008, or construction of the property by or for the taxpayer began before 2008. These prohibitions against pre-2008 events were eliminated effective for property placed in service after 2015.