The Special Depreciation Allowance, also known as bonus depreciation, allows taxpayers to deduct a significant portion of the cost of qualified property in the year it is placed in service. For 2025, the allowance is 100% for qualified property acquired and placed in service after January 19, 2025. This includes tangible property with a class life of 20 years or less, computer software, qualified improvement property, and certain other assets. The allowance is taken after any Section 179 deduction and before regular depreciation under MACRS.
Eligibility and Applicable Percentages
- Property placed in service after January 19, 2025: 100% special depreciation allowance applies.
- Property placed in service between January 1, 2025, and January 19, 2025: The allowance is 40% (60% for long production period property or certain aircraft).
- Specified plants (e.g., fruit trees) planted or grafted after January 19, 2025: 100% special depreciation allowance is permanently restored.
- Qualified production property placed in service after July 4, 2025: A 100% special depreciation allowance is available if construction began or property was acquired after January 19, 2025.
How to Calculate the Allowance
To figure the special depreciation allowance, multiply the depreciable basis of the property by the applicable percentage. The depreciable basis is calculated by subtracting any credits or deductions allocable to the property (such as Section 179 deduction, disabled access credit, or Section 181 deduction) from the cost or basis of the property.
Important Considerations
Election Not to Claim the Allowance: You may elect not to claim the special depreciation allowance for a class of property by making a timely election on your tax return. Once made, the election is generally irrevocable without IRS consent.
Election to Use Reduced Percentage: For certain tax years affected by the reinstatement of 100% bonus depreciation, taxpayers may elect to use the otherwise applicable percentage (such as 40% or 60%, if eligible) instead of the restored 100% allowance.
Listed Property Limitation: Listed property generally must be used more than 50% for qualified business use to qualify for the special depreciation allowance.
Depreciation Recapture: Property for which a special depreciation allowance is claimed remains subject to the normal depreciation recapture rules that apply to the property type upon disposition or certain changes in use.
Alternative Minimum Tax (AMT): Generally, there is no separate AMT depreciation adjustment for property on which the special depreciation allowance is claimed.
Source:
Form 4562
Publication 946
Publication 463
Disclaimer: Always verify details with current Federal or State Department of Revenue Forms and Instructions. For complex situations, consult a CPA or tax attorney.