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 to Not Claim: You may elect not to claim the special depreciation allowance for any class of property by attaching a statement to your timely filed return. This election is irrevocable without IRS consent.
- Recapture: If you dispose of property for which you claimed the special depreciation allowance, any gain up to the amount of the allowance must be recaptured as ordinary income. This also applies if qualified property ceases to meet eligibility requirements (e.g., GO Zone property, recovery assistance property).
- AMT Adjustment: If you claim the special depreciation allowance, there is no AMT adjustment for depreciation on that property.
- Like-Kind Exchange: If qualified property is acquired through a like-kind exchange or involuntary conversion, only new property qualifies for the full allowance; used property qualifies only for the excess basis.
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.