What Is Bonus Depreciation and How Do You Calculate It?

As the owner and founder of a business, you’ve likely found that there are several ways to reduce your overall tax burden. Of course, if you want to take advantage of those options, you and your accountant (or accounting team) will need to make wise decisions when tax time comes around.

Savvy business owners and accounting teams look for as many ways to write off income as possible, maximizing tax savings. One of the most powerful ways to do so is through bonus depreciation.

In the United States, companies use regular depreciation to write off the cost of their assets over time, but bonus depreciation front-loads the expense, leading to significant tax savings in the near term.

So, what exactly is bonus depreciation, and how can you use it to reduce your overall tax burden? Read on to find out how it works in 2025 after the passage of President Donald Trump’s latest tax reform.

Bonus Depreciation 101

The bonus depreciation rule is also known as the first-year depreciation deduction or the Internal Revenue Code (IRC) Section 168(k) allowance. It lets a business taxpayer write off a large portion of a fixed asset’s cost upfront, reducing their tax liability.

If you’re familiar with the IRC Section 179 deduction—also known as Section 179 expensing or 179 depreciation—this may sound familiar. However, the bonus depreciation deduction is separate from 179 depreciation.

While 179 depreciation offers write-offs up to a fixed dollar limit, the bonus depreciation deduction is calculated as a percentage of the value of the depreciable property.

Bonus Depreciation Definition

Bonus depreciation is a special depreciation allowance that gives business owners a way to write off a percentage of the cost of new business assets in the first year it’s placed into service.

However, there are a few bonus depreciation rules that you’ll need to keep in mind if you plan on taking advantage of this tax deduction.

First, the deduction only applies to qualified property (we’ll outline what that means shortly). Moreover, this deduction is dependent on the purchase price of the asset. So, you’ll need to be able to prove that price. Finally, you’ll have to use IRS depreciation schedules when determining your write-off percentage.

Eligibility Criteria

Depreciable assets have to meet four requirements to qualify as eligible property for the bonus depreciation provision:

• Type of property: The asset must have a useful life of 20 years or less, like office equipment, certain vehicles, and qualified improvement property (QIP). Real estate generally doesn’t qualify, but cost segregation studies can break out parts of buildings into shorter-lived assets that do.
• New to your business: The asset must be brand new to your operation. If it was used previously, it must not have been acquired from a related party or used in a way that involved you or your business.
• Placed in service on time: Your first use of the depreciable asset must be during the year in which you’re claiming the bonus depreciation deduction.
• Purchased after September 27, 2017: You can’t have purchased the asset before September 27, 2017, even if you waited to place it into service until after the cutoff.

Since the passage of the act formerly known as the One Big Beautiful Bill Act (OBBBA) in 2025, qualified production property (QPP) may also be eligible for bonus depreciation through 2032, helping drive domestic economic growth.

QIP refers to non-residential real property used to manufacture, produce, or refine tangible personal property. To be eligible, it has to have been built between January 19, 2025, and January 1, 2029, and placed in service before 2031.

Consider going through your accounts payable to determine which assets you’ve purchased that may qualify for this deduction, and tracking these assets when you close your books each month.

Impact on Business Taxation

By writing off a larger portion of the cost of fixed assets upfront, bonus depreciation can significantly reduce your tax burden without requiring any extra expense, preserving your cash flow.

In fact, in some cases, bonus depreciation can turn a profit into a loss, eliminating your income tax liability for the current year and potentially offering deductions that follow through for years to come.

How To Calculate It

Fortunately, federal bonus depreciation is easier to calculate than other forms of accelerated depreciation. As mentioned above, it’s just a percentage of the total purchase price of the asset.

Here’s the breakdown of how to calculate your bonus depreciation.

Identify the Bonus Depreciation Rate

To calculate your bonus depreciation deduction, you’ll need to identify the applicable bonus depreciation rate, which depends on the year in which you placed the asset into service.

The rules were established by the passage of the Tax Cuts and Jobs Act (TCJA) in 2017. Initially, eligible assets purchased and put to use between September 27, 2017, and December 31, 2022, had a 100% bonus depreciation rate.

Subsequently, the bonus depreciation rate was set to decrease by 20% per year, as follows:

• 80% for 2023
• 60% for 2024
• 40% for 2025
• 20% for 2026
• 0% for 2027 and beyond

However, the OBBBA reinstated a 100% bonus depreciation rate for qualifying property placed into service after January 19, 2025. It also made the 100% rate permanent, with no expiration date.

Multiply the Bonus Depreciation Rate by the Asset Basis

Once you know your bonus depreciation rate, you simply need to multiply it by the purchase price or depreciable basis of your asset to determine your deduction.

For example, say you spent $150,000 on a depreciable asset you placed into service in 2023. Your bonus depreciation rate would have been 80%, which you would have multiplied by $150,000 for a bonus depreciation deduction of $120,000.

Then, you would have used the straight-line depreciation method—or another regular MACRS depreciation deduction approach—to write off the asset’s adjusted basis of $30,000 over its remaining useful life.  

On the other hand, if you purchased that same asset in June 2025, your bonus depreciation rate would go back up to 100%, allowing you to take the full $150,000 as an immediate deduction.

Leverage Bonus Depreciation for Tax Advantages

The bonus depreciation rule can have a significant impact on your tax liability. And since the passage of President Trump’s OBBBA tax reform, it’s only become more lucrative.

If you acquired property for your business at any point since September 27, 2017, you should strongly consider taking advantage of the deduction to reduce your overall tax burden.

For more tax insights into bonus depreciation, get in touch with a tax advisor. They can answer any questions you might have and help you claim bonus depreciation properly on your tax return.

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