Bonus Depreciation Is Still Available – But Goes Down Next Year and Thereafter.

Traditionally, a popular way for businesses to maximize current-year deductions has been to take advantage of the Section 168(k) deduction (“bonus depreciation”). Bonus depreciation is a way to immediately deduct a portion of the basis of property placed in service during the year, at a decreasing rate. For 2024, the bonus depreciation rate is 60%, for 2025 it is 40%, for 2026 it is 20%, and is 0% for each year thereafter. Given the annual decrease in bonus depreciation available each year, it benefits business taxpayers to accelerate any planned depreciable asset purchases to maximize available deductions.

Section 179 – The “Expensing Deduction” – Is Available and Growing!

Another popular and frequently used way to accelerate deductions is by taking advantage of the Section 179 deduction, wherein the business may fully expense purchases of qualifying property as opposed to capitalizing them on the balance sheet and taking depreciation deductions on an annual basis. The 179 deduction has an increased limitation in 2024 on the first $3,050,000 of depreciable property purchases made in the year, up to the higher of $1,220,000 or business income. Generally, “depreciable” property qualifies for the 179 deduction if: 1) It is purchased new or used; 2) it is “tangible personal” property (certain physical assets that can be touched or moved); and 3) it is used primarily for business purposes. Off-the-shelf business software also qualifies.

The 179 Deduction Is Also Available On Certain Real Property.

The 179 deduction may also be claimed on certain real property expenditures called Qualified Improvement Property (“QIP”). QIP includes any improvement to an interior portion of a nonresidential building that is placed in service after the date the building is first placed in service, with certain exceptions. There is no separate 179 deduction limit for QIP expenditures, so 179 deductions claimed for QIP contribute to the same overall limitation of $1,220,000 or business income as described above.

Business Vehicles Have Additional Tax Favorability.

New or used purchased vehicles generally qualify for the 179 deduction, provided they are used more-than-50% in a taxpayer’s business. Business vehicles are depreciated differently depending on certain characteristics, like their weight, size, and capacity. For business vehicles that weigh 6,000 lbs. or less, there is a limit on the bonus depreciation and 179 deductions that may be taken by the taxpayer. Alternatively, business vehicles that are trucks, vans, and SUVs that have a loaded weight of more than 6,000 lbs. are exempt from these annual depreciation caps, and pickup trucks weighing over 6,000 lbs. are exempt if the truck bed is at least six feet long. At the same time, business vehicles with a loaded weight of more than 6,000 lbs. have a per-asset limit on 179 deductions of $30,500 in 2024 and $31,300 in 2025. This $30,500 cap does not apply with respect to bonus depreciation.
Neither the 179 deduction nor bonus depreciation requires proration based on the length of time that an asset is in service during the tax year – as long as the asset is placed in service by December 31, 2024, the full deduction may be taken.

Utilized together, bonus depreciation and the 179 deduction can be powerful tools for business taxpayers with large taxable income balances. In 2024, a taxpayer can deduct 60% of the full cost of an SUV weighing over 6,000 lbs. along with utilizing the 179 deduction. For example, if in 2024 a taxpayer purchases an SUV that weighs over 6,000 lbs. for $100,000, places the SUV in service during the last quarter of 2024, and uses the SUV exclusively for business from the date of purchase, the taxpayer should be able to deduct $73,590 of the SUV’s cost during 2024 by combining the 179 deduction, bonus depreciation, and the standard MACRS depreciation deduction.