Are you considering new asset purchases for your business? Understanding how changes in bonus depreciation impact your tax strategy can help you make smarter financial decisions.
Bonus depreciation has been a powerful tax incentive for businesses, allowing them to deduct a large percentage of qualifying asset costs in the year of purchase. However, recent legislative changes are gradually reducing the benefits of bonus depreciation, which could impact how businesses plan for major purchases like machinery, equipment, and vehicles.
What is depreciation?
Depreciation is how businesses recover the cost of something they buy for work—like equipment, vehicles, or tools—over time. Instead of writing off the full cost of the item in one year, you deduct a little bit each year to show how the item is wearing out or getting older.
What kinds of things can be depreciated?
Equipment like trucks, forklifts, or power tools
Office items like computers, furniture, or printers
Buildings or property used for work
Even things you can’t see, like patents or software
How does it work?
The IRS says every type of item lasts a certain number of years, called its "useful life."
For example:
A work truck might be written off over 5 years.
A machine for your shop might take 7 years.
A building might take 39 years.
Key takeaway: Each year, you deduct a part of the cost of the item based on its useful life. It’s like saying, “This truck is getting older, so it’s worth less, and I’m taking that loss off my taxes.”
Why does depreciation matter?
It lowers your taxable income, which means you pay less in taxes.
For example, if you buy a $50,000 truck and spread it out over 5 years, you can deduct $10,000 a year, helping to reduce your tax bill.
Fast depreciation options:
Sometimes, instead of waiting years to write off an item, there are ways to deduct more of the cost upfront. This is where things like bonus depreciation or Section 179 come in—they let you take bigger deductions faster.
Key takeaway: Depreciation helps you get back the money you spent on big purchases by lowering your taxes a little each year. It’s the government’s way of letting you account for how your tools, trucks, and equipment lose value as you use them to get the job done.
What is bonus depreciation?
Bonus depreciation is a special tax rule that lets businesses deduct a large part—sometimes all—of the cost of certain work-related purchases in the first year, instead of spreading it out over many years. It’s like getting a bigger tax break upfront when you buy big-ticket items.
What can you use bonus depreciation for?
New or used equipment (like tools, machinery, and vehicles).
Computers and software for work.
Office furniture, like desks or chairs.
Certain improvements to buildings, like HVAC systems.
Why is it called “bonus”?
Normally, when you buy something for your business, you’d write off a little bit each year. With bonus depreciation, you can take a big chunk—or even 100%—of the cost right away.
For example:
If you buy a $20,000 truck for work, you might normally spread out that cost over 5 years.
With bonus depreciation, you could deduct the full $20,000 in the first year, lowering your taxes immediately.
What’s the catch?
Bonus depreciation only applies to items the IRS says are “qualified property,” and there are specific rules about what counts. Plus, recent changes are starting to reduce how much you can deduct each year (we’ll cover that more later).
Why does this matter to you?
Bonus depreciation is a big deal if you’re planning to buy expensive equipment, vehicles, or tools. It helps you save money on taxes sooner, which can be a huge boost for your cash flow. If you’ve had a good year and want to reinvest in your business, bonus depreciation can help offset the cost of those purchases.
Key takeaway: Bonus depreciation lets you take bigger tax deductions upfront on things you buy for your business, putting more money back in your pocket sooner rather than later. But with the rules changing, it’s important to know what to expect before making big purchases.
How do changes in bonus depreciation affect my asset purchases?
Changes to bonus depreciation mean you might not be able to write off as much of your big purchases upfront as you could in previous years. Instead of getting a 100% deduction in the first year, the percentage is dropping over time, which could impact how and when you decide to buy equipment, vehicles, or other assets for your business.
What’s changing?
From 2017 to 2022, bonus depreciation allowed businesses to deduct 100% of qualified asset purchases in the first year.
Starting in 2023, the deduction began decreasing:
80% in 2023
60% in 2024
40% in 2025
20% in 2026
By 2027, bonus depreciation will be completely phased out unless Congress makes changes.
How does this affect your business?
If you buy a piece of equipment in 2024, you can deduct 60% of its cost right away.
In 2025, that deduction drops to 40%, meaning you’ll spread the remaining 60% over several years.
If you’re used to the full deduction, this change could mean higher taxes in the short term and slower recovery of your costs.
What should you do?
Time your purchases wisely: If you’re planning to buy expensive equipment or vehicles, doing it sooner (while the deduction is still higher) might save you more on taxes.
Plan for the remaining costs: With the deduction shrinking, remember you’ll still get tax savings—just spread out over several years. Make sure your budget can handle that.
Talk to a tax professional: Depending on your business, Section 179 (another tax rule) might help you still get big upfront deductions, even as bonus depreciation phases out.
Who does this impact the most?
Businesses that buy a lot of equipment or tools every year.
Companies relying on heavy machinery, trucks, or technology upgrades.
Key takeaway: Changes to bonus depreciation mean you’ll get less of an upfront tax break in future years. If you’re considering major purchases, you might want to act now to take advantage of the higher deduction rates before they phase out. Smart planning now can help you get the most tax savings and keep more cash in your business.
When do the changes in bonus depreciation affect my asset purchases?
The changes to bonus depreciation have already started reducing the upfront tax benefits, and as of 2025, the deduction has dropped to 40%. This means you can no longer deduct the full cost of qualified assets in the first year, and a larger portion will need to be spread out over time.
What’s happening in 2025?
Bonus depreciation is now 40%, down from 60% in 2024.
This means if you buy a $20,000 piece of equipment in 2025, you can deduct $8,000 (40%) in the first year. The remaining $12,000 must be depreciated over the asset’s IRS-defined useful life.
How does this affect your business?
Reduced upfront savings: You won’t see as big a tax deduction immediately, which may affect cash flow.
Longer recovery of costs: More of the asset’s cost will now be spread out over several years instead of deducted all at once.
Timing purchases: Buying assets earlier in the year may allow you to take advantage of depreciation sooner.
What should you do?
Re-evaluate your asset purchases: With smaller deductions upfront, prioritize assets that are critical to operations or generate immediate income.
Consider Section 179: If bonus depreciation doesn’t meet your needs, Section 179 may still allow you to write off more of the asset’s cost upfront, though it has spending and income limits.
Plan ahead with a tax professional: Knowing how bonus depreciation interacts with other tax rules can help you get the best possible outcome for your business.
Key takeaway: As of 2025, bonus depreciation is less generous than in previous years. While you can still deduct 40% of the cost of qualifying purchases upfront, the rest will take longer to recover. It’s important to time your purchases carefully and explore other options, like Section 179, to maximize your tax benefits.
Most common myths about changes in bonus depreciation
Myth: “Bonus depreciation is still 100% in 2025.”
Truth: The 100% deduction ended in 2022. By 2025, bonus depreciation has dropped to 40%, meaning only part of the asset’s cost can be deducted upfront.
Myth: “I can’t use bonus depreciation on used equipment.”
Truth: Bonus depreciation still applies to both new and used assets as long as the used asset wasn’t previously owned by you or your business. This allows more flexibility for businesses buying pre-owned equipment.
Myth: “Bonus depreciation and Section 179 are the same thing.”
Truth: While both help businesses deduct costs faster, they have important differences:
Section 179 has spending limits and income restrictions.
Bonus depreciation allows a set percentage deduction (now 40%) without limits but is gradually phasing out.
Myth: “I don’t need to plan purchases around bonus depreciation changes.”
Truth: Timing matters. With bonus depreciation dropping to 40% in 2025 and scheduled to phase out by 2027, acting sooner rather than later may help you save more in taxes.
Myth: “Bonus depreciation is only for large businesses.”
Truth: Bonus depreciation benefits businesses of all sizes. Whether you’re buying a $5,000 piece of equipment or a $100,000 vehicle, you can still deduct 40% of the cost upfront in 2025.
Key takeaway: While bonus depreciation is still available in 2025, the rules have changed. By separating fact from myth, you can make smart decisions about your purchases and take advantage of available tax savings before the deduction phases out completely.
(FAQ) Frequently asked questions about changes in bonus depreciation
Question: What does “bonus depreciation” mean in 2025?
Answer: In 2025, bonus depreciation allows businesses to deduct 40% of the cost of qualified assets in the first year they are placed in service. The remaining 60% of the cost is deducted over the asset's IRS-defined useful life.
Question: What types of purchases qualify for bonus depreciation in 2025?
Answer: Bonus depreciation applies to qualifying assets like machinery, vehicles, tools, computers, software, and office furniture. Both new and used equipment qualify as long as the asset was not previously used by your business.
Question: Can I still use Section 179 if bonus depreciation is limited?
Answer: Yes, Section 179 is still available and may allow you to deduct more of an asset's cost upfront. However, Section 179 has spending caps and income limits, so it’s important to talk to a tax professional to decide which option is best for you.
Question: Should I rush to buy equipment before bonus depreciation phases out?
Answer: If you’re planning major purchases, it can make sense to act sooner. Bonus depreciation will continue to phase out: 40% in 2025, 20% in 2026, and gone completely by 2027 unless new legislation is passed.
Question: What happens if I buy an asset late in the year?
Answer: As long as the asset is placed in service (ready for use) before the end of the year, you can claim bonus depreciation for that year. Timing is critical—delays could push your deduction into the next tax year.
Key takeaway: Changes to bonus depreciation are here to stay unless Congress makes adjustments. If you’re unsure how these changes affect your purchases, working with a tax professional can help you plan smarter and maximize your deductions.
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Final Thoughts
Changes to bonus depreciation in 2025 mean businesses can no longer deduct the full cost of their asset purchases upfront, as they could in previous years. With the deduction reduced to 40% and scheduled to phase out entirely by 2027, it’s more important than ever to plan your purchases strategically. Whether you’re investing in equipment, vehicles, or other business assets, understanding these rules can help you make smarter decisions, manage cash flow, and reduce your tax burden.
To ensure you’re maximizing deductions and exploring alternatives like Section 179, speak with a tax professional who can guide you through the changing landscape and help you create a tax plan that works for your business. Proper planning now can save you significant time and money in the long run.
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