15.4 Bonus Depreciation
Key Takeaways
- Tax Year 2024: 60% bonus depreciation.
- Applies to property with MACRS recovery ≤20 years.
- Both new and used property qualify (if first use by taxpayer).
- CAN create or increase NOL (unlike §179).
- Elect out on per-class basis.
- Anti-churning: not from related party, not previously used by taxpayer.
Last updated: January 2026
Why This Matters for the Exam
Bonus depreciation is automatic (unless elected out). The exam tests the rate, qualifying property, and comparison to §179.
Expect at least 3-4 questions on bonus depreciation.
Bonus Depreciation Rates
| Tax Year | Rate |
|---|---|
| 2022 | 100% |
| 2023 | 80% |
| Tax Year 2024 | 60% |
| 2025 | 40% |
| 2026 | 20% |
| 2027+ | 0% (unless extended) |
Qualifying Property
| Requirement | Description |
|---|---|
| MACRS recovery | ≤20 years |
| New or used | Yes (if first use by taxpayer) |
| Original use | Must be taxpayer's first use OR purchased used |
| QIP | Qualifies (15-year) |
Anti-Churning Rules (Used Property)
| Rule | Description |
|---|---|
| Not previously used | By taxpayer or predecessor |
| Not from related party | Spouse, >50% owned entity |
| Not by gift/inheritance | Must be purchased |
Bonus vs. §179 Comparison
| Feature | Section 179 | Bonus Depreciation |
|---|---|---|
| Mechanism | Election | Automatic |
| Dollar cap | $1,220,000 (Tax Year 2024) | None |
| Phase-out | $3,050,000 (Tax Year 2024) | None |
| NOL impact | Cannot create | CAN create/increase |
| Asset selection | Pick specific assets | Per-class only |
| Rate | 100% | 60% (Tax Year 2024) |
Elect Out
| Rule | Description |
|---|---|
| Election | Per MACRS class |
| Irrevocable | Once made for that year |
| Why elect out? | Save deductions for higher-rate years |
Calculation Example (Tax Year 2024)
| Item | Amount |
|---|---|
| Equipment cost | $100,000 |
| §179 elected | $0 |
| Bonus (60%) | $60,000 |
| Remaining basis | $40,000 |
| MACRS (Year 1) | Calculated on $40,000 |
Real-World Scenario (Tax Year 2024)
Scenario: Company buys $500,000 machinery (7-year). Wants maximum deduction.
- §179 election: Up to $500,000 (if under income limit).
- Bonus on remainder: $0 × 60% = $0.
- Alternatively: No §179, take 60% bonus = $300,000.
- MACRS on remainder: $200,000 basis for MACRS.
On the Exam
Expect 3-4 questions on bonus, typically:
- Rate Questions: "What is the Tax Year 2024 bonus rate?"
- Qualifying Questions: "Does used property qualify?"
- Comparison Questions: "Can bonus create NOL?"
The key is to remember: 60% for Tax Year 2024. Automatic (elect out per class). New AND used qualify. CAN create NOL. No dollar cap.
Test Your Knowledge
Taxpayer wants bonus for 7-year but not 5-year property. Allowed?
A
B
C
D
Test Your Knowledge
Tax Year 2024 bonus depreciation rate?
A
B
C
D
Test Your Knowledge
What disqualifies used machinery from bonus?
A
B
C
D