Understanding how much bonus depreciation is available in 2024 is essential for business owners planning capital asset purchases and tax deductions. Bonus depreciation allows companies to immediately deduct a percentage of the cost of eligible property in the year it is placed in service, instead of spreading that cost over many years. This tax provision was introduced to encourage investment and economic growth, and it has been gradually changing as part of federal tax law. In 2024, the bonus depreciation rate continues to be a key factor in planning purchases of equipment, machinery, vehicles, and other qualifying assets, and knowing the applicable percentage can help businesses make smart decisions before yearend.
What Is Bonus Depreciation?
Bonus depreciation is a tax incentive that allows businesses to write off a portion of the cost of eligible property in the year the asset is placed into service. Instead of using standard depreciation methods over several years, bonus depreciation accelerates the deduction, providing immediate tax relief. This deduction applies to assets with a useful life of 20 years or less and includes new and used property that has not been used previously by the taxpayer. The property must be used in the business and placed in service during the tax year for which the deduction is being claimed.
Purpose of Bonus Depreciation
The main goal of bonus depreciation is to help businesses recover costs more quickly and improve cash flow. When a company can deduct a large portion of an asset’s cost in the first year, it reduces taxable income and frees up funds that can be reinvested in operations, hiring, or expansion. This approach is especially beneficial for small and large businesses alike that make substantial capital expenditures.
Bonus Depreciation in 2024
For tax year 2024, the federal bonus depreciation rate is set at 60 percent. This means that businesses can immediately deduct 60 percent of the cost of eligible property placed in service during the year. The remaining 40 percent of the asset’s cost must be depreciated through regular methods over its useful life under the Modified Accelerated Cost Recovery System (MACRS).
This 60 percent bonus depreciation rate represents a continued phasedown from previous years. In 2022, bonus depreciation was 100 percent; in 2023, it dropped to 80 percent; and in 2024 it is now 60 percent. The gradual reduction is part of a scheduled phaseout that will continue in future years unless new tax legislation alters the timeline.
What Qualifies for Bonus Depreciation?
Not all business purchases are eligible for bonus depreciation. To qualify, property must
- Have a recovery period of 20 years or less, such as equipment, machinery, vehicles used for business, or office furniture.
- Be acquired and placed in service by the business during 2024.
- Be used primarily in the business and not previously used by the taxpayer (it can be used property, but new to you).
Examples of eligible property include commercial equipment, computers, software, certain improvements to business property, and vehicles used more than 50 percent for business purposes. Real estate itself generally does not qualify, but portions broken out through cost segregation studies may be eligible.
PhaseDown Schedule for Bonus Depreciation
The bonus depreciation percentage is on a scheduled decline in the years following 2024. Unless tax laws change, the phaseout schedule is expected to continue as follows
- 2023 tax year 80 percent bonus depreciation.
- 2024 tax year 60 percent bonus depreciation.
- 2025 tax year 40 percent bonus depreciation.
- 2026 tax year 20 percent bonus depreciation.
- 2027 and beyond 0 percent bonus depreciation (unless new legislation updates the law).
This phased reduction means that business owners who make large capital purchases later in the decade will see less tax benefit from bonus depreciation compared with earlier years. Therefore, timing purchases strategically within the year or before the deduction declines further can have meaningful tax implications.
Impact of Recent Legislation
There have been efforts to alter the phaseout schedule. New tax legislation such as the One Big Beautiful Bill Act (OBBBA) restored 100 percent bonus depreciation for assets acquired and placed in service after January 19, 2025. However, for assets placed in service during the 2024 tax year, the 60 percent rule remains in effect. This restoration applies to later years but does not change the 2024 rate.
How Bonus Depreciation Works in Practice
To illustrate how bonus depreciation works, consider a business that purchases a piece of equipment for $100,000 and places it in service in tax year 2024. With a 60 percent bonus depreciation rate, the business can deduct $60,000 of the equipment’s cost immediately. The remaining $40,000 is then depreciated over the asset’s regular recovery period under MACRS, which depends on the asset type (for example, five years for computer equipment). This accelerated deduction can provide a substantial tax benefit in the year of purchase.
For many businesses, especially those making significant capital investments, taking advantage of bonus depreciation can greatly reduce taxable income in the short term. It can also enhance cash flow by lowering tax bills, providing funds that can be used for expansion or other operational needs.
Comparing Bonus Depreciation and Section 179
Bonus depreciation is often discussed alongside Section 179 expensing, another tax provision that allows immediate deduction of asset costs. While Section 179 has dollar limits and income restrictions, bonus depreciation does not have a cap on the amount that can be deducted. Section 179 applies to qualifying property that is purchased and used in the business, similar to bonus depreciation, but it is limited to the business’s taxable income and certain dollar thresholds. Businesses often use both strategies together to maximize deductions in the year of purchase.
Planning Considerations for 2024
Business owners should plan carefully to take advantage of the 60 percent bonus depreciation rate in 2024. Here are some considerations
- Review planned capital expenditures and consider placing qualifying assets in service before yearend to capture the bonus deduction.
- Work with a tax professional to determine whether Section 179, bonus depreciation, or a combination provides the greatest tax benefit.
- Understand the phasedown schedule and how it affects longterm tax planning for future purchases.
- Keep detailed records of asset acquisitions and dates placed in service to support tax deductions.
In 2024, the bonus depreciation rate is 60 percent for eligible business assets placed in service during the tax year. This represents a reduction from previous years as part of a scheduled phasedown, but it still offers a valuable opportunity for businesses to accelerate deductions and reduce taxable income. Understanding how much bonus depreciation is available, what property qualifies, and how it fits into broader tax planning strategies can help companies make informed decisions about capital investments. By maximizing available deductions and timing purchases strategically, businesses can improve cash flow, support growth, and ensure efficient tax management.