The Special Depreciation Allowance, commonly known as 'bonus depreciation,' will continue to sunset from 2024 to 2025, going from 60% to 40%.  This scheduled decrease is part of a larger schedule that is set to eventually reduce bonus depreciation to 0% in 2027.

What is bonus depreciation?

In the Tax Cuts and Jobs Act of 2017, Congress enabled taxpayers to use bonus depreciation as an accelerated business tax deduction instead of traditional depreciation that occurs over the life of an asset.  As such, bonus depreciation enables taxpayers to further reduce their tax burden in the year of the purchase and potentially subsequent years as well.

What assets can bonus depreciation be used on?

Bonus depreciation can be used on an asset purchased by the taxpayer if the asset has a General Depreciation System (GDS) recovery period of twenty years or less.  As such, bonus depreciation can be used on assets such as agricultural machinery and equipment, grain storage facilities, single purpose livestock and horticultural structures, field tile, and general-purpose farm-buildings (e.g., machinery sheds).  Bonus depreciation can also be used for livestock used for draft, breeding, or dairy.  Bonus depreciation can be used on assets acquired by the taxpayer regardless of whether the asset was new or used at time of the purchase.

Bonus depreciation cannot be used on multi-purpose farm buildings, which have a longer than 20-year GDS recovery period.

How does Section 179 factor into the use of bonus depreciation?

Section 179 applies to most of the same property classifications that bonus depreciation applies to, though Section 179 does not apply to general-purpose agricultural buildings which have a 20-year GDS recovery period.  While Section 179 is not on a sunsetting schedule, Section 179's deduction is limited to business income for that year, whereas bonus depreciation can be carried forward if it exceeds business income for that year.