Accelerated Bonus Depreciation (IRC §168(k))

An overview of how IRC §168(k) allows for immediate deduction of the cost of eligible business property, offering significant tax advantages for investors.

What is Bonus Depreciation?

Bonus depreciation is a tax incentive that allows a business to immediately deduct a large percentage of the purchase price of eligible assets, rather than writing them off over the "useful life" of that asset.

Under the Tax Cuts and Jobs Act of 2017, this was set at 100% for qualified property acquired and placed in service after September 27, 2017, and before January 1, 2023. This provision is currently scheduled to phase down.

Key Impact

This can significantly reduce an investor's taxable income in the year the asset is placed in service, improving cash flow and the after-tax return on investment.

Phase-Down Schedule

2023: 80%
2024: 60%
2025: 40%
2026: 20%
2027: 0% (unless extended)

Important Considerations

Investors must be aware of state conformity to federal tax laws, as not all states follow the federal bonus depreciation rules. Consultation with a tax professional is essential.