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The business math

Bonus depreciation

special depreciation allowance / 100% bonus depreciation / Section 168(k)

In short

Bonus depreciation, which the IRS calls the special depreciation allowance, lets a business deduct a large share of qualifying property's cost in its first year. Law passed in 2025 reinstated 100% for qualifying property acquired and placed in service after January 19, 2025, and it applies unless the business elects out.

Publication 946 calls it the special depreciation allowance. P.L. 119-21, commonly known as the One Big Beautiful Bill Act, reinstated the 100% allowance for certain qualified property acquired and placed in service after January 19, 2025.

Two dates matter. For property acquired after January 19, 2025, the allowance is 100%. A business can instead elect 40% for the first tax year ending after that date. For certain qualified property acquired after September 27, 2017 and before January 20, 2025, the 2025 publication gives a phased-down 40%, unless the business elects out.

Qualified property includes tangible property depreciated under MACRS with a recovery period of 20 years or less, and computer software depreciated under section 167(f)(1) of the tax code. It can be new or certain used property.

The default is the key difference from Section 179. Section 179 is an election with a dollar cap, $2,500,000 in the statute, and a business income limit. The special depreciation allowance applies to qualifying property unless the business elects out.

In practice

A landscaping company acquires and places in service $180,000 of new equipment in March 2026. The equipment is tangible property with a MACRS recovery period well under 20 years, so the special depreciation allowance applies at 100% unless the company elects out, and the full cost can come off that year's taxable income. The company's accountant still weighs whether taking it all at once suits the business's tax position. The figures are a worked example.

Not the same as

Section 179 deduction
Section 179 is an election the business chooses to make, capped by a dollar limit and by business income. The special depreciation allowance applies automatically to qualifying property unless the business elects out.

Why it matters to you

A large equipment or software purchase can now come off taxable income in the year it goes into service. Because the allowance applies by default, the question to settle with an accountant is whether to keep it, elect a lower rate where allowed, or elect out.

What to ask or check

  1. 01When was each item acquired and placed in service, before or after January 19, 2025?
  2. 02Does the property have a MACRS recovery period of 20 years or less?
  3. 03Should the business take the full allowance this year, or elect out or elect a lower rate?

What people get wrong

That bonus depreciation has to be claimed by election. Publication 946 describes the allowance as something you must take unless you elect out.

Keep reading

Section 179 deduction

The Section 179 deduction lets a business deduct the cost of qualifying equipment and off-the-shelf software in the year it is placed in service, instead of depreciating it over several years. For tax years beginning in 2025, the limit is $2,500,000, reduced once qualifying purchases pass $4,000,000.

De minimis safe harbor election

The de minimis safe harbor election is an IRS rule for deducting small equipment purchases in the year they are paid for. It covers up to $2,500 per invoice or item, or $5,000 for a business with an applicable financial statement. The election is made on each year's return.

Estimated tax safe harbor

The estimated tax safe harbor is the IRS rule that protects a taxpayer from the underpayment penalty. Paying at least 90% of this year's tax or 100% of last year's, whichever is smaller, generally avoids it, with 110% of last year's tax once adjusted gross income passed $150,000.

Break-even point

The break-even point is where total cost and total revenue are equal, so there is no loss or gain. The SBA states it plainly and then states the limit plainly too: it is an estimate for lender viability and a business plan, not an accounting result, and the formula assumes a single product or service.

Margin

Margin is the difference between selling price and cost, stated either as a percentage of the selling price or per unit. The standards board that defines it also records that managers differ widely in the assumptions they use. So the number only means something once you know which costs are inside it.

Cost per acquisition

Cost per acquisition is what you paid for each counted conversion, spend divided by conversions. Google expands the abbreviation as cost per action, not acquisition. It inherits whatever your conversion column counts, so two businesses can report the same figure and mean entirely different things.

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