What is Bonus Depreciation?

**Bonus depreciation** is a federal tax incentive that allows businesses and self-employed individuals to immediately deduct a large percentage -- historically up to 100 percent -- of the cost of qualifying depreciable assets in the year they are placed in service, rather than spreading the deduction over the asset's MACRS recovery period. Also known as the special depreciation allowance, bonus depreciation was designed to encourage business investment by accelerating the tax benefit of purchasing equipment and other qualifying property. Bonus depreciation applies to new and used qualified property placed in service after September 27, 2017, under the Tax Cuts and Jobs Act (TCJA) of 2017. Prior to TCJA, bonus depreciation applied only to new property. The 100 percent bonus depreciation provision was available from 2018 through 2022. Beginning in 2023, the percentage began phasing down: 80 percent in 2023, 60 percent in 2024, 40 percent in 2025, and 20 percent in 2026, before expiring entirely in 2027 under current law. For freelancers and small business owners, bonus depreciation is one of the most powerful tax tools available for reducing current-year tax liability when purchasing business equipment. Understanding how bonus depreciation interacts with Section 179 expensing and MACRS depreciation allows you to structure purchases for maximum tax efficiency.

Bonus depreciation is applied in the year an asset is placed in service. You calculate the bonus depreciation amount by multiplying the applicable bonus percentage (60 percent for 2024) by the asset's unadjusted cost basis. The remaining cost basis -- 40 percent in 2024 -- is then depreciated using regular MACRS depreciation over the asset's recovery period. For example, a freelance photographer purchases a $10,000 camera system in 2024. With 60 percent bonus depreciation, the photographer can immediately deduct $6,000 in the year of purchase. The remaining $4,000 is depreciated via 5-year MACRS over subsequent years. This produces a much larger first-year deduction than MACRS alone would provide. Unlike Section 179 expensing, bonus depreciation is not limited to the taxpayer's business income. Section 179 cannot create a loss -- if your business income is $5,000 and you try to claim $8,000 in Section 179, you are limited to $5,000 and carry the excess forward. Bonus depreciation can create or increase a net operating loss (NOL), which may then be carried forward to offset income in future years. This makes bonus depreciation particularly valuable in high-investment years with lower income.

Freelancers who invest in significant equipment purchases -- video production gear, professional computers, recording equipment, vehicles, or workshop tools -- benefit most from bonus depreciation. The ability to deduct a large portion of the purchase price immediately, rather than spreading it over 5 to 7 years, can dramatically reduce current-year tax liability in years of high equipment investment. For a freelance videographer who purchases $20,000 in camera and lighting equipment in 2024, 60 percent bonus depreciation produces an immediate $12,000 deduction. If the videographer is in the 22 percent federal tax bracket and also pays 15.3 percent self-employment tax, this $12,000 deduction saves approximately $4,476 in taxes in the current year -- money that can be reinvested in the business or held as a cash reserve. The phasedown of bonus depreciation percentages makes timing important. Purchasing equipment in 2024 (60 percent bonus) produces a larger immediate deduction than waiting until 2025 (40 percent bonus) or 2026 (20 percent bonus). Freelancers planning significant equipment investments should consider whether accelerating those purchases makes sense given current income levels and projected depreciation rates.

Bonus depreciation and Section 179 expensing are both mechanisms for accelerating depreciation deductions, but they differ in important ways. Section 179 has an annual dollar limit ($1,220,000 in 2024) and cannot create a business loss -- deductions are limited to business taxable income. Bonus depreciation has no dollar limit and can create or increase a net operating loss. Section 179 is applied first, then bonus depreciation is applied to any remaining cost basis. Both can be used in the same year on the same asset. The order of application -- Section 179 first, then bonus -- is mandatory under tax law. For most freelancers with modest equipment budgets, both Section 179 and bonus depreciation produce the same result: full immediate expensing of the asset. The difference becomes material when purchases are very large or when the taxpayer has little or no business income to offset. In those situations, bonus depreciation's ability to create a loss and carry it forward makes it more valuable than Section 179 alone.

Steps to claim bonus depreciation on your tax return: 1. Identify qualifying property -- Most new or used tangible depreciable property with a MACRS recovery period of 20 years or less qualifies. This includes computers, equipment, vehicles, and office furniture. 2. Determine the applicable percentage -- 60 percent for assets placed in service in calendar year 2024; check current IRS guidance for other years. 3. Calculate the bonus amount -- Multiply the asset's unadjusted cost basis by the applicable bonus percentage. 4. Apply MACRS to the remaining basis -- Depreciate the remaining cost basis using regular MACRS rates over the asset's recovery period. 5. Report on Form 4562 -- Complete Part II of Form 4562 to claim the special depreciation allowance, then carry the total depreciation figure to Schedule C.

Eonebill.ai helps freelancers track business revenue accurately throughout the year -- an important input for determining how much bonus depreciation to claim. When you use the [free invoice generator](/free-tools/invoice-generator) to invoice all clients promptly and track all payments received, you have an accurate income figure to share with your CPA when planning year-end depreciation strategies. The decision of how much bonus depreciation to claim is income-dependent. Eonebill Pro and Business plans at [Eonebill pricing](/pricing) provide real-time revenue tracking across all clients and projects, so you can assess your current-year income at any point and make informed decisions about equipment purchases and depreciation elections before year-end.

1. Not tracking the phasedown percentage: Bonus depreciation percentages decrease each year. Applying the wrong percentage -- such as 100 percent when only 60 percent applies -- results in an overstated deduction and potential IRS penalties. 2. Assuming all property qualifies: Property with a MACRS life exceeding 20 years -- such as commercial buildings -- does not qualify for bonus depreciation. Verify eligibility before claiming. 3. Ignoring the interaction with Section 179: Section 179 must be applied before bonus depreciation. Applying them in the wrong order can result in an incorrect tax return. 4. Not considering the effect on future deductions: Claiming large bonus depreciation deductions in the current year eliminates depreciation deductions in future years for that asset. In some cases, spreading deductions over multiple years produces better total tax outcomes. 5. Failing to plan for depreciation recapture: Assets on which bonus depreciation was claimed are subject to depreciation recapture rules when sold. The previously deducted bonus depreciation is taxed as ordinary income on sale.

[MACRS Depreciation](/glossary/macrs) is the standard depreciation method that bonus depreciation supplements or replaces. [Depreciation](/glossary/depreciation) is the broader concept covering all methods of allocating asset costs over time. [Deduction](/glossary/deduction) is the general term for amounts subtracted from taxable income, of which depreciation is a type. [Income Tax](/glossary/income-tax) is the tax that bonus depreciation deductions reduce.