Bonus depreciation and accelerated depreciation both let you recover an asset’s cost faster than straight-line, but they do it very differently: bonus depreciation deducts 100% of a qualifying asset’s cost in the year you place it in service, while accelerated depreciation spreads front-loaded deductions across the asset’s full recovery period using declining-balance math. Both live inside the federal MACRS framework, both beat straight-line in the early years, and they can be layered on the same purchase. The right choice depends on how much income you need to shelter now versus later, and on what the sale of the asset will look like down the road.
The Core Mechanical Difference
Accelerated depreciation under MACRS uses declining-balance methods. For 3-year, 5-year, 7-year, and 10-year property, the default is the 200% declining balance method: double the straight-line rate, applied each year to the asset’s remaining book value. Five-year property has a 20% straight-line rate, so the declining-balance rate is 40%. In year one, you apply that 40% to the full cost (modified by the half-year convention to roughly 20%). In year two, you apply 40% to what’s left. The dollar deduction shrinks each year because the balance it’s applied to keeps shrinking.1Office of the Law Revision Counsel. 26 U.S. Code 168 – Accelerated Cost Recovery System The tax code forces a switch to straight-line in the first year that would produce a larger deduction, and the IRS depreciation tables handle this automatically.
For 15-year and 20-year property, MACRS requires the gentler 150% declining balance method. You can also elect 150% on shorter-lived property if you want a softer front-load.
Bonus depreciation skips the schedule entirely. You deduct the entire cost of a qualifying asset in year one, before any regular MACRS calculation begins. For qualified property acquired after January 19, 2025, the rate is permanently 100% under the One, Big, Beautiful Bill Act signed into law on July 4, 2025.2Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One Big Beautiful Bill There is no scheduled phase-down. The deduction is also automatic: if you place qualifying property in service and do nothing, bonus depreciation applies. To refuse it, you must affirmatively elect out on your return, and that election covers every asset in the entire property class placed in service that year.
Over the asset’s life, both methods recover the same total cost. The difference is purely timing, and the timing gap between them is large. Accelerated depreciation gives you a bigger first-year deduction than straight-line and a tapering series of deductions afterward. Bonus depreciation gives you everything in year one and nothing after.
What Qualifies for Each
Bonus depreciation covers tangible MACRS assets with a recovery period of 20 years or less, off-the-shelf computer software, and qualified improvement property. New and used assets both qualify, as long as the used property wasn’t previously used by you and wasn’t acquired from a related party.3Internal Revenue Service. Additional First Year Depreciation Deduction (Bonus) – FAQ Real property — apartment buildings, office buildings, structural components — does not qualify.
Qualified improvement property is the narrow exception for buildings. It covers interior improvements made to a nonresidential building after the building itself was placed in service. Enlarging the building, installing elevators or escalators, and modifying the internal structural framework don’t count, and neither do exterior elements like roofing, exterior HVAC, or windows. QIP has a 15-year recovery period, so it fits inside the 20-year bonus threshold and qualifies for 100% bonus with no expiration.2Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One Big Beautiful Bill
Accelerated declining-balance methods have a wider reach among depreciable business property but still exclude real estate. Nonresidential real property uses straight-line over 39 years. Residential rental uses straight-line over 27.5 years. Neither qualifies for 200% or 150% declining balance, and neither qualifies for bonus depreciation. Interior improvements to a nonresidential building may still get into bonus via the QIP route.1Office of the Law Revision Counsel. 26 U.S. Code 168 – Accelerated Cost Recovery System
Passenger automobiles are capped separately under Section 280F regardless of which method you use. For vehicles placed in service during 2026, the first-year limit is $20,300 with bonus depreciation and $12,300 without — an $8,000 practical benefit from claiming bonus on a car.4Internal Revenue Service. Revenue Procedure 2026-15 These caps don’t apply to vehicles with a gross weight rating above 6,000 pounds that fall outside the statutory definition of passenger automobile, which is why heavy SUVs and trucks tend to show up on business purchase lists.
Choosing Between the Two
The decision usually comes down to income timing.
Bonus depreciation is the most aggressive option available. Writing off 100% in year one delivers the maximum present-value tax benefit and makes obvious sense for a business with high current taxable income or a one-time income spike. It also has no income cap, so it can generate or deepen a net operating loss. The flip side is immediate: you’ve used the entire deduction. If income drops the next year, you have nothing left on that asset to offset it.
Accelerated depreciation using the 200% declining-balance method sits in the middle. Deductions are front-loaded but taper gradually across the recovery period, which fits businesses with steadily growing income that want meaningful early write-offs without the cliff. Multi-year planning is more predictable because future years still carry deductions.
You don’t have to pick just one. On a single asset, you can apply Section 179 to a portion of the cost, run bonus depreciation on the remainder, and send whatever is left through the accelerated MACRS tables. The ordering is mandatory in that sequence, and each layer reduces the basis available to the next.
Where Section 179 Fits
Section 179 lets you elect to expense qualifying business property immediately, similar to bonus depreciation in effect but structurally different in two important ways. For 2026, the maximum Section 179 deduction is $2,560,000, phasing out dollar for dollar once total qualifying property placed in service exceeds $4,090,000.5Office of the Law Revision Counsel. 26 USC 179 – Election to Expense Certain Depreciable Business Assets Both figures are indexed for inflation.
First, Section 179 is capped by your active trade or business taxable income for the year. Any excess carries forward; it can’t create a loss.6eCFR. 26 CFR 1.179-2 – Limitations on Amount Subject to Section 179 Election Bonus depreciation has no such cap. Second, Section 179 works asset by asset. You pick which specific assets to expense and how much of each asset’s cost to deduct. Bonus depreciation is all-or-nothing for an entire property class.
What It Costs You When You Sell
Every dollar you depreciate reduces the asset’s adjusted basis. On sale or disposition, gain equals the sale price minus that reduced basis, and under Section 1245 any gain attributable to prior depreciation is recaptured as ordinary income rather than taxed at capital gains rates.7Office of the Law Revision Counsel. 26 U.S. Code 1245 – Gain From Dispositions of Certain Depreciable Property
Bonus depreciation amplifies recapture because it drives basis to zero in year one. Buy equipment for $100,000, claim 100% bonus, then sell three years later for $40,000: the entire $40,000 is ordinary income. Under accelerated depreciation on the same timeline, basis would still be positive at sale, and the recapture figure would be smaller. The deduction was bigger upfront, but so is the back-end tax. Whether the trade works in your favor depends on your tax rate in each year and the time value of the deferral.
State Tax Conformity
Federal bonus depreciation and state treatment often diverge. Roughly 15 states fully conform to the federal bonus rules, and a few others offer their own first-year expensing regardless of federal policy. The rest either decouple from bonus depreciation entirely or still conform to an older version of the Internal Revenue Code that hasn’t absorbed the OBBBA changes. In those states, you typically add the federal bonus deduction back on the state return and claim standard MACRS depreciation, which means maintaining a parallel depreciation schedule.
The standard 200% and 150% declining-balance methods face far less friction because they’re embedded in the permanent code. For businesses operating in multiple states, that difference can make accelerated depreciation the simpler compliance path, even when bonus would produce a larger immediate federal deduction.
One Note on Older Purchases
The permanent 100% rate applies only to property acquired after January 19, 2025. Property acquired before that date is stuck on the Tax Cuts and Jobs Act phase-down schedule: 100% through 2022, 80% in 2023, 60% in 2024, and 40% for early 2025. The OBBBA isn’t retroactive. If you claimed a reduced bonus percentage on 2023 or 2024 property, you can’t amend to claim the full 100%.