How to Claim Bonus Depreciation: Form 4562 and Vehicle Limits

To claim bonus depreciation, you report the deduction on Part II, Line 14 of IRS Form 4562 and attach the form to your business income tax return for the year the property was placed in service. For qualified property acquired after January 19, 2025, the One, Big, Beautiful Bill permanently restored the deduction to 100%, so a business placing eligible equipment in service during 2026 can generally write off the entire cost in year one.¹ The mechanics look simple. The rules underneath them are where filers get into trouble.

Property That Qualifies

Eligibility runs through 26 U.S.C. § 168(k). The asset must be depreciable under the Modified Accelerated Cost Recovery System with a recovery period of 20 years or less.² In practice that covers most tangible business property: equipment, machinery, office furniture, certain computer software, and water utility property. Qualified improvement property (interior work on nonresidential buildings placed in service after the building itself) also qualifies, since the CARES Act set its recovery period at 15 years.³

Used property counts too, as long as you didn’t previously use it, you didn’t buy it from a related party, and your basis isn’t carried over from the seller.⁴ A used lathe bought at auction qualifies. The same lathe inherited from a relative does not.

Several categories fall outside qualified property. Assets used predominantly outside the United States must be depreciated under the Alternative Depreciation System, which disqualifies them. So do tax-exempt use property (leased to governments, nonprofits, or foreign entities) and property financed with tax-exempt bonds.² Buildings themselves (as opposed to interior improvements) sit outside the 20-year threshold. If you voluntarily elect ADS for any class of property, that class loses bonus eligibility as well.

Filling Out Form 4562

Form 4562 is the depreciation and amortization form covering both bonus depreciation and Section 179.⁵ For each asset you’ll need the following:

Description of the property (for example, “CNC milling machine” or “2026 Ford F-250”)
Date placed in service, meaning the date the asset was ready and available for its intended function, not the purchase date
Cost or other basis, including sales tax, delivery, and installation
Business use percentage, if the asset has any personal use
Recovery period and MACRS method (5-year, 7-year, 15-year, and so on)

Section 179, if you’re claiming it, goes in Part I. Bonus depreciation goes in Part II, Line 14, labeled the special depreciation allowance.⁶ If you have several qualifying assets, total their bonus amounts and enter the combined figure on Line 14. Listed property (vehicles and certain computers) is reported in Part V, which feeds into Part II. Work through the worksheets in the form’s instructions before transferring numbers, because the depreciable basis calculation depends on any Section 179 amount you’ve already taken.

Attaching the Form to Your Return

Form 4562 does not go to the IRS by itself. It attaches to the return of whichever entity is claiming the deduction. Sole proprietors file it with Schedule C of Form 1040. Partnerships attach it to Form 1065. Corporations include it with Form 1120 or Form 1120-S.⁶ Businesses with multiple activities that each require depreciation reporting file a separate Form 4562 for each activity.

Partnerships and S corporations handle the two deductions differently on their returns. Bonus depreciation reduces the entity’s income directly before it flows through to owners. Section 179 does not: the entity passes the Section 179 amount through to partners or shareholders on Schedule K-1, and they apply the deduction against their own income limitations.⁶

How Section 179 Interacts With the Bonus Deduction

Both deductions let you write off property immediately, but they run in order. Section 179 comes first. You choose how much of the asset’s cost to expense under Section 179, up to the 2026 annual limit of $2,560,000, which phases out dollar-for-dollar once your total qualifying property placed in service exceeds $4,090,000. Bonus depreciation then applies to whatever cost remains. Anything left over falls into regular MACRS.⁷

The ordering matters when income is tight. Section 179 cannot create or increase a net loss; it is capped by your active business taxable income. Bonus depreciation carries no such limit and can generate a net operating loss that carries forward. A business buying $600,000 of equipment against only $200,000 of income will get most of the benefit from bonus, not from 179. For straightforward equipment purchases well within income, the two deductions stack and cover the full cost either way.

Vehicle Limits That Override the Full Write-Off

Passenger automobiles fall under the Section 280F dollar caps, which sit on top of the general bonus rules. For vehicles placed in service in 2026, Rev. Proc. 2026-15 sets the first-year cap at $20,300 with bonus depreciation and $12,300 without. A $55,000 sedan still gets only $20,300 in year one. The remaining basis carries forward at $19,800 in year two, $11,900 in year three, and $7,160 per year after that until fully depreciated.⁸

Heavy vehicles work differently. An SUV or truck with a gross vehicle weight rating over 6,000 pounds escapes the passenger automobile caps, so bonus depreciation can potentially cover the full cost in year one. Heavy SUVs designed primarily to carry passengers face their own Section 179 cap of roughly $32,000 for 2026, but that ceiling applies only to the Section 179 portion; bonus depreciation picks up the rest. Vehicles over 14,000 pounds GVWR and those built for nonpersonal use, such as cargo vans, ambulances, and hearses, face no cap at all. Aggressive year-end heavy-vehicle purchases draw IRS attention accordingly.

Timing and Business Use

The deduction depends on when the asset is placed in service, not when you pay for it. Placed in service means set up and ready to perform its intended function. A machine delivered in December but not installed until January belongs on the following year’s return. Custom equipment and build-outs that straddle year-end are the usual source of confusion.

Listed property (vehicles, computers, and other assets commonly used for both business and personal purposes) must be used more than 50% for business to qualify for bonus depreciation.⁹ If business use is 50% or lower in the year you place the property in service, you lose both Section 179 and bonus and must use ADS straight-line instead. Keep contemporaneous logs of business versus personal use: mileage for vehicles, time-use records for computers. Reconstructing those records during an audit rarely goes well.

Electing Out

Bonus depreciation is mandatory for qualifying property unless you affirmatively opt out. To elect out, attach a statement to your timely filed return (including extensions) identifying the class of property you’re declining the deduction for.⁴ The election applies to every qualifying asset in that class placed in service during the year. You can’t cherry-pick within a class. Skip the statement while depreciating on a standard schedule and the IRS can apply bonus automatically on examination, overriding your intended treatment.

The usual reason to elect out is income timing. A startup with low current income but higher expected income in later years often prefers to spread deductions through regular MACRS rather than absorb a large write-off against little or no income. Businesses with expiring net operating loss carryforwards or tax credits they need to use may reach the same conclusion.

When Business Use Drops Later

Claiming bonus depreciation on listed property creates an ongoing obligation. If business use falls to 50% or below in any subsequent year within the asset’s MACRS recovery period, depreciation recapture kicks in. The recaptured amount is the difference between what you actually claimed (bonus and Section 179 included) and what ADS straight-line would have allowed from the start. That difference is reported as ordinary income on Form 4797, Part IV.¹⁰ From that year forward the asset switches to ADS straight-line for the rest of its life. Business use climbing back above 50% later does not restore MACRS.

Vehicles are where recapture bites hardest. Writing off a $70,000 truck at 100% in year one and then shifting it to mostly personal use by year three can produce a five-figure recapture bill. The business-use log is not just a filing requirement. It is protection against an expensive reversal.

Fixing a Missed Claim

If you forgot to claim bonus depreciation on a prior-year return, you generally do not need to amend. File Form 3115, Application for Change in Accounting Method, with your current-year return to switch from the incorrect method to the correct one.¹¹ The correction runs through a Section 481(a) adjustment that captures the cumulative difference between what you claimed and what you should have claimed. When the correction increases prior depreciation, the adjustment is negative and reduces income in the year of change, giving you the missed deduction in one shot.

Bonus-depreciation changes fall under designated change number 246, which qualifies for automatic consent. No user fee, no advance permission. Attach the original Form 3115 to your timely filed return for the year of change and send a duplicate to the IRS National Office. This route is especially useful when the statute of limitations has closed on the year the deduction was originally missed.

State Returns Don’t Always Follow

Federal bonus depreciation flows into your state return in states that fully conform to the Internal Revenue Code. Roughly 18 states plus the District of Columbia decouple from bonus depreciation entirely. In those states you add back 100% of the federal bonus deduction on the state return and depreciate using the state’s required method, typically standard MACRS or ADS straight-line. Some states conform partially, capping the bonus amount or limiting it to short-lived property.

The practical consequence is a second depreciation schedule. Federal and state book values of the same asset diverge, then converge over the asset’s life as state depreciation continues after federal is exhausted. Tax software handles most of this, but multi-state filers should confirm each state’s current conformity position before filing. Some states have adopted the OBBB changes; others have not.

How Long to Keep Records

The IRS asks for at least three years of records supporting a deduction after the return is filed.¹² For depreciable property the practical period runs longer: the full depreciable life of the asset plus three years after the last year you claim depreciation. A piece of 7-year MACRS property placed in service in 2026 means holding purchase invoices, installation records, and business-use logs through at least 2036. Writing off the entire cost in year one under bonus depreciation does not shorten that window. The IRS can still ask you to prove the basis and the business-use percentage for any year within it.

1
Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One, Big, Beautiful Bill
2
Office of the Law Revision Counsel. 26 USC 168 – Accelerated Cost Recovery System
3
Internal Revenue Service. Publication 946 (2024), How to Depreciate Property
4
Internal Revenue Service. Additional First Year Depreciation Deduction (Bonus) – FAQ
5
Internal Revenue Service. About Form 4562, Depreciation and Amortization (Including Information on Listed Property)
6
Internal Revenue Service. 2025 Instructions for Form 4562 – Depreciation and Amortization
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Internal Revenue Service. Instructions for Form 4562
8
Internal Revenue Service. Rev. Proc. 2026-15
9
Internal Revenue Service. Publication 587 (2025), Business Use of Your Home
10
Internal Revenue Service. Instructions for Form 4797
11
Internal Revenue Service. Instructions for Form 3115 (Rev. December 2022)
12
Internal Revenue Service. How Long Should I Keep Records