Bonus depreciation was first introduced in 2002, when Congress passed the Job Creation and Worker Assistance Act in response to the economic slowdown that followed the September 11 attacks. The original deduction let businesses immediately write off 30% of the cost of an eligible asset in the year it was placed in service. Since then, the rate has moved between zero and 100% across more than a dozen legislative changes, and the One Big Beautiful Bill signed in 2025 made the 100% rate permanent for property acquired after January 19, 2025.
The 2002 Origin
The Job Creation and Worker Assistance Act of 2002 added a new subsection to Internal Revenue Code Section 168, creating what the IRS officially calls the “special depreciation allowance.”1Internal Revenue Service. Publication 3991 – Highlights of the Job Creation and Worker Assistance Act of 2002 Businesses got a first-year deduction equal to 30% of the cost of qualifying assets, with the remaining 70% depreciated over the asset’s normal recovery period under the Modified Accelerated Cost Recovery System.2Congress.gov. H.R.3090 – Job Creation and Worker Assistance Act of 2002
To qualify under the original provision, property had to have a MACRS recovery period of 20 years or less, or be water utility property or computer software. The asset needed to be acquired after September 10, 2001, and placed in service before January 1, 2005. Only new property qualified. Used assets were excluded entirely.
How the Rate Changed Between 2002 and 2017
The one constant in bonus depreciation’s history is inconsistency. Congress repeatedly let the deduction expire, then revived it, often retroactively, in response to whatever economic pressure felt most urgent at the time.
The Jobs and Growth Tax Relief Reconciliation Act of 2003 raised the rate from 30% to 50% for property first used after May 5, 2003, and placed in service before January 1, 2005.3Congress.gov. Jobs and Growth Tax Relief Reconciliation Act of 2003 When that deadline passed without an extension, bonus depreciation disappeared entirely from 2005 through 2007. Businesses that had timed purchases around the incentive were left with standard MACRS schedules and no accelerated write-off.
The Economic Stimulus Act of 2008 revived the deduction at 50% for property placed in service during 2008.4Internal Revenue Service. 2008 Economic Stimulus Act Provides Tax Benefits to Businesses Congress then extended it through the American Recovery and Reinvestment Act of 2009 and the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. That 2010 law pushed the rate to 100% for the first time, covering assets acquired after September 8, 2010, and placed in service before January 1, 2012.
After 2011, the rate dropped back to 50%, and Congress kept it alive through short-term extensions, often passed retroactively at year’s end. The Protecting Americans from Tax Hikes Act of 2015 finally provided a longer runway, extending the 50% rate through 2017 and scheduling a phasedown to 40% in 2018 and 30% in 2019, with full expiration after 2019.
The Tax Cuts and Jobs Act of 2017
The Tax Cuts and Jobs Act was the most sweeping rewrite of bonus depreciation since its creation. The law restored the 100% rate for property acquired and placed in service after September 27, 2017, meaning a business could write off the entire cost of a qualifying asset in the year it started using the property. This was the first time Congress paired the full write-off with a multi-year window rather than a one- or two-year stimulus measure.
The TCJA also expanded eligibility. For the first time, bonus depreciation could be claimed on used property, as long as the asset was new to the taxpayer and not purchased from a related party.5Office of the Law Revision Counsel. 26 U.S. Code 168 – Accelerated Cost Recovery System The law also designated Qualified Improvement Property, meaning interior improvements to nonresidential buildings other than elevators, escalators, and changes to the building’s structural framework, as eligible with a 15-year recovery period. A drafting error in the original TCJA text initially left QIP out; the CARES Act of 2020 corrected the mistake retroactively.
The 100% rate under the TCJA was never intended to last. The law built in a phasedown: 80% for property placed in service in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and full expiration on January 1, 2027.
The One Big Beautiful Bill of 2025
Before the TCJA phasedown could finish, Congress intervened again. The One Big Beautiful Bill, signed in 2025, restored the 100% bonus depreciation rate and, for the first time, made it permanent. The provision applies to qualified property acquired after January 19, 2025.6Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One Big Beautiful Bill
Permanence is a real change. Every prior version of bonus depreciation carried a sunset date. The One Big Beautiful Bill struck the phasedown schedule from the statute entirely for newly acquired property, so the 100% deduction no longer has a built-in expiration.5Office of the Law Revision Counsel. 26 U.S. Code 168 – Accelerated Cost Recovery System A future Congress could still repeal or reduce it, but no scheduled reduction is baked into current law for post-January 19, 2025 acquisitions.
What Rate Applies to Your Property Today
The acquisition date now determines which rate applies, creating a two-track system for any business placing assets in service during 2026.
- Property acquired after January 19, 2025: 100% bonus depreciation, with no dollar cap and no scheduled phasedown.6Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One Big Beautiful Bill
- Property acquired on or before January 19, 2025, and placed in service in 2026: 20% bonus depreciation under the original TCJA phasedown, which still applies to property acquired before the new law’s effective date.7Internal Revenue Service. Publication 946, How To Depreciate Property
This catches people off guard. A piece of equipment sitting in a warehouse since late 2024 and placed in service in 2026 only qualifies for the 20% rate. An identical piece of equipment purchased in February 2025 qualifies for 100%. What matters is the date the business committed to buying the property, not when it started using the asset.
Businesses claim the deduction by filing IRS Form 4562, Depreciation and Amortization, with the federal income tax return.8Internal Revenue Service. About Form 4562, Depreciation and Amortization The deduction applies automatically to all eligible property unless the business affirmatively elects out.
What Property Qualifies
Eligible property under Section 168(k) has to be tangible property depreciated under MACRS with a recovery period of 20 years or less. In practice that covers machinery, vehicles, office furniture, manufacturing equipment, and most other physical business assets. Computer software readily available for purchase by the general public also qualifies, as does water utility property.2Congress.gov. H.R.3090 – Job Creation and Worker Assistance Act of 2002
Qualified Improvement Property is its own category. It covers improvements to the interior of a nonresidential building made after the building was originally placed in service. Expansions, elevators and escalators, and changes to the internal structural framework do not count. QIP carries a 15-year recovery period, which places it within the 20-year threshold for bonus depreciation.
Used property qualifies as long as the taxpayer has not previously used the asset and did not acquire it from a related party. The related-party restriction prevents businesses from selling depreciated equipment to affiliates and claiming a fresh deduction on the same asset.
The IRS considers property placed in service when it is ready and available for a specific use, whether or not it is actually used that day.9Internal Revenue Service. Depreciation Reminders A rental property is placed in service when it is available to rent, even if no tenant has signed a lease. A machine is placed in service when it is installed and operational, not when the purchase order was signed. That date, not the purchase date, determines which tax year captures the deduction.
State Conformity Is Not Automatic
Federal bonus depreciation does not automatically flow through to state tax returns. A significant number of states either decouple from the federal bonus depreciation rules entirely or require businesses to add back the bonus deduction and use standard MACRS depreciation for state purposes. A business could claim 100% bonus depreciation on its federal return while spreading the same cost over five, seven, or fifteen years on its state return. Any business operating in multiple states should verify each state’s conformity rules before assuming the federal deduction carries through.