What Is Bonus Depreciation?

Depreciation lowers a taxpayer's fiscal debt.

When filing a business tax return at the end of the year, you need to include asset depreciation in the expense category. Bonus depreciation and standard depreciation lower your taxable income.

Depreciation

Depreciating an asset means recovering the cost of that asset over a specified number of years. For example, you own a truck that you operate as part of your business. By depreciating the truck over a number of periods (five years, in the case of vehicles), you will recover its entire cost at the end of the depreciation term (in this case, at the end of the fifth year).

Bonus Depreciation

Bonus depreciation is a form of accelerated depreciation. A law passed in 2008 allowed business owners to depreciate an additional 50 percent of the cost of new equipment the same year it was put in service. The Internal Revenue Service (IRS) supports this initiative because it encourages small business owners to purchase equipment and other assets for operating purposes. The law expired in 2009, but Congress may extend it.

Eligible Assets

The IRS allowed you to claim bonus depreciation on assets with useful lives of less than 20 years, such as cars, office equipment, computers, some computer software and certain types of manufacturing equipment.

References

• Internal Revenue Service: Bonus Depreciation and Increased Section 179 Deduction under the American Recovery and Reinvestment Act
• Internal Revenue Service: Overview of Depreciation