Bonus Depreciation and Section 179: What’s the Difference For 2025?

Bonus depreciation and the section 179 tax deduction can be easily confused, partly because people sometimes use both in the same calendar year. This post explains some of the key differences.

 

 

Bonus depreciation is a tax incentive that allows a business in many (but not all) U.S. states to immediately deduct a large percentage of the purchase or loan price of eligible items, such as machinery, rather than write them off over the “useful life” of that asset. Bonus depreciation is also known as an additional first-year depreciation deduction because it must be taken in the first year the depreciable item is placed in service.

 

Read on to learn more about bonus depreciation and how it compares to the section 179 tax deduction. To jump directly to the latest information about section 179, read our post for the 2025 tax year.

 

Why Use Bonus Depreciation?

The purpose of bonus depreciation is to encourage companies to make capital purchases to grow their businesses by lowering their taxable income and, thus, their tax liability. It’s important to remember that to be depreciable, property must have a “determinable useful life,” meaning it must wear out and lose value over time. It must also last more than one year, so if it is put into use and disposed of in the same year, it is not considered depreciable. Ask your tax professional for more specifics.

 

 

Bonus Depreciation In 2025

For the 2025 tax year, the bonus depreciation rate had been established under prior law as 40% of the cost of qualifying assets purchased and put into service in the 2025 calendar year. However, the One Big Beautiful Bill Act (OBBBA), signed into law July 4, 2025, reinstates the 100% bonus depreciation permanently for qualified assets acquired and placed into service after January 19, 2025.

 

Useful Side Note: A Quick History Of Bonus Depreciation

Traditionally, when a business purchases equipment, the cost has been spread out over the useful life of that asset. This is known as depreciation. It can work in a business’s favor because if depreciation is not applied, it could negatively affect a business’s financial statement by showing smaller profits or larger losses for the year it purchased the equipment.

 

When the Tax Cuts and Jobs Act was passed in 2017, it made significant changes to the way bonus depreciation affects businesses. The most major change was that it doubled the bonus depreciation deduction for qualified equipment from 50% to 100%. The Act also extended the bonus to cover used equipment as long as the taxpayer did not use the asset prior to purchasing or financing it.

 

What’s The Difference Between Bonus Depreciation & Section 179?

In another blog post, we discussed the basics of the tax deduction in section 179 of the Internal Revenue Code (IRC). In short, for the 2025 tax year, businesses can deduct up to $2,500,000 of qualified equipment right away with a spending limit of $4,000,000, after which the deduction begins to phase out on a dollar-for-dollar basis. For this reason, bonus depreciation—covered in section 168(k) of the IRC—is useful to very large businesses spending more than the section 179 spending cap on new capital equipment.

 

Bonus depreciation is often confused with section 179 because they serve similar purposes. Section 179 is limited to a taxpayer’s business income. Passive income, such as assets used in rental property, is not eligible for the deduction. Both new and used equipment qualify for the section 179 deduction (as long as the used equipment is “new to you”), while bonus depreciation began to apply to used equipment and new assets after the 2017 tax law.

 

 

How Section 179 & Bonus Depreciation Are Used Together

When applying these tax incentives, section 179 is generally taken first, followed by bonus depreciation after reaching the section 179 spending limit ($3,130,000 in the 2025 tax year). This is why bonus depreciation is known as the “additional first-year depreciation allowance.” If a business is unprofitable, it has no profit to tax, so it can carry the net operating loss forward to offset income in the future.

 

Click here to read our post about the section 179 deduction.

 

DISCLAIMER: Currency does not provide tax, legal or accounting advice. The foregoing has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. Limits and information mentioned is subject to change.

 

This is an updated version of an earlier post.
Original post: November 11, 2019
Updated: October 17, 2025