Bonus Depreciation 2024: 60% Rate, Phase-Down Schedule, and Qualified Property

The 100% Era Is Over — Here Is the New Math

From September 27, 2017 through December 31, 2022, the Tax Cuts and Jobs Act allowed businesses to deduct 100% of the cost of qualifying assets in the year of purchase. That five-year window has closed. Starting in 2023, bonus depreciation began a scheduled phase-down that will reduce the first-year allowance to zero by 2027, barring congressional action. Businesses that delayed equipment acquisitions waiting for "better timing" missed the 100% window — but substantial deductions remain available through 2026.

The Phase-Down Schedule

For property with long production periods (aircraft, certain specialized manufacturing equipment) or property used outside the U.S., a one-year lag applies — the rate applicable is the rate from one year prior. Long-production-period property placed in service in 2024 qualifies for 80% rather than 60%.

What Qualifies as Bonus Depreciation Property

Bonus depreciation applies to "qualified property," defined under IRC §168(k) as property that meets all of the following:

• Depreciable under MACRS with a recovery period of 20 years or less — covering most equipment, computers, furniture, and certain improvements
• Original use — must be the taxpayer's first use, OR the property must be "used property" meeting the acquisition requirements (TCJA expanded bonus to used property beginning in 2018)
• Placed in service during the applicable tax year (acquisition date and placed-in-service date are distinct; an asset ordered but not delivered before year-end does not qualify)
• Not subject to alternative depreciation system (ADS) — certain businesses including floor-plan financing dealers and electing farming businesses must use ADS and forfeit bonus depreciation

Qualified improvement property (QIP) — interior non-structural improvements to existing nonresidential buildings — has a 15-year MACRS life and is fully eligible for bonus depreciation following a retroactive technical correction made by the CARES Act in 2020.

Used Property: The 2018 Expansion

Prior to TCJA, bonus depreciation applied only to property whose original use began with the purchasing taxpayer. The 2017 act expanded eligibility to used property, subject to four conditions:

• The taxpayer did not use the property at any time before acquisition
• The property was not acquired from a related party (as defined by IRC §267 or §707(b))
• The property was not acquired in a carryover basis transaction
• The property was not placed in service by the taxpayer before 2018

This expansion opened bonus depreciation to businesses that acquire existing equipment, vehicles, or machinery — a major benefit for industries where used-equipment markets are active, such as construction, manufacturing, and transportation.

Anti-Churning Rules

The anti-churning rules under IRC §168(k)(2)(A)(ii) prevent abuse through circular transactions designed to convert non-depreciable assets (pre-ACRS property) into bonus-eligible property. These rules apply when:

• The taxpayer or a related party held or used the property at any time during 2017 or earlier (pre-TCJA)
• The property is acquired from a related party in a transaction structured to manufacture bonus eligibility

Practical anti-churning scenarios that trigger IRS scrutiny include sale-leaseback arrangements where the seller continues using the same property, and acquisition of property from closely held entities under common control. When anti-churning rules apply, the property must use the original MACRS depreciation method without bonus.

Interaction with Section 179 and NOLs

Bonus depreciation has three features that distinguish it from Section 179:

• No income limitation: Bonus depreciation can create or increase a net operating loss (NOL), which carries forward indefinitely (80% of taxable income limitation under post-TCJA rules). Section 179 cannot generate a loss.
• Asset class election: Taxpayers may elect out of bonus depreciation by asset class (e.g., elect out for all 5-year property). This granularity allows strategic mixing of bonus and MACRS depreciation.
• No carryforward: Unlike Section 179, unused bonus depreciation does not carry forward — instead, it converts to an NOL that carries forward.

For profitable businesses in 2024, Section 179 should typically be applied first to eliminate income, with bonus depreciation generating any remaining NOL if desired. For loss-year purchases, bonus depreciation is the superior tool — it deepens the NOL for future use without the income cap that would render Section 179 partially worthless.

This article is for informational purposes only and does not constitute financial or tax advice.