The Tax Cuts and Jobs Act (TCJA) of 2017 introduced a powerful incentive for businesses: 100% bonus depreciation. Designed to spur investment, this policy allowed businesses to immediately deduct the full cost of qualifying assets in the year they were placed into service. However, as with many tax incentives, this benefit was not permanent. In 2023, the 100% bonus depreciation begun to phase out, leaving businesses to navigate a gradually diminishing benefit.

💯 Bonus Depreciation: A Quick Summary
Bonus depreciation is an accelerated tax deduction that enables businesses to write off a significant portion of the cost of eligible assets upfront, instead of spreading the deduction over several years. This provision applied to assets like machinery, equipment, software, and even some improvements to commercial property. Under the Tax Cuts and Jobs Act (TCJA), businesses were incentivized to invest by offering immediate relief, which helped to offset upfront costs.
The 100% Bonus Depreciation Phase-Out Schedule
(Until Further Notice)
The phase-out began at the end of 2022, marking the end of the 100% bonus depreciation era.
Here’s the timeline for the reduced rates:
2023: 80% deduction
2024: 60% deduction
2025: 40% deduction (unless Trump acts to revise the policy)
2026: 20% deduction
2027 and beyond: No bonus depreciation 😣
For businesses, baby steps to zero means less immediate tax relief, requiring more strategic planning to maximize deductions... Break out the spreadsheets.
Why the Phase-Out Matters
For businesses, the phase-out represents a critical shift in how capital investments are accounted for in taxes. The ability to deduct 100% of the cost of qualified assets in the year of purchase was a significant driver of investment decisions. The reduced deductions mean businesses will now need to spread costs over an asset’s useful life, potentially impacting cash flow and long-term planning.
Maximizing Remaining Benefits
Even with the phase-out underway, there are still opportunities to take advantage of bonus depreciation:
Cost Segregation Studies: By breaking down building components into categories with shorter depreciation periods, businesses can still maximize their deductions under the phased rates.
Timely Asset Placement: To qualify for a specific year’s bonus rate, assets must be placed in service before year-end. Businesses should carefully plan purchases to align with these deadlines.
Alternative Deductions: Small businesses may consider Section 179 expensing, which allows for immediate deductions of certain assets, though with stricter limits than bonus depreciation.
Looking Ahead: Will Congress Act on Bonus Depreciation?
Under a second Trump administration, the phase-out raises questions about the future of tax incentives for business investment. While some lawmakers have expressed interest in extending or reviving the 100% bonus depreciation, no concrete proposals have gained traction. Businesses should remain vigilant for changes in tax policy in 2025 that could impact their investment strategies.
Closing argument
The phase-out of 100% bonus depreciation is a reminder of the temporary nature of many tax policies. While the era of full deductions has been shrinking, businesses that act strategically can still benefit from the remaining allowances. By staying informed and proactive, you can navigate this transition and optimize your tax position.
For more details on qualifying assets and how to plan effectively during the phase-out, consult with a tax professional or visit resources like the IRS guidelines on bonus depreciation.
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