how to report bonus depreciation
bonus depreciation is reported on federal tax returns using irs form 4562 depreciation and amortization including information on listed property this form is also used to report or claim other types of depreciation such as the section 179 deduction 2to figure the depreciable base of the asset the business should subtract any credits or deductions allocated to the property from the basis of the asset special treatment exists for assets acquired in a like kind exchange or involuntary conversion if businesses decide it would be more advantageous to recognize depreciation over the life of the asset instead of using an accelerated method such as bonus depreciation they can elect not to take it to make this election they must attach a statement to their tax return indicating which class of property they wish to not make the election for once the election has been made the decision cannot be revoked without the irs s consent 3if a business sells property that it claimed a special depreciation deduction for it is often required to recognize any recaptured amount as ordinary income 3bonus depreciation schedule and phaseoutthe current bonus depreciation percentages depend on when the eligible property was placed in service here is how bonus depreciation is scheduled to be phased out 4bonus depreciation vs section 179section 179 is another tax provision that allows businesses to claim a larger depreciation deduction for qualifying property for the tax year it was put into service broadly speaking section 179 rules are often more flexible in terms of timing than bonus depreciation rules under section 179 a business can elect to save certain assets for future tax breaks or claim only a portion of the cost and defer the other portion for a future tax year with bonus depreciation the amount of depreciation that s allowable is strictly defined however bonus depreciation may apply to higher spending amounts bonus depreciation is not capped in dollar terms a multimillion dollar deduction for the cost of a single asset may be recognized in a single year on the other hand section 179 deductions are limited by law as the irs explains for tax years beginning in 2023 the maximum section 179 expense deduction is 1 160 000 this limit is reduced by the amount by which the cost of section 179 property placed in service during the tax year exceeds 2 890 000 5in addition the irs notes the maximum section 179 expense deduction for sport utility vehicles suvs placed in service in tax years beginning in 2023 is 28 900 5each of these two tax breaks have rules that can make them more or less appealing to certain types of businesses some real estate improvements for example do not qualify for bonus depreciation but do qualify for section 179 treatment on the other hand section 179 deductions are limited to annual business income while bonus depreciation can exceed that amount it is also possible to claim both bonus depreciation and section 179 deductions in the same tax year 