Most business owners heard that equipment purchases were a tax cheat code between 2018 and 2022, then quietly assumed that party ended. That belief is already costing some owners five figures in 2024 because they are making six figure purchases without checking how the new rules actually work.

This post is your practical guide to the bonus depreciation phase-out 2024 rules, translated into plain English and mapped to real decisions you are making about equipment, vehicles, and buildouts this year.

Quick Answer

For the 2024 tax year, federal bonus depreciation lets most businesses immediately deduct 60 percent of the cost of qualifying new or used assets with a recovery period of 20 years or less, as long as they are placed in service during 2024. The remaining 40 percent is recovered under regular MACRS depreciation. The bonus percentage was 80 percent in 2023 and is scheduled to fall to 40 percent in 2025, 20 percent in 2026, and then disappear unless Congress extends it. See details in IRS Publication 946.

This information is current as of 5/19/2026. Tax laws change frequently. Verify updates with the IRS if you are reading this later.

How the bonus depreciation phase-out 2024 schedule actually works

Under the Tax Cuts and Jobs Act, businesses could claim 100 percent bonus depreciation on qualified property placed in service from late 2017 through 2022. Starting in 2023, that percentage started stepping down. The scheduled percentages are:

• 2023: 80 percent
• 2024: 60 percent
• 2025: 40 percent
• 2026: 20 percent
• 2027 and later: 0 percent unless Congress changes the law

Qualified property generally means tangible business assets with a recovery period of 20 years or less: machinery, equipment, computers, furniture, many interior improvements, and certain vehicles, as outlined in IRS Publication 946.

Example: A manufacturing LLC buys and places in service $500,000 of new equipment in December 2024. With 60 percent bonus, the LLC can deduct $300,000 immediately and recover the remaining $200,000 through regular MACRS. If they waited until January 2025 under current law, bonus would drop to 40 percent, cutting the upfront deduction to $200,000 and pushing another $100,000 into future years.

That timing difference alone can shift tens of thousands of tax dollars between 2024 and future years, especially for profitable owners.

Section 179 versus bonus: which one should you lean on in 2024

Many business owners confuse Section 179 expensing with bonus depreciation because both allow large immediate write offs. They work differently and interact in ways that matter more now that bonus is no longer 100 percent.

Key differences in plain English

• Section 179 is an election to expense qualifying property up to an annual dollar limit, with phase outs as total purchases increase. It is limited by your taxable business income, meaning you generally cannot use it to create or increase a loss. See IRS Publication 946 guidance on Section 179.
• Bonus depreciation is automatic unless you elect out. It is not limited by your taxable income, so it can create or increase a loss that might be used against other income or carried forward, subject to rules in IRS Publication 536.

In practical terms, most profitable small businesses still have three levers in 2024 for equipment and eligible improvements:

1. Section 179 expensing up to the annual limit
2. 60 percent federal bonus depreciation on what remains
3. Regular MACRS on the balance

If you are running an LLC or S corporation with solid profits, coordinated use of Section 179 and bonus can dramatically control your 2024 tax bill. This is exactly the sort of decision point where working with experienced business owners tax specialists pays off because you are juggling income limits, state conformity, and future plans.

Strategic year end choices sit squarely in the zone of advanced tax planning services. If you are considering a six figure equipment or vehicle purchase, treating it as a financing decision without modeling the tax impact leaves money on the table.

Want a rough sense of how shifting income between years could affect your overall federal bill? Plug a scenario into KDA’s tax bracket calculator to see how close you are to the next marginal rate before you lock in large deductions.

KDA Case Study: Construction LLC uses timing to save five figures

Consider Diego, who owns a California construction LLC taxed as an S corporation. In mid 2024, he expects $900,000 of gross revenue and about $220,000 of net profit after paying himself a reasonable salary. His crew has been limping along with unreliable trucks and a worn out skid steer.

He is planning around $280,000 of equipment and vehicle purchases over the next 18 months. His original idea was to buy one $80,000 truck in November 2024 and push the rest to summer 2025 to “keep things simple.” On a basic forecast, his CPA estimated roughly $70,000 of total federal and California income taxes for 2024.

When Diego sat down with a KDA strategist, they modeled two schedules. Scenario A used his original plan. Scenario B pulled forward more assets into 2024, kept some for 2025, and deliberately layered Section 179 with the 60 percent bonus rules.

• Scenario A November 2024 truck only: about $48,000 of immediate deductions tied to the vehicle (between Section 179 and bonus) and $71,000 of 2024 combined federal and California income tax.
• Scenario B December 2024 truck plus skid steer and selected tools totaling $220,000: about $145,000 of immediate deductions across Section 179 and bonus, pushing his 2024 combined income tax down to about $53,000.

Diego still bought an additional $60,000 of gear in 2025, but that moved him into the 40 percent bonus world. Total first year cash savings from the revised 2024 timing: approximately $18,000, after factoring state differences and the Section 199A qualified business income deduction described in IRS guidance on the QBI deduction.

Ready to see how we can help you? Explore more success stories on our case studies page to discover proven strategies that have saved our clients thousands in taxes.

Red flag alert: how the phase-out can trigger ugly surprises

The most expensive mistake we see around bonus depreciation is assuming the 100 percent rules still apply and then discovering during tax prep that 40 percent or more of your purchase will be depreciated over years. That can leave you with an unexpected tax bill and strained cash flow.

Here are specific traps for 2024:

• Year end deliveries that slip: Bonus is tied to “placed in service,” not when you sign the purchase contract. If your new machine arrives in January 2025 instead of December 2024, you drop from 60 percent to 40 percent bonus under current law.
• Ignoring income levels for Section 179: If you plan to rely on Section 179 to make up for reduced bonus, but your business ends up with lower income than expected, you may not be able to deduct as much as you thought in 2024.
• State level differences: Several states do not fully conform to federal bonus or Section 179 rules, so your state return might look very different from your federal one.

According to IRS Publication 946, you can elect out of bonus depreciation on a class by class basis. This is helpful when you want to avoid driving your income excessively low in one year, especially if that would reduce other benefits like the qualified business income deduction or push you into wasting carryforwards.

How W 2, 1099, and investor profiles should think about 2024 purchases

The phase out hits different taxpayer types in different ways. A blanket “buy everything now” or “wait until later” rule will not work. You need to look at your income pattern and how you actually make money.

Owner operator with 1099 income or Schedule C

Suppose Jasmine is a self employed consultant with $280,000 of 1099 income in 2024 and $70,000 of business expenses before considering a planned $60,000 equipment purchase for a small in house studio and computers. She expects similar income in 2025.

If she makes the purchase in October 2024, she might combine Section 179 and 60 percent bonus to deduct the full $60,000 this year, depending on income limitations. Her taxable business income drops from $210,000 to $150,000, and she may also increase her Section 199A deduction. That could reduce her combined federal and California liability by roughly $16,000, depending on brackets and other factors.

If instead she delays until mid 2025, she might still be able to deduct most or all of the cost, but she will be playing with a different bonus percentage and possibly different income dynamics. The right move depends on her broader plan for retirement contributions, health insurance, and other elections. Self employed taxpayers should be working closely with advisors who understand the interplay between income, deductions, and self employment tax.

W 2 employee real estate investor

Now consider Marcus, a W 2 engineer earning $260,000 with RSUs and a side portfolio of small multifamily rentals. If he qualifies as a real estate professional and materially participates in his rentals, a cost segregation study that isolates short life components of a new building can still leverage 60 percent bonus in 2024 on certain items.

On a $1.2 million fourplex placed in service this year where a cost seg identifies $200,000 of five, seven, and fifteen year property, Marcus could claim $120,000 of bonus on those components, plus regular depreciation on the rest, if he meets the material participation tests described in IRS Publication 527. If he can group that loss with his W 2 income under passive loss rules, that might shave $30,000 or more from his 2024 tax bill.

This is sophisticated territory and absolutely justifies engaging specialists who regularly work with real estate investors.

What if your business is in California

California historically does not conform to federal bonus depreciation. That means the state often requires you to depreciate property over a longer period even when federal rules let you write it off quickly. For Section 179, California also uses lower limits than federal law.

As a result, California owners frequently see a much lower depreciation deduction on Form 540 or 100 than on their federal return in year one, then slightly higher deductions in later years. This difference matters when you are doing cash flow planning, estimating quarterly payments, or evaluating where to base your next location.

If your business is headquartered or operating heavily in California, it is worth reviewing KDA’s California business owner tax strategy hub and aligning your choices with how the Franchise Tax Board will treat them.

Will taking more bonus in 2024 hurt you later

Some owners are understandably nervous about “using up” depreciation today and then facing higher taxable income later. That is a valid concern, but you need to quantify it rather than fear it.

Consider a $150,000 machine with a seven year life. Under straight line MACRS, you might deduct roughly $21,000 per year over seven years. With 60 percent bonus in 2024, you would deduct $90,000 upfront plus regular depreciation on the remaining $60,000 over time. If your marginal federal and state rate is 35 percent today, the upfront $90,000 deduction alone could save you about $31,500 in 2024.

Down the road, your depreciation deductions will indeed be smaller, but your business may also be in a different bracket, you may have new investments with their own depreciation, or you may sell or restructure the company. The present value of cash you keep in 2024 is rarely neutral when compared to a theoretical concern about future income.

Common questions about the 2024 phase out

Can I still get 100 percent bonus on anything

In general, no for property placed in service in 2024. The scheduled percentage is 60 percent. However, certain long lead time assets ordered earlier under specific rules may have different treatment, and there are niche exceptions. If someone tells you they can get you 100 percent bonus on a late 2024 purchase without walking through the dates and property type in detail, that is a red flag.

What if I regret taking bonus depreciation

You can elect out of bonus depreciation for a given class of property by attaching a statement to your timely filed return, including extensions. Revoking that election after the fact requires IRS consent and generally means filing Form 3115, Application for Change in Accounting Method, which is a technical process best handled with professional help.

Will aggressive bonus claims trigger an audit

Bonus depreciation itself is not inherently aggressive. The audit risk comes from mismatching property types, misclassifying assets to shorter lives than allowed, or playing games with placed in service dates. Documenting invoices, delivery dates, and installation details, and following the class life rules in Publication 946, keeps you on solid ground.

Bottom line for 2024 buying decisions

The phase down of bonus depreciation changed the math, but it did not erase the opportunity. In 2024 you still have meaningful ability to pull forward deductions on equipment, vehicles, and improvements. The question is whether that move supports your bigger plan for cash, financing, and future tax years, not just whether you can chase a write off.

For business owners with steady or rising profits, it is often worth accelerating certain purchases into 2024 or 2025 to lock in higher bonus percentages while they exist. For those expecting lower income years, selling a company, or facing major life changes, slowing down or electing out of bonus may be smarter.

Either way, you should be making these calls based on a modeled multi year projection, not a quick rule of thumb. That is the gap between casually “doing your taxes” and running your business like an asset that deserves a serious tax strategy.

Book your depreciation strategy session

If you are planning equipment, vehicle, or buildout spending in the next 18 months and you are not sure how the 2024 rules should shape your timing, do not guess. A targeted session can often uncover $10,000 to $50,000 of cash flow swing just by sequencing purchases and elections intelligently.

If you are a business owner or real estate investor with meaningful capital expenditures coming up, let us help you map them to the current bonus and Section 179 landscape so you are not blindsided by the phase out. Click here to book your consultation now.

Key takeaway: The IRS is not hiding these depreciation rules. The real problem is that most owners never see a side by side projection of their options before they sign for a six figure asset.

The IRS is not hiding these write offs, you just were not taught how to line them up with your business plan.