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The IRS currently offers two special depreciation methods: Section 179 expense deduction and bonus depreciation. Each method is described below.

Bonus depreciation is typically used on short-lived capital investments (with a 20-year or less useful life) such as machinery, equipment and software. Bonus deprecation had been only for purchases of new equipment, but can now be applied to used equipment as long as you place it into service at your business during the tax year. However, 2016 may be an especially good year to take bonus depreciation. Keep this in mind when you’re filing your 2016 tax return. Eligible assets. New tangible property with a recovery period of 20 years or less (such as office furniture and equipment) qualifies for bonus depreciation. So does off-the-shelf computer software, water utility property and qualified improvement property.

Section 179 Expense

Corporation and partnerships are eligible to take Section 179 expense on qualifying MACRS Section 1245 property when used more than 50 percent for business use and placed in service during the current tax year. Estates and trusts are not eligible for Section 179 expense and neither is rental property reported on Form 8825.

Partnerships and S-Corporations

Section 179 expense is reported on Schedule K and passed to the partners or shareholders and is not reported in ordinary income.

Bonus Deprecation

Bonus deprecation is allowed on new assets placed in service in the current tax year and used in the United States with a recovery period of 20 years or less. Certain leasehold improvements, restaurant property, and retail improvement property may also qualify for bonus deprecation. Used assets are not eligible for bonus depreciation. Bonus depreciation is calculated after Section 179 expense is taken and before current year depreciation is calculated.

For the latest information about developments related to Pub. 946, such as legislation enacted after this publication was published, go to IRS.gov/Pub946.

Increased section 179 deduction dollar limits. The maximum you can elect to deduct for most section 179 property you placed in service in tax years beginning in 2018 is $1,000,000. This limit is reduced by the amount by which the cost of section 179 property placed in service during the tax year exceeds $2,500,000. See Dollar Limits in chapter 2.

Qualified section 179 real property. For property placed in service in tax years beginning after 2017, qualified section 179 real property is qualified improvement property (as defined in section 168(e)(6)), and certain specified improvements to nonresidential real property placed in service after the nonresidential real property was first placed in service.

Can I Take Bonus Depreciation On Computer Software

Computers and related peripheral equipment. Computers and related peripheral equipment placed in service after 2017, in tax years ending after 2017, are no longer treated as listed property.

Electing real property trade or business and electing farm business. An electing real property trade or business (as defined in section 163(j)(7)(B)) and electing farming business (as defined in section 163(j)(7)(C)) are required to use the alternative depreciation system for certain property to figure depreciation under MACRS for tax years beginning after 2017.

Recovery period for residential rental property. For the property placed in service after 2017, the alternative depreciation system (ADS) recovery period for residential rental property has been shortened from 40 years to 30 years.

Depreciation limits on business vehicles. The total section 179 deduction and depreciation you can deduct for a passenger automobile, including a truck or van, you use in your business and first placed in service in 2018 is $10,000, if the special depreciation allowance does not apply. See Maximum Depreciation Deduction in chapter 5.

Section 179 deduction dollar limits. The maximum amount you can deduct for most section 179 property you placed in service in tax years beginning in 2019 is $1,020,000. This limit is reduced by the amount by which the cost of section 179 property placed in service during the tax year exceeds $2,550,000.Also, the maximum section 179 expense deduction for sport utility vehicles placed in service in tax years beginning in 2019 is $25,500.

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Introduction

This publication explains how you can recover the cost of business or income-producing property through deductions for depreciation (for example, the special depreciation allowance and deductions under the Modified Accelerated Cost Recovery System (MACRS)). It also explains how you can elect to take a section 179 deduction, instead of depreciation deductions, for certain property, and the additional rules for listed property.

The depreciation methods discussed in this publication generally do not apply to property placed in service before 1987. For more information, see Pub. 534, Depreciating Property Placed in Service Before 1987.

Definitions.

Many of the terms used in this publication are defined in the Glossary near the end of the publication. Glossary terms used in each discussion under the major headings are listed before the beginning of each discussion throughout the publication.

Do you need a different publication?

The following table shows where you can get more detailed information when depreciating certain types of property.

Can You Take Bonus On Software

Comments and suggestions.

We welcome your comments about this publication and your suggestions for future editions.

You can send us comments from IRS.gov/FormsComments. Or you can write to:

Although we can’t respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products.

Ordering forms and publications.

Visit IRS.gov/FormsPubs to download forms and publications. Otherwise, you can go to IRS.gov/OrderForms to order current and prior-year forms and instructions. Your order should arrive within 10 business days.

Tax questions.

Can Software Take Bonus Depreciation On Rental Property

If you have a tax question not answered by this publication, check IRS.gov and How To Get Tax Help at the end of this publication.