Depreciation
A tax deduction that spreads the cost of a business asset over its useful life. Section 179 and bonus depreciation may allow full first-year expensing for qualifying assets.
Depreciation is the process of deducting the cost of a tangible business asset (equipment, vehicles, machinery, buildings) over its useful life rather than all at once. The IRS assigns recovery periods to different asset classes — for example, 5 years for computers and office equipment, 7 years for furniture, and 27.5 or 39 years for real property.
The most common depreciation method is MACRS (Modified Accelerated Cost Recovery System), which front-loads larger deductions in the early years of an asset's life. However, two provisions often allow full immediate expensing: Section 179, which lets you deduct up to $1,250,000 of qualifying asset costs in 2025, and bonus depreciation.
Bonus depreciation was in a TCJA phase-down: 100% through 2022, 80% in 2023, and 60% in 2024. The One Big Beautiful Bill Act (OBBBA), signed July 2025, restored 100% bonus depreciation for qualified property placed in service after January 19, 2025 — so 2025 and 2026 are once again full 100% years. Section 179 provides an alternative path to full expensing for many small businesses. Properly using depreciation strategies can significantly reduce your taxable income in the years you invest in business assets.
Related Terms
Business Expenses
Costs incurred in running a business that are deductible on your tax return if they are ordinary (common in your industry) and necessary (helpful and appropriate for your trade).
Schedule C
The IRS form (Schedule C of Form 1040) used by sole proprietors and single-member LLCs to report business income and expenses. The net profit flows to your personal tax return.
Sole Proprietor
An individual who owns and operates an unincorporated business by themselves. Business income and expenses are reported on Schedule C of the personal tax return.