Bonus depreciation is a U.S. tax incentive that allows businesses to deduct a significant percentage of an asset’s purchase cost in the same year it is placed in service. It’s designed to encourage investment and stimulate economic growth.
In essence, it lets companies recover the cost of qualifying business property faster by reducing taxable income in the year of purchase.
Ordinarily, business assets such as equipment or office furniture are written off gradually through regular depreciation over time. Bonus depreciation accelerates this process.
Under the Tax Cuts and Jobs Act of 2017*, businesses could deduct 100% of qualifying assets placed in service between 2017 and 2022. This benefit was expected to be fully phased out by 2027. However, the One Big Beautiful Bill made the bonus permanent.
Bonus depreciation applies to tangible property with a recovery period of 20 years or less. Some examples are:
To qualify, the asset can be new or used (as long as it’s new to the taxpayer) and placed in service for business use. Land and buildings do not qualify.
Bonus depreciation and Section 179 expensing both allow businesses to deduct asset costs up front. However, there is a difference in how and when they can be applied.
Section 179 lets taxpayers choose which assets to expense, subject to annual limits. It’s often used by small businesses. Bonus depreciation, on the other hand, applies automatically to all qualifying assets unless the taxpayer elects out. It also doesn’t have an annual dollar cap.
For U.S. citizens living in Israel who own U.S. businesses or hold interests in American entities, bonus depreciation can have a significant effect on taxable income. It may reduce immediate U.S. tax liability but also affect future earnings and Israeli tax calculations.
Coordinating with both U.S. and Israeli tax professionals ensures that accelerated deductions don’t create mismatched income timing or double-taxation issues under the U.S.–Israel Tax Treaty.
To learn how bonus depreciation can work for your business, please reach out to our team.
*Tax Cuts and Jobs Act of 2017 (TCJA). (n.d.). LII / Legal Information Institute. https://www.law.cornell.edu/wex/tax_cuts_and_jobs_act_of_2017_(tcja)