Maximize tax savings: bonus depreciation vs. Section 179 explained

Many states do not conform to federal bonus depreciation rules, which can lead tax pros to overlook this option. However, a thorough understanding of the requirements and distinctions between bonus depreciation and Section 179 can help you determine the most advantageous strategy for your clients.

Below, you’ll find a few of the top questions from a recent webinar on the topic and their accompanying answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.   

Q: Section 179 cannot create a loss, but bonus depreciation can create a loss. Is this correct?

A: Yes, bonus depreciation can create a loss as there is not a dollar cap, income limitation, or investment limit like there is for the Section 179 deduction.

Q: Does bonus depreciation need to be recaptured later?

A: Yes, when the property for which bonus depreciation was claimed is sold, that depreciation is recaptured and taxed as regular income. Additional first-year bonus depreciation is not treated as a straight-line method [Reg. §1.168(k)-1(f)(3)].

Q: Does qualified improvement property qualify for Section 179?

A: Yes, if the qualified improvement property is as described in §168(e)(6). See IRS Publication 946.

Q: Can a disallowed Section 179 deduction be carried forward?

A: Any Section 179 deduction disallowed due to income limitation can be carried forward for an indefinite number of years.