A machine bought on January 10, 2025 and an identical machine bought on January 25, 2025 recover at different speeds. One date sits inside the restored 100% window; the other does not.
Business equipment and buildings last for years, so their cost is usually recovered over time. Depreciation spreads the cost of tangible business property over a statutory recovery period rather than deducting it when paid. The Modified Accelerated Cost Recovery System (MACRS) assigns each asset a class life (which sets the recovery period), a method (how fast the deductions come) and a convention (when in the first year the asset counts as placed in service).
You should recognize these MACRS recovery periods on sight. Declining balance front-loads the deductions; straight line spreads them evenly.
A depreciation convention is a simplifying assumption about when in the year an asset started being used. The half-year convention treats all personal property as placed in service at the midpoint of the year, so the first year gets half a year of depreciation.
Common mistakes
- Using $1,250,000 as the §179 limit. That is the pre-OBBBA figure from Rev. Proc. 2024-40. The 2025 limit is $2,500,000 with a $4,000,000 phase-out start, and $2,560,000 is the 2026 number.
- Applying 40% bonus to a late-2025 purchase. Property acquired after January 19, 2025 takes 100%. The 40% rate survives only for earlier acquisitions.
- Letting §179 create a loss. The taxable-income limit stops it, and the excess carries forward. Bonus depreciation, by contrast, can drive the return negative.
Bottom line
- §179 limit: $2,500,000 for 2025, phasing out dollar for dollar above $4,000,000 of additions, capped by business taxable income, excess carried forward
- Bonus depreciation: 100% for property acquired after January 19, 2025; 40% if acquired on or before that date; no income limit
- Ordering: §179, then bonus, then MACRS
- Start-up and organizational costs: $5,000 each, each phasing out above $50,000, remainder over 180 months
Exam shortcut
Read the acquisition date before anything else. A 2025 stem that names a January date is testing the January 19 bonus split; any later date means 100%. When a stem gives both a big equipment number and a business-income number, run three gates in order: phase-out, income limit, carryforward. Distractors are built by skipping one.
The full lesson (about 3,140 words, 21 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- 2
- 3
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