Definition
Spreading the cost of business property, such as equipment, vehicles or buildings, over several years as a tax deduction.
What it means
When a business buys property that lasts more than a year, it usually cannot deduct the full cost at once; instead it deducts part each year through depreciation, using IRS recovery periods such as 5 years for computers and cars, 7 years for office furniture and 39 years for commercial buildings. Two rules allow faster write-offs. The Section 179 deduction lets businesses expense qualifying equipment up to a yearly limit. Bonus depreciation lets businesses deduct an extra percentage in the first year; a 2025 law made 100% bonus depreciation permanent for qualifying property acquired after January 19, 2025. Land is never depreciated. Depreciation is reported on Form 4562, and selling depreciated property can trigger depreciation recapture taxed as ordinary income.
Example
A $10,000 machine depreciated evenly over 5 years gives a deduction of about $2,000 a year, ignoring timing conventions. With 100% bonus depreciation, the business could deduct the full $10,000 in the first year.
Illustrative numbers only. Your situation will differ.