Bonus depreciation is one of the most valuable tax strategies available to businesses that invest in new equipment, software, and property improvements. When the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) extended 50% bonus depreciation through 2017, it reopened a significant tax-saving opportunity that many business owners thought they had lost. The provision had expired on December 31, 2014, for most assets, which meant the PATH Act retroactively restored a deduction that could substantially reduce taxable income for the 2015 tax year.
This guide answers one central question: should a business have claimed bonus depreciation on its 2015 return, and on which assets? The answer depended on the type of property purchased, the timing of when it was placed in service, and the business’s expected tax position in future years.
For businesses that purchased and placed qualifying property in service during 2015, the extension created a chance to recover the cost of depreciable assets far more quickly than standard depreciation schedules allow. Rather than spreading deductions across five, seven, or even twenty years, bonus depreciation front-loads a large portion of the write-off into the first year of the asset’s useful life.
What is bonus depreciation and how does it work?
Bonus depreciation allows businesses to deduct a significant percentage of the cost of eligible assets in the year they are placed in service, rather than spreading the deduction across the asset’s full recovery period. Under the PATH Act extension, the rate was set at 50%, meaning a business could immediately write off half the cost of a qualifying asset on its tax return.
The remaining 50% of the asset’s cost is then depreciated under the standard Modified Accelerated Cost Recovery System (MACRS) schedule over the applicable recovery period. This front-loaded deduction structure creates a powerful timing advantage: by accelerating when the deduction is taken, businesses defer taxable income to later years, freeing up cash flow in the near term.
Bonus depreciation does not increase the total amount you can deduct over the life of an asset. It simply changes when you take the deduction. A $100,000 piece of equipment still generates $100,000 in total depreciation deductions, and bonus depreciation just shifts a larger share of that amount into the first year. The Internal Revenue Service explains these first-year rules in its Publication 946 on depreciating property, which remains the primary reference for how MACRS and the special depreciation allowance interact.
Which assets qualified for bonus depreciation in 2015?
New tangible property with a recovery period of 20 years or less qualified for bonus depreciation under the PATH Act. This covered a broad range of business assets, including office furniture, manufacturing equipment, computers, and other machinery commonly used in day-to-day operations.
Beyond tangible equipment, several other categories of property were also eligible:
- Off-the-shelf computer software: commercially available software that was not custom-developed for the business.
- Water utility property: infrastructure used in the collection, treatment, and distribution of water.
- Qualified leasehold-improvement property: interior improvements made to commercial lease spaces, provided the improvements were placed in service more than three years after the building was first put into use.
One critical requirement often catches businesses off guard: purchasing the property alone was not enough to claim the deduction. The asset had to be both acquired and placed in service during the 2015 tax year. “Placed in service” means the property was in a condition or state of readiness and available for its specifically assigned function, not simply ordered or delivered.
Section 179 vs bonus depreciation: understanding the key differences
Many business owners confuse Section 179 expensing with bonus depreciation because both allow accelerated write-offs of asset costs. While the two provisions share a similar goal of letting businesses recover costs faster, they operate under different rules and limitations. The statutory basis for the expensing election appears in Section 179 of the Internal Revenue Code.
Section 179 allows businesses to elect to deduct the full purchase price of qualifying equipment and software in the year it is placed in service, up to an annual dollar limit. For 2015, the Section 179 deduction limit was $500,000, with a phase-out threshold beginning at $2 million in total equipment purchases. Section 179 can also apply to used property, not just new assets.
Bonus depreciation, by contrast, has no dollar cap. A business that purchased $5 million in qualifying new equipment could claim 50% bonus depreciation on the entire amount. However, bonus depreciation was generally limited to new property, and used assets did not qualify under the 2015 rules.
The typical tax planning approach is to apply Section 179 first, up to its annual limit, and then claim bonus depreciation on any remaining eligible costs. This layered strategy maximizes the first-year deduction and minimizes taxable income. A CPA firm offering tax advisory services can model the interaction between the two provisions before a return is filed.
When claiming bonus depreciation made sense for 2015 returns
For businesses that expected to remain in the same or a lower tax bracket in future years, claiming bonus depreciation was almost always the right move. The logic is straightforward: deferring tax creates a time-value-of-money advantage. A dollar of tax saved today is worth more than a dollar saved five years from now because the business can reinvest that cash in the meantime.
Consider a business that purchased $200,000 in new equipment during 2015. With 50% bonus depreciation, the company could deduct $100,000 immediately, plus the standard first-year MACRS depreciation on the remaining $100,000. Without bonus depreciation, the first-year deduction would be substantially smaller, and the tax savings would trickle in over the full recovery period.
This approach was especially advantageous for businesses with strong 2015 revenue that wanted to offset a high tax bill, businesses planning large equipment purchases that coincided with the PATH Act timeline, and companies looking to improve year-end cash flow by reducing estimated tax payments.
When skipping bonus depreciation was the better strategy
Not every business benefited from claiming bonus depreciation in 2015. For companies in a growth phase that expected to move into a higher tax bracket in the near future, forgoing the deduction could actually produce a better long-term tax outcome.
The reason is that depreciation deductions are worth more when applied against income taxed at a higher rate. If a business was in the 15% bracket in 2015 but anticipated moving to the 25% or 35% bracket within a few years, preserving larger depreciation deductions for those future years would generate more total tax savings.
Businesses with net operating losses (NOLs) also had reason to pause before claiming bonus depreciation. If the additional deduction would create or increase an NOL without producing an immediate tax benefit, the accelerated write-off might not be worth the trade-off, particularly if the NOL carryforward rules limited how the loss could be applied.
Electing out of bonus depreciation was straightforward. Businesses could make the election on a class-by-class basis, meaning they could forgo bonus depreciation for one category of assets while still claiming it for others.
How the PATH Act changed the bonus depreciation timeline
Before the PATH Act, bonus depreciation had been extended and modified multiple times since its introduction in the Job Creation and Worker Assistance Act of 2002. The provision was always temporary, creating uncertainty for businesses trying to plan long-term capital investments.
The PATH Act provided more stability by extending 50% bonus depreciation through 2017, with a scheduled phase-down to 40% in 2018 and 30% in 2019. This gave businesses a clearer planning horizon and reduced the year-end scramble that often accompanied expiring tax provisions.
For the 2015 tax year specifically, the PATH Act was signed into law on December 18, 2015, meaning businesses that had already made qualifying purchases earlier in the year could retroactively claim the deduction. This retroactive application was a significant benefit for companies that had not factored bonus depreciation into their 2015 tax planning because the provision had technically expired at the end of 2014.
The subsequent Tax Cuts and Jobs Act of 2017 later expanded bonus depreciation to 100% and extended it to used property, but those changes did not affect 2015 returns. For that filing year, the 50% rate under the PATH Act was the operative rule. Capital-intensive businesses, including those in manufacturing, felt the effect of these rules most directly because they routinely place large amounts of qualifying equipment in service each year.
Frequently Asked Questions
What is bonus depreciation?
Bonus depreciation is a tax incentive that allows businesses to deduct a large percentage of the cost of eligible assets in the first year they are placed in service. It accelerates the depreciation schedule so businesses recover costs faster than under standard MACRS rules. The deduction does not increase total lifetime depreciation; it shifts a larger portion into the first year.
What property qualified for bonus depreciation in 2015?
New tangible property with a MACRS recovery period of 20 years or less qualified, along with off-the-shelf computer software, water utility property, and qualified leasehold improvements. The asset had to be both purchased and placed in service during the 2015 calendar year to be eligible.
What is the difference between Section 179 and bonus depreciation?
Section 179 lets businesses expense qualifying assets up to a fixed annual dollar limit and applies to both new and used property. Bonus depreciation has no dollar cap but was limited to new assets in 2015. Most tax strategies apply Section 179 first, then layer bonus depreciation on any remaining eligible costs.
Could businesses elect out of bonus depreciation?
Yes. Businesses could choose not to claim bonus depreciation on a class-by-class basis. This was useful for companies expecting higher tax rates in future years, since preserving depreciation deductions for later periods could yield greater total tax savings.
How did the PATH Act affect bonus depreciation?
The Protecting Americans from Tax Hikes Act of 2015 retroactively extended 50% bonus depreciation through 2017 after the provision had expired on December 31, 2014. It also scheduled a phase-down to 40% in 2018 and 30% in 2019, giving businesses a longer planning window.
Should a business always claim bonus depreciation?
Not necessarily. Businesses in low tax brackets that expect future income growth may save more by preserving depreciation deductions for years when they face higher rates. Companies with existing net operating losses should also evaluate whether the additional deduction produces a meaningful tax benefit in the current year.
