The special depreciation allowance, commonly referred to as bonus depreciation, refers to a special type of accelerated tax depreciation. Bonus depreciation encourages businesses to invest in property to obtain this extra deduction.
Special depreciation applies to new tangible property with the Modified Accelerated Cost Recovery System (MACRS) class lives of 20 years or fewer. Property must be placed in service in calendar year 2008 or 2009. Many exceptions exist to these rules, which are discussed in detail on the Internal Revenue Service website.
In most cases, special depreciation allows 50 percent of an asset's cost to be depreciated in the year placed in service. After the initial year, normal MACRS depreciation rates would apply. A business or individual can opt out of bonus depreciation by filing an election statement with the tax return. Elections out of bonus depreciation must be made by asset class life.
As of August 2010, Congress had not renewed the bonus depreciation provisions of the tax code. Property purchased after December 31, 2009, will not be subject to the special depreciation allowance unless an extension is approved.