Can you take bonus depreciation on Schedule C listed property?
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Yes, you can generally take bonus depreciation on listed property reported on Schedule C, but only if the property meets all the requirements for bonus depreciation and the business-use requirements for listed property. Here’s a detailed explanation of the rules and process:
1. Eligibility of Listed Property for Bonus Depreciation
Listed property includes items such as passenger automobiles, other vehicles, and certain equipment that, due to their potential for personal use, are subject to special substantiation and business-use requirements. For Schedule C filers, this often means vehicles and certain types of equipment used in the business.
Bonus depreciation (the “special depreciation allowance” under IRC §168(k)) allows for an immediate deduction of a percentage of the cost of qualified property in the year it is placed in service. As of 2025, the One Big Beautiful Bill Act (OBBBA) has made 100% bonus depreciation permanent for qualified property acquired after January 19, 2025. For property acquired before that date, the phase-down schedule applies (e.g., 40% for 2025).
To qualify for bonus depreciation, listed property must:- Be tangible property depreciated under MACRS with a recovery period of 20 years or less,- Be acquired and placed in service by the taxpayer in the applicable period,- Not be required to be depreciated under the Alternative Depreciation System (ADS),- Not be used less than 50% in a qualified business use in the year placed in service,- Not be property for which the taxpayer elected out of bonus depreciation.
2. Business-Use Requirement for Listed Property
For listed property, you must use the property more than 50% for qualified business use in the year it is placed in service to be eligible for bonus depreciation and to use accelerated MACRS methods (such as 200% declining balance). If the business use is 50% or less, you must use the straight-line method over the ADS recovery period, and bonus depreciation is not allowed.
- Qualified business use excludes investment use, leasing to a 5% owner or related person (unless included in income), and use as compensation unless included in the recipient’s income.
3. How to Claim Bonus Depreciation on Schedule C
- Form 4562: To claim bonus depreciation, you must complete Form 4562 and attach it to your tax return. Part V of Form 4562 is used to report listed property, including the special depreciation allowance (bonus depreciation) for such property.
- Schedule C: The depreciation deduction, including bonus depreciation, is then reported on Schedule C, line 13.
4. Limits and Special Rules
- Passenger Automobiles: The annual depreciation deduction (including bonus depreciation and section 179) for passenger automobiles is subject to annual dollar limits. For vehicles placed in service in 2025, the first-year limit is increased if bonus depreciation is claimed, but the deduction cannot exceed the applicable limit for the year and business-use percentage.
- Section 179 vs. Bonus Depreciation: Section 179 expensing is claimed before bonus depreciation. Section 179 has business income and dollar limits, while bonus depreciation does not. If you use both, reduce the basis by the section 179 deduction before calculating bonus depreciation.
- Recapture: If business use drops to 50% or less in a later year, you may have to recapture (as ordinary income) the excess depreciation, including any bonus depreciation previously claimed.
5. Summary of Steps
- Determine if the listed property is qualified property for bonus depreciation (tangible, MACRS, 20 years or less, not required to use ADS, etc.).
- Ensure business use exceeds 50% in the year placed in service.
- Complete Form 4562, Part V to report the property and claim the special depreciation allowance.
- Report the total depreciation deduction (including bonus) on Schedule C, line 13.
- Apply the passenger automobile limits if applicable.
- Maintain adequate records to substantiate business use and eligibility.
In summary: You can take bonus depreciation on Schedule C listed property if the property is used more than 50% for business in the year placed in service, is not required to use ADS, and otherwise qualifies under IRC §168(k). The deduction is subject to the annual limits for passenger automobiles and must be properly reported on Form 4562 and Schedule C.
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