2016 Bonus Depreciation Percentage
The 2016 Bonus Depreciation Percentage is 50%.
Effective 2016-01-01Source: 2016 Instructions for Form 4562 (IRS)Verified 2026-08-29
Who it applies to
Taxpayers who place qualified property in service during the 2016 tax year may claim an additional first-year depreciation deduction.
What changed this year, and why
For 2016, the bonus depreciation percentage (special depreciation allowance) for qualified property is 50%.
Common questions
- What is the special depreciation allowance?
- It is an additional first-year depreciation deduction taken after any section 179 expense deduction and before regular MACRS depreciation. For 2016, the allowance is 50% of the basis of qualified property.
- What property qualifies?
- Qualified property includes tangible property depreciated under MACRS with a short recovery period, water utility property, and certain computer software and improvement property, among other categories.
What the percentage is applied to, and what is left afterwards
For the 2016 special depreciation allowance, the percentage is applied to the cost or other depreciable basis of qualified property to determine the allowance amount. After claiming the special depreciation allowance, the remaining cost or depreciable basis is used to figure the regular MACRS depreciation deduction. The depreciable basis must be reduced by the amount of the special depreciation allowance before calculating regular MACRS depreciation. For property acquired in like-kind exchanges or involuntary conversions, the carryover basis is eligible for the special depreciation allowance, and must be reduced by the allowance amount before figuring regular MACRS depreciation. The excess basis - the portion of the acquired property's basis that exceeds the carryover basis - is also eligible for a special depreciation allowance. With a 50% special depreciation allowance for 2016, taxpayers deduct half of the depreciable basis in the year the property is placed in service, then depreciate the remaining half under regular MACRS rules over the property's recovery period and applicable convention.
Depreciating the remaining cost. After you figure your special depreciation allowance for your qualified property, you can use the remaining cost to figure your regular MACRS depreciation deduction (discussed in chapter 4). Therefore, you must reduce the depreciable basis of the property by the special depreciation allowance before fig- uring your regular MACRS depreciation deduction.
Publication 946 (2016), How To Depreciate Property (IRS)
Electing out, by class of property
For the 2016 special depreciation allowance, taxpayers can elect not to claim the allowance for any class of property. The election applies to all property in that class placed in service during the tax year. To make the election, a statement must be attached to the tax return indicating the election being made and the class of property for which it applies. The election must be made separately by each person owning qualified property, such as by partnerships, by S corporations, or for each member of a consolidated group by the common parent. Generally, the election must be made on a timely filed tax return, including extensions, for the year the property is placed in service. If the return was timely filed without the election, it can still be made by filing an amended return within a limited period after the original return's due date, with the election statement attached. Once the election not to deduct the special depreciation allowance for a class of property is made, it cannot be revoked without IRS consent through a letter ruling. If the election is made, property placed in service after 2015 will not be subject to an alternative minimum tax adjustment for depreciation.
You can elect, for any class of property, not to deduct any special depreciation allowances for all property in such class placed in service during the tax year. To make an election, attach a statement to your return indicating what election you are making and the class of property for which you are making the election. The election must be made separately by each person owning qualified property (for example, by the partner- ships, by the S corporation, or for each member of a con- solidated group by the common parent of the group).
Publication 946 (2016), How To Depreciate Property (IRS)
Recapture when you dispose of the property
For the 2016 special depreciation allowance, when property for which the allowance was claimed is disposed of, any gain on the disposition is generally recaptured as ordinary income. The recapture amount is limited to the amount of the special depreciation allowance previously allowed or allowable. This means that if you claimed a 50% special depreciation allowance on qualified property and later sell or otherwise dispose of that property at a gain, the portion of the gain up to the allowance amount must be reported as ordinary income rather than capital gain. The recapture rules ensure that the accelerated depreciation benefit is recaptured when the property is no longer held. For qualified GO Zone property, qualified cellulosic biomass ethanol plant property, qualified cellulosic biofuel plant property, and qualified second generation biofuel plant property, additional recapture rules apply if the property ceases to be used in the qualified manner or ceases to meet the qualification requirements in any year after the allowance was claimed. Taxpayers should refer to the MACRS recapture rules for detailed guidance on when and how recapture applies.
When Must You Recapture an Allowance? When you dispose of property for which you claimed a special depreciation allowance, any gain on the disposi- tion is generally recaptured (included in income) as ordi- nary income up to the amount of the special depreciation allowance previously allowed or allowable.
Publication 946 (2016), How To Depreciate Property (IRS)
How each figure was verified
Each number below was read from a stored copy of the document named beside it, and checked to occur word for word in the quoted sentence. The digest is of that stored text.
2016 Instructions for Form 4562 (IRS)
- Special depreciation allowance
Certain qualified property (defined below) is eligible for a 50% special depreciation allowance.