Buying Equipment Before Year-End? What Businesses Need to Know About Bonus Depreciation

9/10/2026 - By Michael Cole, JD, MSPA & Stacey Craig, CPA

Buying equipment “before year-end” can feel like an easy tax win. Sometimes it is but only if you understand one phrase the IRS cares about more than your purchase date: placed in service (meaning the asset is ready and available for its intended business use). If it’s sitting in a warehouse or still waiting on installation, you usually don’t get the deduction yet.

You generally get bonus depreciation (or §179) in the year the asset is placed in service, and for 2025+ planning, the acquisition date can also change whether you’re in the older phase-down rules or the newer 100% bonus rules for property acquired after Jan. 19, 2025.

Placed in service usually means the asset is installed (if needed), tested (if needed), and ready and available to do its job, even if you don’t actually use it until next week.

Example: If a machine is delivered in December but can’t run until an electrician finishes the wiring in January, it’s usually a next-year deduction because January is when it became ready and available.

Right now, there are effectively two bonus-depreciation tracks, depending on when you acquired the property before Jan. 20, 2025, generally stays on the older phase-down schedule:

  • 40% if placed in service in 2025
  • 20% if placed in service in 2026
  • 0% in 2027 and later
  • Acquired after Jan. 19, 2025: generally eligible for 100% bonus depreciation in the year it’s placed in service (assuming it’s qualified property and not ADS property)

How bonus depreciation works (without the jargon)

Bonus depreciation is an extra first-year write-off for many common business assets (generally items with a 20-year-or-shorter tax life, plus certain software and specific categories listed in the tax rules). You still don’t get it just because you paid—you get it when the asset is placed in service.

Common reasons include:

  • Take a bigger deduction sooner
  • Lower this year’s taxable income
  • Lock in a better bonus-depreciation rule based on acquisition timing
  • Coordinate §179 and bonus depreciation
  • Simply to beat price increases, lead times, and supply-chain issues

So yes—both dates matter: when you acquire the asset and when you place it in service.

Why businesses “pre-buy” equipment in December

1. Accelerating Deductions if the Asset Is Also Placed in Service This Year

The clearest benefit arises when the taxpayer both acquires and places the asset in service in the current year. If the property is qualified property and was acquired after January 19, 2025, the taxpayer may be able to deduct 100% of adjusted basis immediately under Section 168(k).

That can improve current-year taxable income, cash tax, and financial flexibility. It is especially valuable where the taxpayer expects:

  • Unusually high current-year income,
  • Lower income next year,
  • Expiring deductions or attributes,
  • Desire to recover cost immediately rather than over 3, 5, 7, 10, 15, or 20 years under MACRS.

2. Locking in Favorable Acquisition-Date Treatment

For 2025 and later, acquisition date matters. If the taxpayer acquires qualified property after January 19, 2025, permanent 100% expensing generally applies. That means pre-buying in late 2025 for use in 2026 may still be beneficial if the property will be placed in service in 2026 and the acquisition date qualifies under the post-January 19, 2025 rule.

By contrast, if the property was acquired before January 20, 2025, delaying placed-in-service into 2026 generally reduces the bonus percentage to 20% under the old schedule.

3. Combining Section 179, Bonus, and MACRS

Section 179 is applied first, then bonus depreciation, then regular MACRS on the remaining basis. Pre-buying can therefore be useful where the taxpayer wants to manage which assets absorb §179 and which absorb bonus.

For 2026, the Section 179 maximum deduction is $2,560,000 and the phaseout threshold is $4,090,000. For 2025, the maximum is $2,500,000 and the phaseout threshold is $4,000,000.

Because Section 179 can be targeted asset-by-asset while bonus generally applies by class unless elected out, pre-buying may allow more deliberate matching of deductions to longer-lived assets or assets that do not fit the taxpayer’s preferred bonus strategy.

4. Immediate Expensing for Short-Life Property

Many commonly pre-bought business assets are 5-year or 7-year property, such as:

  • Computers
  • Office machinery
  • Automobiles
  • Trucks
  • Office furniture
  • Fixtures

If placed in service in the current year, bonus depreciation can convert what would otherwise be multi-year deductions into a current deduction.

Without bonus, those assets would generally be depreciated under GDS using 200% declining balance for 3-, 5-, 7-, and 10-year property, switching to straight line when beneficial. Bonus eliminates much of that timing delay.

5. Qualified Improvement Property Planning

If the “pre-bought” asset is qualified improvement property, and it is actually placed in service, it is 15-year property and generally eligible for bonus depreciation, unless ADS applies. That can be a significant benefit for taxpayers improving nonresidential interiors.

But the improvement must satisfy the statutory QIP definition. It must be:

  • An improvement to the interior portion of nonresidential real property
  • Placed in service after the building was first placed in service
  • Not attributable to enlargement, elevators or escalators, or internal structural framework

Burdens and Drawbacks of Pre-Buying

1. No Depreciation Benefit Until the Asset Is Placed in Service

This is the main practical burden. MACRS and bonus depreciation depend on placed-in-service status, not merely purchase or payment.

If the taxpayer buys equipment in December but does not install, test, or make it available for its intended business use until January, the deduction generally belongs in January’s tax year.

So “pre-buying” solely to create a current-year deduction often fails if the asset is not operationally ready and available for use.

2. Accelerating Deductions May Be Inefficient if Next Year Is Better

Bonus depreciation is a timing benefit, not a permanent increase in total depreciation. If the taxpayer accelerates deductions into the current year, those deductions are no longer available in the following year.

That can be a burden where:

  • Current-year taxable income is already low
  • Next year’s tax rate or taxable income is expected to be higher
  • Taxpayer would prefer smoother earnings
  • Current-year losses are already limited or less valuable

Taxpayers may elect out of bonus depreciation for a class of property. That election exists precisely because immediate expensing is not always optimal.

3. ADS Can Eliminate Bonus Eligibility

Property required to be depreciated under ADS is not qualified property for bonus depreciation. Under §168(g), ADS applies to several categories, including:

  • Property used predominantly outside the United States
  • Tax-exempt use property
  • Tax-exempt bond financed property
  • Certain imported property
  • Property subject to an ADS election
  • Property held by an electing real property trade or business
  • Certain property with a recovery period of 10 years or more held by an electing farming business

So pre-buying does not help if the asset falls into an ADS category. In that case, the taxpayer generally gets straight-line depreciation over ADS recovery periods instead.

4. Used Property and Inherited/Gifted Property Limitations

Bonus depreciation can apply to certain used property if the acquisition satisfies §168(k) requirements, but property acquired by gift or inheritance does not qualify.

So if “pre-buying” involves related transfers, gifts, or nonqualifying acquisitions, the expected bonus result may not be available.

There are also policy and technical concerns around used assets and anti-churning concepts, especially where transactions are structured to refresh depreciation benefits without meaningful economic change.

5. Mid-Quarter Convention Risk if Bonus Is Not Available or Not Elected

If bonus does not fully expense the asset, regular MACRS conventions matter. Under §168(d)(3), if the aggregate bases of MACRS property placed in service during the last three months of the taxable year exceed 40% of the aggregate bases of MACRS property placed in service during the year, the mid-quarter convention applies to all such property for that year, excluding certain real property and same-year dispositions.

That can reduce first-year depreciation compared with the half-year convention. So bunching pre-bought assets into year-end can create a convention disadvantage if bonus is unavailable, partially unavailable, or elected out.

6. Recapture Risk on Later Disposition or Change in Use

Gain on disposition of MACRS property is generally recaptured as ordinary income up to depreciation allowed or allowable. Bonus depreciation can therefore increase future ordinary-income recapture exposure.

There is also specific recapture risk where business use drops to 50% or less for §179 property. So pre-buying assets that later move into mixed or personal use can create downstream burdens.

7. Cash-Flow and Business Burden

Even where tax law permits immediate expensing, pre-buying still requires actual capital outlay. The tax deduction rarely equals the purchase price in after-tax cash terms.

So the taxpayer is trading liquidity for accelerated tax recovery. If the asset sits idle until next year, the taxpayer may incur without corresponding current operational benefit:

  • Storage costs
  • Financing costs
  • Insurance costs
  • Obsolescence risk

That is a business burden rather than a Code rule, but it is often the most important practical drawback.

The Most Important Timing Distinction: Acquisition Date vs. Placed-in-Service Date

For this issue, the most important distinction is:

  • If the taxpayer buys in Year 1 and places in service in Year 1, bonus may accelerate the deduction into Year 1.
  • If the taxpayer buys in Year 1 but places in service in Year 2, the deduction generally arises in Year 2.
  • But the acquisition date can still matter for determining whether the property falls under the old phase-down schedule or the post-January 19, 2025 100% regime.

So pre-buying may still be useful to secure favorable acquisition-date treatment, but it does not itself create a current deduction unless placed-in-service occurs in the same year.

Common Planning Scenarios

Scenario 1: Equipment Bought in December 2026, Installed and Used in January 2027

Generally, no 2026 depreciation deduction arises because the property is not placed in service until 2027. If acquired after January 19, 2025, it may still qualify for 100% bonus in 2027 when placed in service, assuming it is otherwise qualified property and not ADS property.

  • Benefit: acquisition-date protection.
  • Burden: no current-year deduction despite current-year cash outlay.

Scenario 2: Equipment Bought and Operational in December 2026

If qualified property acquired after January 19, 2025 is placed in service in 2026, the taxpayer may generally claim 100% bonus depreciation in 2026.

  • Benefit: immediate deduction and cash-tax acceleration.
  • Burden: reduced deductions in 2027 and possible recapture later.

Scenario 3: QIP Project Paid for in Late Year but Not Completed Until Next Year

QIP generally is not placed in service until the improvement is completed and ready for its intended use. So payment alone does not create the deduction. If completed and placed in service next year, bonus generally belongs next year.

  • Benefit: potentially none for current year.
  • Burden: cash outlay without current deduction.

Strategic Considerations Before Pre-Buying

Before pre-buying assets for tax reasons, taxpayers should usually ask:

  • Will the asset actually be placed in service before year-end?
  • Is the property qualified for bonus depreciation?
  • Is the property subject to ADS?
  • Would §179 be more useful than bonus for some assets?
  • Is current-year income high enough to make acceleration valuable?
  • Would deductions be more valuable next year?
  • Could year-end purchases trigger the mid-quarter convention?
  • Is the business comfortable with the cash outlay and operational timing?

These questions often determine whether pre-buying is smart planning or just accelerated spending.

Final Takeaway

Pre-buying assets can be tax-efficient if it results in the asset being placed in service in the current year, or if it secures a favorable acquisition date under the post-January 19, 2025 100% bonus depreciation regime.

The principal benefits are:

  • Accelerated cost recovery
  • Current-year tax reduction
  • Flexibility when coordinating Section 179, bonus, and MACRS

The principal burdens are:

  • Purchase alone does not create depreciation
  • ADS can disqualify bonus
  • Year-end acquisitions can create convention issues if bonus is unavailable
  • Accelerated deductions may be poorly timed or create later recapture exposure

The key legal and practical question is not simply whether the asset is bought this year, but whether it is qualified property, when it is acquired, and when it is placed in service.

Make Year-End Tax Planning Work for Your Business

The timing of an equipment purchase can have a significant impact on your tax strategy but purchasing an asset alone doesn't guarantee a deduction. Understanding when property is considered "placed in service," how bonus depreciation applies, and whether Section 179 or MACRS offers the greatest benefit requires careful planning.

Before making year-end equipment purchases, consult with your Saltmarsh advisor to evaluate your options and align tax-saving opportunities with your broader business goals. A proactive strategy today can help maximize deductions while avoiding costly surprises later.

About the Authors | Michael Cole, JD, MSPA & Stacey Craig, CPA

Michael is a partner with experience across tax, accounting, and advisory services. He began his career in public accounting over 15 years ago, focusing on tax consulting and compliance. His primary areas of experience include providing services related to mergers and acquisitions, 704(b) allocations, and complex transaction structuring for private equity firms and family offices.

Stacey is a partner with experience across tax compliance, planning, and consulting services. Stacey is a trusted tax advisor known for delivering clear, strategic guidance that helps clients make confident financial decisions. With more than two decades of experience in tax compliance, planning, and consulting, she brings deep expertise to partnerships, S corporations, nonprofits, high-net-worth individuals, trusts, and estates.

 

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