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Can Bonus Depreciation Create a Loss?

Bonus depreciation can exceed an entity’s income and create a negative net income if that is the desired result, if that is the result you are after. If you would like to minimize the loss and carry over the depreciation deduction, you can elect out of bonus depreciation, but that election will apply to all property of the same property class for that tax year. Or you might consider taking a Sec 179 deduction instead since it is limited to taxable income from all the taxpayer’s active trades or businesses and any excess carries over to the subsequent year.

However, there is serious risk in claiming Sec 179. Should the asset be taken out of service or sold before the normal MACRS life of the asset has run its course, a portion of the Sec 179 deduction will be recaptured as income by the business entity and could result in an increase in self-employment income and an increase in SE tax.

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