Skip to main content
Glossary

Bonus Depreciation

Get a Free Quote Estimate my payment
Soft-pull, no credit impact 22 equipment categories 24-72hr decisions $0 cost to apply
Definition

Bonus Depreciation is A first-year depreciation deduction in addition to Section 179, applied to qualifying new and used equipment.

Bonus depreciation is an additional first-year depreciation allowance under IRS code §168(k). It lets businesses deduct a percentage of the cost of qualifying equipment in the year placed in service, on top of (or instead of) Section 179.

2026 phase-down

Under current law, bonus depreciation is phasing down: 100% in 2022, 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and 0% in 2027 and after. (Some legislation may modify this; check with your CPA for the current year rate.)

Bonus vs Section 179

Section 179 has an annual dollar cap and a phase-out at high spending levels; bonus depreciation has no cap, but is a fixed percentage less than 100%. For high-volume equipment buyers, §179 covers the first $1.22M (2026 limit) at 100%, and bonus depreciation handles the rest at the prevailing percentage.

What qualifies

Tangible property with a recovery period of 20 years or less. This covers virtually all equipment we cover on this site: trucks, construction equipment, manufacturing tools, medical equipment, office equipment, etc.

New vs used

Unlike historical bonus depreciation (pre-2018), the current rules apply to both new and used equipment as long as it is new to your business.

Not tax advice. Consult your CPA.

E
Editorial review by Ed Stapleton Jr. · Founder & Editor

Related terms

What this means in practice

Why Bonus Depreciation matters in equipment financing

Borrowers encounter Bonus Depreciation at one or more specific moments in the financing process: at application, at funding, during the loan term, or at term end. Understanding what the term actually means at the moment it appears prevents the gap between assumption and documentation that drives most post-funding disputes.

The treatment of Bonus Depreciation can vary by lender, by structure, and by the specific equipment class being financed. The definition above covers the common usage. When the term appears in your specific transaction documents, read the surrounding paragraph for the lender-specific application and ask us to walk through any clauses you are not certain about.

Common context where this comes up

The term shows up in three places in most equipment financing transactions. First, at the application stage, where the lender uses the concept to assess the deal. Second, in the funding documents, where it appears as a specific provision tied to the lender obligations or the borrower obligations. Third, at term end or in the event of restructure or refinance, where the term governs how the deal unwinds.

Knowing where the term shows up in your specific paperwork is the practical step that protects you. The funding documents are the source of truth: application materials and verbal conversations do not override what the signed documents say.

Misreadings to avoid

The recurring mistake on this term is borrowers acting on the general definition without checking the lender-specific implementation in their documents. The general definition is right; the implementation is where the borrower obligations actually live. Read both.

Quick answers

Direct answers to the questions we hear most on bonus depreciation applications. Each answer is one we have given to a real buyer in the last quarter.

What is the minimum credit score for equipment financing?
There is no single minimum across the industry. Prime programs start at 720+. Mid-tier programs work down to 660. Specialty programs handle 580 to 640 with structured down payment and personal guarantee. Below 580 is rare but exists in narrow specialty programs.
What is the difference between a captive lender and a bank?
Captive lenders are manufacturer finance arms (CAT Financial, John Deere Financial, etc.) that finance their own equipment. They often offer promotional rates and longer terms. Banks finance any equipment but typically at standard market rates with more conservative financing review and longer approval cycles.
Is equipment financing tax deductible?
The interest portion of equipment loan payments is deductible as a business expense. The equipment itself qualifies for depreciation or Section 179 immediate expensing if eligible. Lease payments on true operating leases deduct fully as business expense. Capital lease structures (EFA $1 buyout) get depreciation treatment.
Do I need business credit to finance equipment?
No, personal credit is typically the primary factor for small and mid-size businesses. Business credit (D&B PAYDEX, Equifax Business, Experian Business) matters more on larger transactions and for established businesses. Building business credit over time supports better terms on subsequent deals.
Can I refinance an equipment loan?
Yes. Equipment refinancing is common when rates have dropped meaningfully since the original loan, when the equipment has built equity supporting cash-out, or when the original lender relationship has issues. Standard equipment refi is similar to a new equipment loan with the existing equipment as collateral.
Can I finance equipment from a private seller?
Yes, though private-party transactions add documentation requirements. We need proof of clear title transfer, often through a third-party title services provider or escrow. The bill of sale needs to be clean and complete. Private-party transactions take more documentation than dealer purchases.

How we structure financing

The financing structure that fits depends on the actual situation. Below are the most common decision branches we walk through with buyers, in plain "if X, then Y" form.

If You have access to manufacturer captive promotional financing
Then Compare carefully against bank/independent lender rates. Captive promotions sometimes look better on stated rate but include adjustments (lower discount, required service bundles) that change the net economics.
If You have existing equipment loans in good standing with us
Then Your application qualifies for relationship pricing. App-only programs often skip financials when you have a clean history with us.
If You have a signed customer contract that the equipment will fulfill
Then Include the contract in the application. Contract-backed equipment finance typically prices 50 to 150 basis points better than capacity-build financing on equivalent credit.
If You are buying equipment that will be sub-rented or leased to others
Then Confirm at application. Sub-rental changes financing review analysis (revenue stability, asset risk) and may require a different program than owner-account use.
If Your credit is below 640 and TIB is under 24 months
Then Plan for 15 to 25 percent down, full personal guarantee, and a specialty program. Rates run 4 to 8 points above prime. Approval is still real but the structure is meaningfully different from prime programs.

What if something changes mid-term

Equipment loans run for 36 to 96 months. Things change. The patterns below cover the situations that come up most often during the loan term and how they typically resolve.

Equipment damage during the loan term

Insurance proceeds pay off the loan balance or fund replacement equipment with lender consent. The loan does not cancel automatically with the equipment loss; coordination with lender is required.

Pre-payment penalty obstacles to refinancing

Calculate the breakeven: penalty cost vs. interest savings on refinanced rate. Common breakeven is 12-18 months. If you expect to keep the equipment 24+ more months at lower rate, the penalty usually pays back.

Business ownership change during loan term

Most equipment loans are personally guaranteed and assumable with our consent during ownership change. The new owner submits an application similar to the original; we review and either consent or require payoff.

Equipment becomes obsolete or no longer useful

Sell the equipment with lender consent (UCC release coordination), apply proceeds to loan payoff. If sale proceeds are below payoff, the deficiency becomes owed. Voluntary surrender to lender is sometimes available as an alternative.

Authoritative sources

The rate ranges, structures, and program details on this page are informed by our internal financing book and the public industry resources below. We link out so you can verify any specific claim or go deeper.

Ready for real numbers on your equipment? 3 minutes · soft pull · no credit impact
Get a Free Quote Estimate my payment
E
Reviewed by

Ed Stapleton Jr.

Founder & Editor

Ed Stapleton Jr. is a serial entrepreneur who has started or acquired over a dozen businesses. He founded Fund My Equipment as the resource he wished he had along the way.

Equipment financing in 3 minutes

Get a real quote on your equipment

Soft-pull prequalification across 22 equipment categories. No credit impact. Decisions in 24-72 hours.

Start My Application Estimate my payment
No credit impact No phone-spam Free to apply

Last reviewed: . Machine-readable summary.

Equipment financing in 3 minutes

Ready when you are

Soft-pull prequalification. No credit impact. Decisions in 24-72 hours.

No credit impact No phone-spam Free to apply
Start My Application Estimate my payment