IRC 168(k)(7): Electing Out of Bonus Depreciation by Class

To elect out of bonus depreciation under IRC 168(k)(7), attach a written statement to your timely filed federal income tax return identifying each MACRS property class you want excluded, and file Form 4562 with the bonus amount omitted for those classes. The election is class-wide and, once made, effectively locked in for that year’s assets. Because 100% bonus depreciation is back in force for property placed in service after January 19, 2025, opting out means trading a full first-year write-off for standard MACRS depreciation over the asset’s recovery period.¹

What the Election Covers

The 168(k)(7) election applies to an entire class of property placed in service during the tax year, not to individual assets. Classes track MACRS recovery periods: 3-year, 5-year, 7-year, 10-year, 15-year, and 20-year. Elect out of 5-year property and every 5-year asset you placed in service that year loses bonus depreciation. You cannot pick and choose within a class.²

Each class stands on its own. Opting out of 5-year property has no effect on your 7-year or 15-year assets, so you can claim full bonus depreciation on some classes and skip it on others.³

Without an affirmative election, the IRS assumes you are taking the full 100% deduction on every qualifying class. Silence is consent.³

When Opting Out Is Worth It

Total lifetime depreciation is the same either way. What changes is timing, and in a handful of situations “later” is worth more than “now.”

Higher tax rates ahead. If you are in a low-income year and expect stronger profits soon, the same deduction is worth more against a higher effective rate. Spreading depreciation over five or seven years pushes it into those higher-value years.
Unused NOLs already piling up. A 100% write-off can create or deepen a net operating loss. If you already have carryforwards you cannot absorb, generating more of them is wasted deduction.
Income-sensitive credits and deductions. Some benefits phase in or out based on taxable income. A massive first-year deduction can drop income below the threshold where those benefits apply.
Section 163(j) interest cap. Business interest deductions are capped at 30% of adjusted taxable income. Bonus depreciation reduces that income figure and tightens the cap, potentially disallowing interest you would rather deduct. Opting out preserves room for interest.⁴
State conformity mismatches. Not all states follow federal bonus depreciation. Claiming the federal deduction can create book-tax differences that complicate state returns and sometimes increase state tax.

In a high-leverage business, the interest deduction you lose to the 163(j) cap can exceed the tax benefit of the bonus depreciation you claimed. Run the numbers both ways. That comparison is the whole point of the election.

How to File the Election

The election is made by attaching a written statement to your federal income tax return for the year the property was placed in service. The return must be timely filed, including extensions.⁵ The statement should identify the class and state that you are choosing not to claim the additional first-year depreciation allowance for that class. Sample wording:

“Taxpayer elects not to deduct the additional first-year depreciation allowance for all 7-year property placed in service during the 2026 tax year.”

On Form 4562, omit the bonus depreciation amount from Part II for the elected-out class. Regular MACRS depreciation for those assets flows through to the appropriate line of your return. There is no separate IRS application. The attached statement plus a correctly completed Form 4562 is the entire mechanism.⁵

If You Filed On Time But Forgot the Statement

You have a six-month window. Under Treasury Regulation 301.9100-2, file an amended return within six months of the original due date (not counting extensions), attach the election statement, and include the notation “Filed pursuant to section 301.9100-2.”⁶⁵

After that window closes, the path narrows sharply. Regulation 301.9100-3 allows a discretionary extension if you show you acted reasonably and in good faith and the government is not prejudiced, but this typically requires a private letter ruling. IRS user fees alone run into the thousands, and professional fees add more.⁷ Do not plan around this.

What Depreciation Looks Like After You Opt Out

Elected-out property falls under standard MACRS. For most tangible personal property, that means the 200% declining balance method switching to straight-line when straight-line produces a larger deduction, applied with the half-year convention.

Consider a $100,000 piece of 5-year equipment. With 100% bonus depreciation, you deduct the full $100,000 in Year 1, saving $21,000 at a 21% corporate rate. Elect out and Year 1 drops to a $20,000 deduction, saving $4,200. The remaining $80,000 depreciates over the following years. The total tax savings match; only the schedule differs.

One common misconception: opting out does not push you onto the Alternative Depreciation System. You stay on standard MACRS unless a separate rule requires ADS, such as property used predominantly outside the U.S., property financed with tax-exempt bonds, or property in a trade or business that elected out of the Section 163(j) interest limitation.⁴

Section 179 Still Works

Opting out of bonus depreciation does not affect your ability to claim Section 179. The ordering is Section 179 first, then bonus depreciation on the remaining basis, then regular MACRS on whatever is left.⁵ If you want some accelerated deduction but not a full immediate write-off, pairing a Section 179 deduction with a 168(k)(7) election gives you a controlled first-year deduction followed by predictable MACRS in the years after.

Who Makes the Election in a Pass-Through or Consolidated Group

The election belongs to the entity that owns the property. A partnership elects at the partnership level. An S corporation elects at the corporate level. For a consolidated group, the common parent makes the election for the group.⁵

Individual partners and shareholders cannot override the entity’s decision on their own returns. If a partnership elects out for 7-year property, every partner’s K-1 reflects the reduced first-year deduction, even partners who would have preferred the full write-off. Talk it through before the return is filed.

Revocation Is Hard, So Model First

Once you file the election, the affected class is locked into standard depreciation for that year’s assets. The statute says the election “may be revoked only with the consent of the Secretary.”² In practice, that means a private letter ruling with a valid reason and the associated fees. There is no streamlined revocation procedure in effect.

The IRS has occasionally opened limited windows to revoke bonus depreciation elections in the wake of major law changes. Revenue Procedure 2019-33 did this for elections tied to the tax year that included September 28, 2017, when the TCJA first took effect.⁸

1
Internal Revenue Service. One, Big, Beautiful Bill Provisions
2
Office of the Law Revision Counsel. 26 U.S. Code 168 – Accelerated Cost Recovery System
3
Internal Revenue Service. Additional First Year Depreciation Deduction (Bonus) – FAQ
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Internal Revenue Service. Questions and Answers About the Limitation on the Deduction for Business Interest Expense
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Internal Revenue Service. Instructions for Form 4562
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eCFR. 26 CFR 301.9100-2 – Automatic Extensions
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eCFR. 26 CFR 301.9100-1 – Extensions of Time to Make Elections
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Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One, Big, Beautiful Bill