Writing Off GPU Servers: Bonus Depreciation or Section 179

Can we write off GPU servers bought before year-end in full?

Qualifying GPU servers acquired after January 19, 2025 can receive 100% federal bonus depreciation. For a calendar-year business, the servers must be placed in service by December 31; buying or paying before then is insufficient. The full deduction is permanent under current law, with no scheduled phase-down for qualifying new acquisitions (IRS business provisions).

A neocloud is a cloud company built around renting GPU compute. Equipment, acquisition and use determine eligibility.

Earlier contracts need review. Under Notice 2026-11, the acquisition date for a written binding contract is generally the latest of signing, enforceability, expiry of cancellation periods and satisfaction of contingencies. Ordinary qualifying equipment acquired after September 27, 2017 but before the cutoff receives the old 20% rate for placement during calendar 2026, and no bonus afterward (Revenue Procedure 2026-15, section 2.02). Custom-built orders have separate construction rules.

Servers placed in service and sold in the same tax year generally cannot receive bonus depreciation (26 CFR 1.168(k)-2(g)(1)).

Buildings, power and cooling plant, and cost segregation studies are outside this equipment guide.

When are servers placed in service: delivered, racked or rented out?

GPU servers are placed in service when ready and available for their specific business use. The first rental can occur later (Publication 946).

Boxed servers on a colocation data center's dock at year-end generally fail that test. Racked, powered, configured servers available to deliver the intended service can meet it; racking alone is insufficient if necessary connections or commissioning remain unfinished.

Keep invoices, serial numbers, rack-and-stack sign-offs, power-on and burn-in logs, and cross-connect completion tickets. Record readiness by deployment batch.

Are GPU servers, switches and optical transceivers all five-year property?

GPU servers generally fit the computer equipment rules, with a five-year tax recovery period. Switches and optical transceivers need separate classification; their presence on the same invoice does not settle their useful life.

Publication 946, Table B-1, class 00.12 lists information systems with a six-year class life and five-year recovery periods under both the general depreciation system, GDS, and alternative depreciation system, ADS. Its exclusions include computers integral to equipment in other activity classes used primarily for switching or channeling.

Qualifying equipment with a MACRS recovery period of 20 years or less can receive bonus. Classification still matters when electing out, using ADS or preparing state returns (Publication 946). Do not assume an ASIC mining machine has the same class as a GPU server.

Section 174A research costs and research credits require a separate analysis.

Section 179 or bonus depreciation: which should we use?

Bonus depreciation can expense the entire qualifying basis without a business-income ceiling. Section 179 lets a business choose specific assets and amounts, but imposes both cost and income limits (Publication 946).

Elect Section 179 on Form 4562, Part I, with the original return or an amended return within the applicable amendment period. You can revoke it by amended return without IRS consent; revocation is irrevocable (Form 4562 instructions).

Section 179 is capped by taxable income from all actively conducted businesses, before this deduction. For individuals, employee wages also count. Amounts blocked by this income limit carry forward. Partnerships and partners apply limits separately. Business use must exceed half initially; falling to half or less during recovery can trigger recapture (Publication 946).

To combine Section 179 with regular depreciation, elect out of bonus for the recovery-period group, such as five-year property. This covers all qualifying equipment in that group placed in service that year, including purchases outside the fleet (26 CFR 1.168(k)-2(f)(1)). Attach the statement to the timely return, including extensions; partnerships, S corporations and consolidated groups' common parents elect. Revocation generally needs IRS consent. Timely filers who missed the election can amend within 6 months of the unextended due date, marking the return “Filed pursuant to section 301.9100-2” (Form 4562 instructions).

Does a fourth-quarter purchase trigger the mid-quarter convention?

Late deployment can reduce first-year regular depreciation. Compare the tax cost of eligible MACRS equipment placed in service in the final three months with the whole year's total, including other equipment. Subtract Section 179 and personal-use amounts, but not bonus; exclude buildings and equipment placed in service and disposed of that year. Above 40%, the mid-quarter convention treats each included asset as placed in service halfway through its placement quarter (Publication 946).

For fourth-quarter five-year property in a full tax year, the rate is 5% under ordinary GDS declining balance or 2.5% under ADS straight line (Tables A-5 and A-12).

Do used GPU servers qualify for bonus depreciation?

Used GPU servers can qualify. Generally, neither buyer nor tax predecessor, such as a business merged into it, can have held an interest entitling it to depreciation before this acquisition, even if none was claimed. The lookback covers the five preceding calendar years plus the current year before placement. Gifts, inheritances and transfers carrying over another owner's tax basis fail the purchase requirement (26 CFR 1.168(k)-2(b)(3)).

A transfer from a related parent or sister company generally fails. Section 179 also excludes related-party purchases. Keep seller ownership information, acquisition agreements and prior-use history (Publication 946).

What if bonus depreciation creates a loss?

Bonus depreciation can create a net operating loss. A GPU cloud C corporation generally carries a current loss forward indefinitely, subject to the 80% limit on later taxable income and other applicable restrictions (Form 1139 instructions; Form 1120 instructions); see How C corporations are taxed.

Partners, S corporation shareholders and sole proprietors cannot assume a server write-off offsets wages or other income: investment, financial-risk and passive-loss limits, then the annual excess business loss cap, may delay deductions even with material participation (Publication 925; Form 461 instructions); see Business losses.

Do states follow the federal write-off?

State treatment varies. California corporations generally receive neither federal bonus nor MACRS, although partnership depreciation passed through to a corporation is an exception to the MACRS rule. Individuals and partnerships generally use MACRS but also get no bonus. For these readers and corporations, California's Section 179 maximum is $25,000, reduced when eligible cost exceeds $200,000 (FTB Forms 3885 and 3885A instructions; current conformity summary).

Texas now permits federal-return depreciation in qualifying cost of goods sold, but compute services may not qualify for that deduction (Comptroller FAQ); see Texas franchise tax.

What if the servers run in a data center outside the US?

US-owned tangible equipment used predominantly outside the United States generally must use ADS and cannot receive bonus or Section 179. Ordinary computer equipment uses five-year ADS straight line; exceptions need review (Publication 946).

The Canadian class rates come from the CRA's classes page. The enhanced first-year rule is enacted in section 103 of the budget implementation Act, although that CRA summary still labels it proposed.

Moving equipment abroad in a later year generally switches remaining basis to ADS without reversing prior bonus; returning foreign equipment to the US later does not unlock missed bonus (26 CFR 1.168(k)-2(g)(6)).

We lease or finance the servers: who gets the deduction?

The tax owner claims depreciation. A financed purchase generally leaves the deduction with the buyer; under a true rental lease, the lessor depreciates the equipment and the business lessee generally deducts rent (Publication 946).

Review title, payment obligations, maintenance, taxes and risk of loss. A nominal-buyout lease may function as a purchase; its label alone is insufficient. Noncorporate lessors generally cannot claim Section 179 unless an exception applies. Section 179 also excludes property used by foreign persons or entities, except under leases shorter than 6 months.

How to finance the fleet is outside this guide.

What happens when we sell, trade in or scrap old GPUs?

Remaining tax basis is generally tax cost less depreciation and other adjustments. Selling above it creates a gain even below original cost. Section 1245 recapture taxes the gain as ordinary income rather than capital gain, up to depreciation deducted or required, including bonus and Section 179. Report sale gains on Form 4797: generally Part III if held more than one year, Part II if held one year or less. Partnerships and S corporations report Section 179 disposition details to owners (Publication 544; Form 4797 instructions).

Publication 544 explains these disposal rules. Keep original cost allocations, depreciation schedules, sale credits and disposal records; resale value differs from tax basis.

Selling used GPUs abroad may require an export license; licensing advice is outside this guide.

Why do our financial statements use six years while tax uses five?

A six-year financial-statement life is a book estimate. Tax follows the applicable recovery period and deductions; a corporation reconciles differences on Schedule M-1 or M-3 when required (Form 1120 instructions).

Example

Illustrative US-dollar figures. Assume full business use, qualifying unrelated purchases, a calendar tax year, no other additions, adjustments or general asset accounts, and confirmed five-year classification throughout.

A December deployment in Dallas

A two-founder Delaware C corporation buys 16 eight-GPU servers at $300,000 each, plus $400,000 of switches and optical transceivers: $5,200,000 total. Ordered in November, everything is live in a Dallas colocation data center in December. Pre-fleet income is $2,000,000.

The Section 179 ceiling falls by $1,110,000 ($5,200,000 minus $4,090,000), leaving $1,450,000 of the $2,560,000 maximum. The remaining $3,750,000 receives 5% regular depreciation under the mid-quarter convention. For regular depreciation alone, the half-year convention would instead give 20% of $5,200,000, or $1,040,000.

Four servers instead go to Quebec

If four servers costing $1,200,000 instead become ready in a Quebec colocation data centre in December, their US deduction uses five-year ADS: 2.5%, or $30,000 in the first year. They receive neither bonus nor Section 179. Full bonus on the remaining US fleet plus ADS totals $4,030,000, leaving a $2,030,000 loss. Section 179 eligible cost falls to $4,000,000, below phaseout; electing out of bonus makes the income limit bind. See Servers hosted in Canada for Canadian filings and hosting tax.

A mining site replaces its old machines

A West Texas LLC taxed as a partnership shifts from bitcoin mining to HPC hosting. It sells ASICs and GPUs acquired after January 19, 2025 and placed in service that year. Their $2,000,000 cost was fully deducted with bonus. The $300,000 sale proceeds are ordinary income under section 1245, flowing to the partners.

Fully expensed machines scrapped for nothing give no further deduction. If the scrapped machines instead had $400,000 of remaining tax basis, a qualifying abandonment without debt relief would generally create a $400,000 ordinary loss.

Different for you?

• Large fleet, class election or planned resale: bring contracts, readiness logs, asset classifications, income projections, financing documents and depreciation schedules to our CPAs for corporate tax help.
• Owner-level loss limits: see Business losses.
• Other year-end deductions or credits: see Lowering your business tax.
• Tax on buying servers, installation or maintenance: see Server sales tax.
• Tax on customer colocation, hosting or compute bills: see Hosting and compute sales tax.