What Was 911 Depreciation and How Did It Work?

In response to the economic uncertainty following the September 11th attacks, the U.S. government enacted the Job Creation and Worker Assistance Act of 2002. This law introduced a tax incentive known as “911 depreciation,” creating a special first-year depreciation deduction to encourage businesses to accelerate capital spending. This temporary measure allowed companies to recover the cost of assets more quickly, which lowered their taxable income and freed up cash flow for other needs.

Qualified Property Requirements

To qualify for the special depreciation allowance, property had to be subject to the Modified Accelerated Cost Recovery System (MACRS) with a recovery period of 20 years or less. This category included a wide range of business assets like machinery, equipment, and furniture. The definition also covered certain off-the-shelf computer software and water utility property.

The “original use” of the property had to commence with the taxpayer, meaning the asset had to be new; used property was not eligible. The property also had to be acquired after September 10, 2001, and placed in service before the initial deadline of January 1, 2005.

Special rules applied to property within the “New York Liberty Zone” (NYLZ), the area in Lower Manhattan damaged by the attacks. For qualified NYLZ property, the original use requirement was waived, allowing both new and used assets to be eligible. This acknowledged the unique need for businesses in that specific area to rebuild and resume operations.

Calculating the Special Allowance

Initially, the Job Creation and Worker Assistance Act of 2002 established the additional first-year deduction at 30% of the property’s depreciable basis. This 30% bonus was calculated after any Section 179 deduction but before regular MACRS depreciation. Taxpayers could elect out of this provision for any class of property; otherwise, it was automatically applied.

In 2003, the Jobs and Growth Tax Relief Reconciliation Act increased the incentive to further stimulate the economy. For property acquired after May 5, 2003, the bonus depreciation rate was increased from 30% to 50%. The placed-in-service deadlines were also extended to encourage continued spending.

For example, if a business purchased qualifying equipment for $100,000, under the 50% bonus rule, it could immediately deduct $50,000. This deduction reduced the asset’s adjusted basis to $50,000. The business would then calculate its regular MACRS depreciation based on this remaining basis.

Evolution into Modern Bonus Depreciation

Although the “911 depreciation” provisions expired, the concept of using bonus depreciation as an economic stimulus became a recurring feature of federal tax policy. The structure served as a blueprint for later disaster relief, such as the special depreciation rules for Gulf Opportunity (GO) Zone property after the 2005 hurricanes.

The most direct descendant of these provisions is the modern bonus depreciation system, which became prominent with the Tax Cuts and Jobs Act of 2017 (TCJA). The TCJA expanded bonus depreciation, temporarily allowing businesses to deduct 100% of the cost of most new and used qualifying property in the year it was placed in service.

This 100% allowance began a scheduled phase-down, decreasing to 80% for property placed in service in 2023, 60% in 2024, and 40% in 2025. The evolution from the targeted 30% allowance in 2002 to the broad 100% allowance under the TCJA shows how an emergency measure became a mainstream tax planning instrument. The initial 911 depreciation was the legislative ancestor of the bonus depreciation rules that businesses widely use today.