Can I Use Bonus Depreciation When Purchasing a Software Business to Offset Gains?

This is a great question about a complex area where business acquisition meets tax strategy. When acquiring a SaaS business, you're right that a significant portion of the value is typically in the software assets. For bonus depreciation to apply, you need to ensure the software qualifies as Section 179 property or eligible for bonus depreciation under Section 168(k). Generally, purchased software that's not custom-developed can qualify. The key is how the purchase agreement allocates the purchase price between different assets - software, goodwill, customer lists, etc. Structure the deal as an asset purchase rather than a stock purchase, then specifically allocate a significant portion to the software assets in your purchase agreement. Make sure you're actively participating in the business (which you mentioned you will be), as passive activity loss limitations could otherwise restrict your ability to offset those short-term gains. Keep in mind that tax law changes frequently in this area - the percentage of bonus depreciation available has changed in recent years, so verify the current rates before finalizing your strategy.

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Something not mentioned yet - be careful about recapture if you're planning to sell the business within a few years. If you take aggressive bonus depreciation and then sell quickly, you could face ordinary income recapture rather than capital gains treatment on that portion.

I've used Quickbooks Desktop for years and am switching to QBO. Will all my depreciation schedules transfer correctly? My accountant is warning me about potential issues with tracking basis.

One critical aspect that hasn't been fully addressed is the timing requirement for bonus depreciation. Since you're looking to complete the acquisition before year-end to offset your short-term capital gains, make sure the software assets are actually "placed in service" before December 31st. Simply closing the acquisition isn't enough - the IRS requires that the assets be ready and available for their intended use. For a SaaS business, this typically means the software systems are operational and generating revenue under your ownership. If you're doing any significant integration or system changes post-acquisition, document carefully when the assets became available for use. Also consider the Section 179 election alongside bonus depreciation. While bonus depreciation doesn't have the same income limitations, Section 179 might give you additional flexibility in how you structure the deductions across multiple years if your income situation changes. Given the complexity and the significant tax implications you're dealing with, I'd strongly recommend getting a written opinion from a tax professional who specializes in business acquisitions before finalizing your approach. The IRS tends to scrutinize large depreciation deductions that coincidentally offset substantial gains.