Depreciation is the decrease in value of some asset. A piece of complex machinery, for instance, becomes less valuable with the passage of time as wear and tear builds up.
Depreciation is important in the U.S. corporate tax code. Corporations are taxed on their profits, not their revenues. Suppose a corporation has two costs: input costs and payroll. So if one has $900 million in costs and $1 billion in revenue, the corporation is taxed on the $100 million in profit. But suppose that same corporation wants to spend $80 million to buy complex machinery to produce its goods faster. Before 2017, a firm cannot write off the full $80 million in the year of the expenditure. Instead, if the machinery lasts (for example) 10 years, the firm can reduce its taxable income by $8 million per year (the rate of depreciation). Under the 2017 tax bill’s “bonus depreciation” provision, a corporation can write the full $80 million off in the year they made the expenditure for certain short-lived assets (i.e. not buildings). This will lower their taxes in that one year, but will raise them in the following years. Because of the time value of money, this does result in net savings for the corporation.