Bonus Depreciation Calculator
Bonus depreciation allows businesses to immediately deduct a large portion of the cost of qualifying assets in the year they are placed in service. Since the Tax Cuts and Jobs Act of 2017, many taxpayers have been able to write off up to 100% of the cost of eligible property in the first year, subject to certain limits and phaseouts. This page explains how bonus depreciation works and provides a simple calculator to estimate your firstyear deduction.
What Is Bonus Depreciation?
Bonus depreciation is a tax incentive that accelerates the depreciation schedule for qualified property. Unlike the regular Modified Accelerated Cost Recovery System (MACRS), which spreads the deduction over several years, bonus depreciation lets you claim a significant portion of the assets cost right away.
- Eligibility: Tangible property with a recovery period of 20 years or less, computer software, and certain improvements to nonresidential real property.
- Percentage: 100% for property placed in service after September27,2017 and before January1,2023; 80% for 2023; 60% for 2024; 40% for 2025; 20% for 2026. The rate then phases out.
- No Dollar Limit: Unlike Section179, there is no annual dollar cap on the amount that can be expensed.
- No Business Income Limitation: The deduction can create a net operating loss that may be carried forward.
When to Use Bonus Depreciation
Consider bonus depreciation if you:
- Purchased new or used qualifying equipment in the current tax year.
- Expect higher taxable income now than in future years.
- Want to reduce cash outflow by lowering the tax bill.
- Are not constrained by Section179 limits or need to expense more than the Section179 threshold.
Key Differences from Section179
| Feature | Bonus Depreciation | Section179 |
|---|---|---|
| Maximum Dollar Limit | None | $1,160,000 (2024), phases out after $2,890,000 of equipment purchases. |
| Applicable Property | Most tangible personal property, software, certain improvements. | Tangible personal property, certain software, and nonresidential real property improvements (subject to limits). |
| Carryforward | Unused portion can be carried forward indefinitely. | Unused expense is lost; no carryforward. |
How the Calculator Works
Enter the cost of the qualifying asset and select the year it was placed in service. The calculator will apply the applicable bonus depreciation rate for that year and show the amount you may deduct in the first year.
Understanding the Result
The figure displayed is the maximum firstyear deduction you can claim under the bonus depreciation rules for the selected year. If you have other depreciation methods or Section179 deductions on the same asset, you must allocate the total cost accordingly. Consult a tax professional to ensure compliance with all IRS regulations.
Frequently Asked Questions
Can I claim bonus depreciation on used equipment?
Yes. The Tax Cuts and Jobs Act expanded eligibility to include both new and used qualifying property, provided the seller was not a related party.
What happens after the 100% phaseout?
The bonus depreciation percentage decreases by 20% each year beginning in 2023, reaching 20% for 2026. After 2026, the provision is scheduled to expire unless Congress renews it.
Do I have to use bonus depreciation?
No. The election is optional. If you prefer to spread deductions over multiple years, you can elect out of bonus depreciation and use regular MACRS instead.
Resources
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