Compute 2026 bonus depreciation (40% phase-down rate).
Bonus depreciation (40%)
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Writing off equipment faster than its useful life
Bonus depreciation, set out in Section 168(k) of the tax code, lets a business deduct a large chunk of the cost of qualifying property in the first year it is placed in service, rather than spreading the deduction over five, seven, or fifteen years under normal MACRS schedules. The deduction does not change the total you eventually write off; it changes the timing, pulling deductions forward so the tax savings land sooner. This tool applies the 40% first-year rate to the cost you enter and estimates the cash that rate saves at your marginal bracket.
This calculator uses 40% because that is the scheduled rate as bonus depreciation phases down from the 100% allowance under the 2017 Tax Cuts and Jobs Act. The TCJA stepped the rate from 100% down to 80% for property placed in service in 2023, 60% in 2024, and 40% thereafter on the original schedule, on its way to 20% and a sunset. Because Congress has revisited this provision more than once, confirm the rate that applies to your specific placed-in-service date with a current IRS instruction set before you file.
The two-step calculation
The math the tool runs is short. It multiplies the asset cost by the 40% bonus rate to get the first-year deduction, then multiplies that deduction by your marginal tax rate to estimate the tax you avoid this year. The deduction reduces taxable income; the savings is what stays in your bank account because of it. The remaining 60% of the cost is not lost, it continues to depreciate under the normal MACRS schedule for that asset class over the following years.
A $100,000 equipment purchase at a 32% rate
Say your business buys $100,000 of qualifying equipment and your marginal rate is 32%. The bonus deduction is $100,000 times 40%, which is $40,000. That $40,000 deduction reduces this year's taxable income, and at a 32% marginal rate it saves $40,000 times 32%, or $12,800 in tax. The other $60,000 of basis depreciates normally over the asset's recovery period. So you accelerate $40,000 of write-off into year one and bank $12,800 sooner than you otherwise would.
Bonus depreciation versus Section 179
People mix these two up constantly, and the differences matter. Section 179 is an election with a dollar cap, around $1.22 million in recent years, that phases out once total purchases exceed a threshold, and crucially it cannot create or deepen a net business loss. Bonus depreciation has no dollar cap, applies automatically to qualifying property unless you elect out, and can push a business into a loss that may carry forward. Many businesses use them together: take Section 179 first up to the cap on the assets they choose, then let bonus depreciation sweep the remaining qualifying basis. Both flow onto Form 4562.
A judgment call worth making deliberately: a deduction is only worth taking now if you have income to offset and expect to be in the same or a higher bracket. If you are a new business with little profit this year but strong projections, accelerating a deduction into a low-bracket year can be a mistake, because that same write-off would shelter income taxed at a higher rate later. Bonus depreciation is a timing tool, and timing a deduction into your highest-rate year is where the real value lives. Watch out, too, for state conformity, since a number of states decouple from federal bonus depreciation and require you to add it back on the state return.
What property actually qualifies?
Bonus depreciation generally applies to tangible personal property with a MACRS recovery period of 20 years or less, which covers machinery, equipment, computers, office furniture, vehicles within limits, and qualified improvement property like interior upgrades to nonresidential buildings. Both new and used property can qualify, as long as the used asset is new to you and not bought from a related party. Real property itself, the building structure and land, does not qualify, which is why cost-segregation studies that carve a building into shorter-life components are so valuable.
What happens if I sell the asset later?
Selling a heavily depreciated asset can trigger depreciation recapture. When you dispose of property you have written off, the gain attributable to prior depreciation, including bonus depreciation, is generally taxed as ordinary income under Section 1245 rather than at lower capital-gains rates. In practice this means the front-loaded deduction can come back as ordinary income if you sell soon after, so bonus depreciation works best on assets you intend to keep and use in the business for their full life.