Bonus depreciation allows you to deduct a large share of qualifying property in the year you place it in service — but the percentage has been phasing down and now sits at zero for most property. This calculator models your first-year deduction under the current schedule and compares it to Section 179.
The Tax Cuts and Jobs Act introduced 100% bonus depreciation for qualified property acquired and placed in service after September 27, 2017. The rate was scheduled to decline by 20 percentage points every year beginning in 2023, reaching zero for property placed in service after December 31, 2026.
| Placed in Service | Bonus Rate | Change |
|---|---|---|
| Sept 27, 2017 – Dec 31, 2022 | 100% | Full expensing |
| 2023 | 80% | −20 points |
| 2024 | 60% | −20 points |
| 2025 | 40% | −20 points |
| 2026 | 20% | −20 points |
| 2027 and later | 0% | Scheduled expiration |
Certain long-production-period property and noncommercial aircraft retain 100% bonus depreciation for an extended period — generally one year longer than the phase-down schedule for other property — provided the property meets the long-production-period requirements. This is a narrow exception but a valuable one for specific industries.
Buildings themselves do not qualify — a 39-year structure is beyond the 20-year threshold. But a cost segregation study can reclassify qualifying components into 15-year or shorter classes, making a portion of the building eligible.
Section 179 allows an immediate expense election up to an annual limit, but it is capped and phases out for larger purchases, and it cannot create or increase a business loss. Bonus depreciation has no dollar cap and can create a net operating loss — which makes it valuable to businesses with limited current income. Most taxpayers should consider Section 179 first for qualifying property because it is elective, and then layer bonus depreciation on the remaining basis.
💡 The "used property" advantage: Unlike Section 179, which historically required new property (that restriction was loosened for certain property), bonus depreciation has long applied to used property that is new to the taxpayer. Buying used equipment from an unrelated party generally qualifies for bonus depreciation. This is one of the few remaining advantages that survives the phase-down.
A business buys $150,000 of 5-year equipment in 2026. Bonus depreciation covers 20% — $30,000 — immediately. The remaining $120,000 is depreciated under regular MACRS. Total first-year deduction is roughly $54,000 versus $30,000 without bonus. At a 32% marginal rate that is a tax deferral of about $7,700 in year one.
An asset placed in service in December 2025 gets 40% bonus; the same asset placed in service in January 2026 gets 20%. On a $200,000 purchase, that difference is $40,000 of first-year deduction — about $12,800 of tax at a 32% rate. Timing a purchase across a year boundary can be worth more than negotiating a discount.
Interior improvements to a leased commercial space qualify as 15-year qualified improvement property. At the 20% bonus rate, $100,000 of buildout yields a $20,000 bonus deduction plus regular MACRS on the remainder — and cost segregation principles may allow portions to be reclassified further into 5-year property.
Since bonus depreciation is now a fraction of what it was, purchase timing has become a genuine tax planning lever rather than an afterthought. The rate you receive is determined by the year the property is placed in service — not the year you order it, pay for it, or receive it. That distinction creates legitimate planning opportunities and equally legitimate traps.
Property is "placed in service" when it is ready and available for its intended use — not necessarily when it is first used. Equipment delivered and installed in December but not used until the following January is generally placed in service in December. Conversely, equipment sitting in a warehouse uninstalled is not placed in service at all. Documenting the in-service date matters more now that 20 percentage points of deduction turn on the year.
| Decision | Effect | Planning Consideration |
|---|---|---|
| Accelerate purchase into current year | Higher bonus rate | Confirm asset is in service before Dec 31 |
| Defer to next year for a loss year | Lower rate but usable | Bonus can create an NOL; 179 cannot |
| Use Section 179 first | Elective, capped | Cannot create or increase a loss |
| Cost segregation before year end | More bonus-eligible basis | Study must precede in-service documentation |
| Buy used instead of new | Still bonus-eligible | Must be new to you, unrelated party |
It is important to frame the phase-down correctly. Depreciation is a timing mechanism, not a permanent exclusion. A lower bonus rate does not destroy the deduction — it stretches it over the asset's MACRS life instead. The real cost of the decline is the time value of money: a dollar of deduction taken in year one is worth more than the same dollar spread across years two through six. At a 6% discount rate, the difference between 100% immediate expensing and a 20% bonus with the remainder on 5-year MACRS is meaningful but far smaller than the nominal deduction difference suggests.
Depreciation deductions — including bonus depreciation and cost segregation depreciation — are added back when computing adjusted taxable income for the Section 163(j) business interest limitation. In practice this means depreciation does not help you deduct more interest, and for heavily leveraged businesses the interest limitation can cap the value of the depreciation benefit. Businesses should model the two provisions together rather than assuming the deduction flows straight through.
💡 State conformity varies: Many states do not conform to federal bonus depreciation rules, or conform only partially. A state may require the deduction to be added back and recovered over the asset's regular MACRS life. The result is a state/federal basis difference that must be tracked for the life of the asset, and a much smaller combined benefit than the federal figure implies. Check your state's conformity before assuming the full federal savings.
⚠️ Important Disclaimer: This bonus depreciation calculator provides estimates for educational purposes only and does not constitute tax, legal, or accounting advice. Actual deductions depend on the specific asset classification, the placed-in-service date, whether the property is new to the taxpayer, state conformity rules, the business interest limitation under Section 163(j), and whether the taxpayer elects out of bonus depreciation. Bonus percentages are subject to legislative change and are presented as scheduled under current law. Consult a qualified tax professional before making purchase timing decisions based on depreciation rules.