Bonus Depreciation Calculator
Estimate your eligible bonus depreciation deduction for qualified assets.
Understanding Bonus Depreciation
Bonus depreciation is a powerful tax incentive that allows businesses to immediately deduct a significant portion of the cost of eligible property in the year it is placed in service, rather than depreciating it over many years. This accelerated deduction can substantially reduce a business's taxable income and current tax liability, freeing up capital for reinvestment or other business needs.
What is Bonus Depreciation?
Introduced as a temporary measure, bonus depreciation has become a recurring feature of the U.S. tax code, often used to stimulate economic growth. It permits businesses to deduct a specified percentage of the cost of qualified new or used property in the first year the property is put into use. The percentage has varied over time, reaching 100% for property placed in service between September 27, 2017, and December 31, 2022. It is currently phasing down:
- 100% for property placed in service between Sept. 27, 2017, and Dec. 31, 2022.
- 80% for property placed in service in 2023.
- 60% for property placed in service in 2024.
- 40% for property placed in service in 2025.
- 20% for property placed in service in 2026.
- 0% for property placed in service in 2027 and later years.
Who Can Claim It?
Most businesses, regardless of size, can claim bonus depreciation. It's available to C corporations, S corporations, partnerships, and sole proprietorships. The key is that the business must have taxable income against which to apply the deduction.
What Property is Eligible?
To qualify for bonus depreciation, property must generally meet the following criteria:
- It must be new or used tangible personal property with a recovery period of 20 years or less under the Modified Accelerated Cost Recovery System (MACRS). This includes most machinery, equipment, computers, office furniture, and certain vehicles.
- It must be acquired and placed in service during the applicable bonus depreciation period.
- Qualified improvement property (QIP) also qualifies. This refers to certain improvements made to the interior of nonresidential real property.
- Certain other types of property, like certain film, television, and live theatrical productions, may also qualify.
Real estate (land and buildings, excluding QIP) typically does not qualify for bonus depreciation.
How Does the Calculator Work?
Our Bonus Depreciation Calculator simplifies the process of estimating your potential deduction. Simply input the following:
- Asset Cost: Enter the total cost of the eligible property you've acquired and placed in service.
- Bonus Depreciation Percentage: Select the applicable percentage based on the year the asset was placed in service.
The calculator will then instantly provide:
- Bonus Depreciation Amount: The dollar amount you can deduct immediately.
- Remaining Basis for Regular Depreciation: The portion of the asset's cost that remains after taking bonus depreciation, which can then be depreciated over its useful life using standard MACRS methods.
Example Calculation:
Let's say your business purchases a new piece of manufacturing equipment for $100,000 and places it in service in 2023. Using the calculator:
- Asset Cost: $100,000
- Bonus Depreciation Percentage: 80% (for 2023)
The calculator would show:
- Bonus Depreciation Amount: $100,000 * 80% = $80,000
- Remaining Basis for Regular Depreciation: $100,000 – $80,000 = $20,000
This means your business can deduct $80,000 in the first year, and the remaining $20,000 will be depreciated over the asset's MACRS recovery period.
Important Considerations:
- State Tax Implications: While bonus depreciation is a federal tax provision, many states do not conform to federal bonus depreciation rules. This can lead to differences between federal and state taxable income.
- Section 179 Deduction: Bonus depreciation can often be used in conjunction with the Section 179 deduction, which allows businesses to expense the full cost of certain property up to a specified limit. However, bonus depreciation is generally taken after Section 179.
- Recapture: If the property is sold before the end of its recovery period, a portion of the depreciation taken may be subject to recapture as ordinary income.
- Taxable Income Limit: While bonus depreciation can create or increase a net operating loss (NOL), it's most beneficial when a business has sufficient taxable income to offset.
Always consult with a qualified tax professional to understand how bonus depreciation applies to your specific business situation and to ensure compliance with all tax laws.