Bonus Depreciation Calculator 2025
Calculate tax savings with 60% bonus depreciation and MACRS schedules for business equipment
Tax Information
Bonus Rate
60%
Assets
| Description | Cost | Asset Class | Placed in Service | Convention | Use Bonus | Actions |
|---|---|---|---|---|---|---|
Complete Guide to Bonus Depreciation
What is Bonus Depreciation?
Bonus depreciation allows businesses to immediately deduct a large percentage of the purchase price of eligible assets, rather than writing them off over the asset's useful life. This accelerated depreciation method provides significant tax benefits and improves cash flow for businesses investing in qualifying property.
2025 Bonus Depreciation Phase-Out
The Tax Cuts and Jobs Act (TCJA) bonus depreciation is phasing out:
- • 2023: 80% bonus depreciation
- • 2024-2025: 60% bonus depreciation
- • 2026: 40% bonus depreciation
- • 2027: 20% bonus depreciation
- • 2028 and beyond: 0% (unless extended by Congress)
Qualifying Property
To qualify for bonus depreciation, property must meet these requirements:
- Have a recovery period of 20 years or less
- Be computer software
- Be qualified improvement property
- Be certain water utility property
- Be a qualified film, television, or theatrical production
- Be new to the taxpayer (not used)
MACRS Asset Classes
| Class Life | Property Types | Examples |
|---|---|---|
| 3-Year | Special tools, some horses | Tractor units, race horses |
| 5-Year | Vehicles, computers, office equipment | Cars, trucks, computers, copiers |
| 7-Year | Office furniture, fixtures, equipment | Desks, filing cabinets, machinery |
| 10-Year | Vessels, barges, tugs | Water transportation equipment |
| 15-Year | Land improvements, gas stations | Fences, roads, bridges |
| 20-Year | Farm buildings, utilities | Barns, municipal sewers |
Bonus Depreciation vs. Section 179
Bonus Depreciation Advantages
- • No dollar limit on deduction
- • Can create or increase NOL
- • No business income limitation
- • Applies to new property only
- • Automatic (no election required)
Section 179 Advantages
- • Can be used on used property
- • More flexible timing
- • Can be partially elected
- • Better for small purchases
- • Not phasing out (indexed for inflation)
Strategic Planning Considerations
1. Timing Your Purchases
With bonus depreciation phasing out, consider accelerating equipment purchases to take advantage of higher rates. A purchase in 2025 gets 60% bonus depreciation versus only 40% if delayed until 2026.
2. Optimize Both Incentives
Use Section 179 first (up to income limits), then apply bonus depreciation to the remaining basis. This maximizes your depreciation deductions while preserving flexibility.
3. Consider Your Tax Bracket
If you expect to be in a higher tax bracket in future years, you might elect out of bonus depreciation to save deductions for when they're more valuable.
4. State Tax Considerations
Many states don't conform to federal bonus depreciation rules. You may need to maintain separate depreciation schedules for state tax purposes.
MACRS Conventions
Half-Year Convention
Under the half-year convention, all property placed in service during the year is treated as placed in service at the midpoint of the year. This means you get half of the first year's depreciation, regardless of when during the year you actually placed it in service.
Mid-Quarter Convention
If more than 40% of your depreciable property (excluding real estate) is placed in service during the last quarter, you must use the mid-quarter convention. This treats property as placed in service at the midpoint of the quarter.
Common Mistakes to Avoid
- Applying bonus depreciation to used property (must be new to taxpayer)
- Forgetting to elect out if you don't want bonus depreciation
- Not considering state tax implications
- Missing the mid-quarter convention trigger
- Incorrectly calculating the remaining basis after bonus
- Not tracking assets properly for future dispositions
- Applying bonus to ineligible property (buildings, land)
Frequently Asked Questions
Q: Can I use bonus depreciation on real estate?
A: Generally no. Buildings and structural components don't qualify. However, qualified improvement property (QIP) does qualify for bonus depreciation.
Q: Do I have to take bonus depreciation?
A: No, you can elect out of bonus depreciation on a class-by-class basis. This election must be made on a timely filed return and is irrevocable.
Q: How does bonus depreciation affect AMT?
A: Bonus depreciation is allowed for AMT purposes, making it more attractive than regular MACRS depreciation which requires AMT adjustments.
Q: What happens when I sell property that used bonus depreciation?
A: The depreciation taken (including bonus) is subject to recapture as ordinary income up to the gain on sale. Plan asset dispositions carefully.
Disclaimer: This calculator provides estimates based on current federal tax law. Tax regulations are complex and subject to change. State tax treatment may differ. Always consult with a qualified tax professional before making decisions based on these calculations. This tool is for educational purposes only.