How Do You Calculate Bonus Depreciation in 2026?
Calculate eligible basis, compare 100% bonus depreciation with Section 179 and regular MACRS, and see how the result reaches Form 4562 and the business or rental return.
A bonus depreciation calculator compares the first-year deduction available under IRC Section 168(k) bonus depreciation, Section 179 expensing, and standard MACRS for a given asset purchase. Under the One Big Beautiful Bill Act, bonus depreciation is 100% and permanent for qualifying property acquired after January 19, 2025, so both bonus and Section 179 generally produce a full first-year deduction, and the choice turns on loss creation, state conformity, and property type.
Direct answer: Calculate bonus depreciation by determining the asset's eligible depreciable basis, subtracting any Section 179 deduction and other required basis reductions, and multiplying the remaining qualified basis by the applicable bonus rate. For qualifying property acquired and placed in service after January 19, 2025, the federal rate is generally 100%. The arithmetic is simple; qualification, acquisition timing, placed-in-service proof, business use, related-party history, elections, and state treatment are where return errors occur.
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Estimated Result
Section 179 is capped (approximately $2.56 million for 2026, with a phase-out beginning around $4.09 million of purchases) and cannot create or increase a loss. Bonus depreciation is uncapped and can. Passenger automobiles are separately limited by the Section 280F luxury auto caps, which this calculator does not apply. Many states decouple from federal bonus depreciation and require an addback, so confirm your state treatment before relying on the federal result.
The bonus depreciation formula
The federal calculation follows the ordering rule in IRS Publication 946: first determine depreciable basis, then subtract the Section 179 deduction and other required basis reductions, then calculate the special depreciation allowance, and finally calculate regular MACRS on any basis that remains.
Eligible depreciable basis = asset basis × qualified business-use percentage − credits and other basis reductions
Bonus depreciation = (eligible depreciable basis − Section 179 claimed) × applicable bonus rate
Remaining MACRS basis = eligible depreciable basis − Section 179 − bonus depreciation
At a 100% rate, the remaining federal MACRS basis is normally zero. That does not mean every purchase receives a 100% deduction. The asset must first pass the eligibility, acquisition, use, and placed-in-service tests. A cost segregation report also does not make the whole building bonus-eligible; it identifies components that may fall into eligible shorter-lived classes.
Seven gates to calculate the deduction correctly
1. Confirm ownership and depreciable basis
Start with tax basis, not loan principal, appraised value, or the cash paid at closing. Basis generally includes the asset's cost and capitalizable acquisition costs, reduced by credits, reimbursements, personal-use allocation, and other required adjustments. Land is not depreciable. For a real-estate acquisition, allocate basis among land, building, personal property, and land improvements before calculating bonus depreciation.
2. Confirm the asset is qualified property
Section 168(k) generally reaches tangible MACRS property with a recovery period of 20 years or less, certain computer software, qualified film, television, live theatrical and sound-recording productions, water utility property, and other specifically listed property. Residential rental buildings and ordinary nonresidential buildings have recovery periods longer than 20 years and do not qualify under the general Section 168(k) rule. Qualified improvement property and shorter-life components identified in a defensible cost segregation study may qualify.
3. Test new or used-property acquisition rules
Qualified property can be new or certain used property. Used property must satisfy acquisition rules that generally exclude prior use by the taxpayer and acquisitions from related parties, controlled transactions, or certain carryover-basis exchanges. A buyer cannot assume that “used property qualifies” resolves a purchase from a related entity or a transfer in which basis carries over.
4. Establish acquisition and placed-in-service dates
The 100% rule generally applies to qualifying property acquired and placed in service after January 19, 2025. The placed-in-service date is when the asset is ready and available for its intended income-producing use, not necessarily the invoice, payment, delivery, closing, or first-revenue date. Property acquired under an earlier binding contract can require separate timing analysis.
5. Apply the business-use rules
Only the business or income-producing portion enters depreciable basis. Listed property can lose Section 179, bonus depreciation, and accelerated MACRS treatment when qualified business use is not more than 50%. The calculator accepts a business-use percentage but does not determine whether an automobile or other asset is listed property or whether a use is qualified business use.
6. Apply Section 179 before bonus depreciation
Section 179 is elective and is calculated before bonus depreciation. For tax years beginning in 2026, the federal maximum is $2,560,000 and the investment phaseout starts when total Section 179 property placed in service exceeds $4,090,000. The business-income limitation can defer Section 179, while bonus depreciation can create or increase a federal taxable loss. Eligibility also differs: certain roofs, HVAC, fire-protection, alarm, and security systems in nonresidential real property may qualify for Section 179 even though the underlying building is not general bonus property.
7. Calculate the state return separately
Many states do not follow federal bonus depreciation or require an addback followed by state deductions over later years. A federal 100% deduction can therefore produce a materially smaller current state deduction and a separate state basis schedule. The calculator's tax-value output is not a state-conformity calculation.
Worked example: equipment purchase
A profitable S corporation buys and places in service qualifying seven-year equipment for $300,000 in March 2026. The equipment is used 90% in the business, so preliminary depreciable basis is $270,000. No credit or reimbursement reduces basis, no Section 179 election is made, and the acquisition satisfies the used-property and timing rules.
- Cost: $300,000.
- Qualified business-use basis: $300,000 × 90% = $270,000.
- Section 179 claimed: $0.
- Bonus basis: $270,000 − $0 = $270,000.
- Federal bonus depreciation: $270,000 × 100% = $270,000.
- Remaining federal MACRS basis: $0.
The S corporation reports the special depreciation allowance on Form 4562 with its Form 1120-S. The deduction affects ordinary business income that passes through to shareholders, but shareholder basis, at-risk limits, passive-activity rules, and excess-business-loss rules can still limit current use on an owner's return. A deduction calculated at the entity is not automatically a currently usable shareholder deduction.
Worked example: cost segregation on a rental property
An investor acquires a rental property for $1,500,000 and supports $300,000 of nondepreciable land basis. A cost segregation study classifies $180,000 of the $1,200,000 depreciable basis as eligible five-year personal property and $120,000 as eligible 15-year land improvements. The remaining $900,000 stays in 27.5-year residential rental property.
- Potential bonus-eligible basis: $180,000 + $120,000 = $300,000, subject to all qualification and timing rules.
- Potential 100% federal bonus deduction: $300,000.
- Building basis that is not general bonus property: $900,000, depreciated under the applicable real-property rules.
- Current tax benefit: not established by the $300,000 calculation. Basis, at-risk, passive-loss, material-participation, and state rules must be applied afterward.
If the study is performed for a property placed in service on a prior return, multiplying the reclassified basis by 100% is not the filing procedure. The taxpayer may need a Form 3115 accounting-method change and a Section 481(a) adjustment rather than a current-year acquisition entry.
Worked example: Section 179 first, then bonus
A business places $500,000 of qualifying equipment in service and elects $125,000 of Section 179. Assuming full business use and no other basis reduction, the bonus calculation is not $500,000. It is:
($500,000 basis − $125,000 Section 179) × 100% = $375,000 bonus depreciation
The combined first-year federal deduction is still $500,000, but the character, limitations, elections, state adjustments, and recordkeeping differ. This ordering is why a return preparer should not enter the same full basis in both Form 4562 Part I and the special-allowance line.
What the calculator does and does not decide
| Calculator handles | Requires return review |
|---|---|
| Cost multiplied by entered business-use percentage | Tax basis, land, credits, reimbursements, financing costs, and capitalizable transaction costs |
| General 20-year-or-less recovery-period screen | Qualified-property class, ADS, tax-exempt use, related-party acquisition, and prior use |
| 100% federal bonus estimate | Acquisition timing, binding contracts, placed-in-service proof, and class-level election out |
| Simplified 2026 Section 179 cap and income limit | Investment phaseout across all purchases, entity allocation, carryovers, and qualified real property |
| Simplified regular MACRS comparison | Mid-quarter convention, automobiles, listed property, partial dispositions, short tax years, state schedules, and loss usability |
How the deduction is reported
The special depreciation allowance is generally calculated on Form 4562 after Section 179 and before regular MACRS. The Form 4562 result then flows to the return that owns the asset: Schedule C, Schedule E, Form 1065, Form 1120-S, Form 1120, Form 1041, or another applicable form. Partnerships and S corporations calculate depreciation at the entity level; owners then apply their own basis and loss limitations.
Maintain a fixed-asset schedule showing description, cost, placed-in-service date, business-use percentage, recovery class, Section 179, bonus depreciation, remaining basis, regular depreciation, accumulated depreciation, and federal/state differences. The Form 4562 instructions state that the information needed to compute depreciation must remain in permanent records even when detailed prior-year asset data is not submitted with the return.
Documents to gather before claiming bonus depreciation
- Invoice, purchase agreement, closing statement, financing documents, and proof of payment.
- Serial number, asset description, delivery record, installation record, and placed-in-service evidence.
- Business-use log for vehicles and other listed property.
- Related-party ownership history and evidence supporting eligible used-property treatment.
- Cost segregation report and reconciliation to the closing statement and general ledger.
- Credit, grant, reimbursement, trade-in, casualty, or other basis-reduction records.
- All current-year Section 179 property purchases, not just the asset being modeled.
- Prior federal and state depreciation schedules and any election statements.
Common calculation and filing failures
- Multiplying purchase price by 100%: land, personal use, credits, and ineligible building basis must be removed first.
- Using the payment date: bonus depreciation depends on acquisition and placed-in-service rules, not when the check cleared.
- Double-counting Section 179 and bonus: Section 179 reduces the basis on which bonus is calculated.
- Treating every used asset as eligible: prior taxpayer use, related-party purchases, and carryover-basis transactions can disqualify the property.
- Ignoring the election out: bonus generally applies unless the taxpayer makes a timely class-level election not to claim it; that decision can be difficult to revoke.
- Assuming a deduction equals tax savings: loss limitations and the owner's expected tax rate determine when the deduction produces value.
- Copying the federal number to the state return: nonconforming states can require an addback and separate recovery schedule.
- Using an acquisition calculation for a lookback study: prior-year depreciation corrections can require Form 3115 rather than a new-asset entry.
Primary sources
- IRS Publication 946, How To Depreciate Property (2025) — qualified property, ordering, basis, elections, recapture, and MACRS worksheets.
- IRS Instructions for Form 4562 — Section 179, special allowance, MACRS, listed property, and recordkeeping.
- Revenue Procedure 2025-32 — 2026 Section 179 inflation-adjusted limits.
- IRS bonus depreciation FAQ — property, original-use or eligible-used-property, acquisition, and timing requirements.
Have AE Reconcile the Calculation to the Return
We test the asset class, basis, acquisition and placed-in-service dates, Section 179 ordering, cost-segregation implementation, state adjustment, and owner-level loss limits before the number reaches Form 4562.
Book a Return Review CallFrequently Asked Questions
How do you calculate bonus depreciation?
Confirm the asset is qualified property, determine depreciable basis after business-use and other basis adjustments, subtract any Section 179 deduction, and multiply the remaining eligible basis by the applicable bonus rate. For qualifying property acquired and placed in service after January 19, 2025, the federal rate is generally 100%, so no regular MACRS basis remains unless the taxpayer elects out or uses a reduced-rate election where available.
Is bonus depreciation still 100% in 2026?
Yes. The One Big Beautiful Bill Act restored the 100% rate on a permanent basis for qualifying property acquired after January 19, 2025, removing the phase-down that would have cut it to 20% in 2026 and zero in 2027.
Should I use Section 179 or bonus depreciation?
Use bonus depreciation when you need the deduction to create a loss, since Section 179 cannot. Use Section 179 for roofs, HVAC, fire protection, and security systems on nonresidential buildings, which bonus cannot reach, and in states that decouple from bonus depreciation.
Does this calculator handle vehicles?
Not the luxury auto limits. Passenger automobiles are capped under Section 280F regardless of method. Vehicles above 6,000 pounds gross vehicle weight rating fall outside that definition and have separate rules, and business use must exceed 50% for accelerated methods.
What is the mid-quarter convention?
If more than 40% of the total basis of personal property placed in service during the year falls in the fourth quarter, the mid-quarter convention replaces the half-year convention for every asset placed in service that year, reducing first-year MACRS deductions. This calculator assumes the half-year convention.
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