Bonus Depreciation and MACRS First-Year Deduction Calculator
This calculator shows how much of a new machine you can deduct in the first year and what that is worth in cash. It layers Section 179, bonus depreciation and the MACRS half-year rate in the order the tax code applies them.
Your numbers
Purchase price plus freight, rigging and installation that is capitalised into basis.
Amount you elect to expense under Section 179, subject to the annual dollar and phase-out limits.
Your results
Planning estimate only. Bonus percentages, Section 179 limits, mid-quarter convention and state conformity change by law and by state. Confirm with your tax adviser.
Year-one deduction and tax saving vs bonus percentage
Sweeps Bonus depreciation percentage from 0 to 100, holding your other inputs fixed.
Book vs tax depreciation report from your ERP
Optional: we can sketch a read-only report comparing book and tax depreciation by asset class.
Optional. The tool and every export work without this. No spam.
How to use it
Enter the capitalised cost of the asset, pick its MACRS class and the bonus percentage that applies to the year it is placed in service. Add any Section 179 amount you plan to elect. The tool reduces basis by the Section 179 amount first, applies bonus to what is left, then applies the MACRS first-year rate to the remainder. Use the slider for your combined tax rate to convert the deduction into a tax saving. The chart sweeps the bonus percentage so you can see what is lost if bonus is reduced or elected out.
The method behind the numbers
Order of operations matters. Section 179 is taken first and reduces depreciable basis. Bonus depreciation then applies to the remaining basis, and regular MACRS depreciation applies to whatever basis is left. Most machinery falls in the 7-year class, whose half-year convention rate for year one is 14.29 percent. If more than 40 percent of the year's asset additions are placed in service in the last quarter, the mid-quarter convention gives different first-year rates, which this tool does not model.
- Basis after 179 = cost - Section 179 elected
- Bonus = basis after 179 x bonus percentage
- MACRS year one = (basis after 179 - bonus) x class rate
- Total year one = Section 179 + bonus + MACRS year one
Worked example and common mistakes
A plant places a 1,200,000 dollar machining centre in service, 7-year class, 100 percent bonus, 25 percent combined rate. Bonus takes the full basis, so year-one deduction is 1,200,000 and the tax saving is 300,000. At 0 percent bonus the deduction falls to 171,480 (14.29 percent) and the saving to about 42,870. Common errors include forgetting that installation and rigging costs belong in basis, ignoring states that do not conform to federal bonus, and classifying assets in the wrong MACRS class in the fixed asset module.
Fixed asset setup in your ERP
Tax depreciation books are usually a separate depreciation area or book from the financial book. In SAP this is a parallel depreciation area, in Business Central a separate depreciation book, in NetSuite a tax depreciation method. Map each asset class to the correct MACRS life and convention so the tax book calculates year one the same way as this worksheet.
Frequently Asked Questions
Is bonus depreciation the same as Section 179?
No. Section 179 is an elective expensing amount with dollar caps and a phase-out, limited by taxable business income. Bonus depreciation is a percentage of remaining basis with no income limit and applies to qualifying property by default unless you elect out for a class.
Does used equipment qualify for bonus?
Under current rules used property can qualify if it was not previously used by the taxpayer and other acquisition tests are met. Rules differ by year of acquisition, so check the date the property was acquired and placed in service with your adviser.
Why is my MACRS year-one number different?
The half-year convention is assumed here. If you place more than 40 percent of annual additions in service in the final quarter, the mid-quarter convention applies and the first-year rates are lower. Tax software or your ERP tax book handles that test automatically.
Do all states follow federal bonus depreciation?
No. Several states decouple from bonus depreciation fully or partly, so the state deduction can be much smaller. Run the tool once for federal and once with state-specific assumptions to see the difference in combined cash savings.
If your fixed asset register lives in an ERP, we can build a read-only report that compares book and tax depreciation by asset class.
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