Depreciation Calculator

Section 179 allows businesses to deduct the full purchase price of qualifying assets in the year they are placed in service, rather than spreading the cost over multiple years. For the 2026 tax year, the Section 179 deduction limit is $2,560,000 (raised by the OBBBA 2025), with a phase-out threshold beginning at $4,090,000 in total equipment purchases. Qualifying property includes machinery, equipment, off-the-shelf software, certain vehicles, and qualified improvement property.

Bonus depreciation is 100% permanent for 2026 under the One Big Beautiful Bill Act of 2025, which reversed the TCJA's scheduled step-down (80% in 2023, 60% in 2024) for qualifying property. Unlike Section 179, bonus depreciation has no dollar cap and can create a net operating loss (NOL). Both new and used assets qualify, provided the taxpayer has not previously used the property.

Passenger vehicles placed in service in 2026 face additional limits under IRC Section 280F. Per Rev. Proc. 2026-15, the first-year depreciation cap is $20,300 with bonus depreciation ($12,300 without), followed by $19,800 (year 2), $11,900 (year 3), and $7,160 per year thereafter. SUVs over 6,000 pounds GVWR qualify for a higher Section 179 limit of up to $32,000 for 2026 (Rev. Proc. 2025-32).

The optimal depreciation approach depends on current taxable income, expected future income, and business cash flow needs. Section 179 is best when the business has sufficient taxable income to absorb the full deduction, since it cannot create a loss. Bonus depreciation works for businesses that want to create or increase an NOL that can be carried forward indefinitely under current law.

Standard MACRS depreciation spreads deductions over the recovery period and is preferable when the business expects significantly higher income in future years. For Form 4562 (Depreciation and Amortization), all three methods can be combined: Section 179 first, then bonus depreciation on the remaining basis, then MACRS on any residual amount.

Listed property -- assets that can be used for both business and personal purposes such as vehicles, computers, and cell phones -- must meet a more-than-50% business use threshold to qualify for Section 179 and bonus depreciation. If business use drops to 50% or below in any year, previously claimed accelerated depreciation must be recaptured, and the asset switches to the Alternative Depreciation System (ADS) straight-line method.

Residential rental property is depreciated over 27.5 years using the straight-line method under MACRS. Nonresidential real property (commercial buildings, offices, retail space) uses a 39-year recovery period. Both use the mid-month convention, meaning the first-year deduction is prorated based on the month the property is placed in service.

Qualified Improvement Property (QIP) -- any improvement to the interior of a nonresidential building after the building is placed in service -- has a 15-year recovery period and qualifies for bonus depreciation. This corrected classification, fixed by the CARES Act of 2020, applies retroactively to QIP placed in service after December 31, 2017.