How Bonus Depreciation is Calculated
The core formula for bonus depreciation centers on the eligible cost and the applicable IRS bonus rate:
Bonus Depreciation = Cost of Asset x Bonus Depreciation Percentage
Remaining Basis = Cost of Asset - Bonus Depreciation
Annual Straight-Line = Remaining Basis / Useful Life
First-Year Total Deduction = Bonus Depreciation + Annual Straight-Line
Tax Savings = First-Year Total Deduction x Tax Rate
For example, a $50,000 asset at 60% bonus with a 5-year life and 25% tax rate:
- Bonus Depreciation: $50,000 x 0.60 = $30,000
- Remaining Basis: $50,000 - $30,000 = $20,000
- Annual Straight-Line: $20,000 / 5 = $4,000
- First-Year Total Deduction: $30,000 + $4,000 = $34,000
- Immediate Tax Savings: $34,000 x 0.25 = $8,500
TCJA Phase-Down Schedule
The Tax Cuts and Jobs Act set 100% bonus depreciation for 2017-2022, with a 20-percentage-point annual phase-down:
| Year | Bonus Rate | Bonus on $50,000 | First-Year Deduction (5-yr life) | Tax Savings (25%) |
|---|---|---|---|---|
| 2022 | 100% | $50,000 | $50,000 | $12,500 |
| 2023 | 80% | $40,000 | $42,000 | $10,500 |
| 2024 | 60% | $30,000 | $34,000 | $8,500 |
| 2026 | 20% | $10,000 | $18,000 | $4,500 |
| 2027+ | 0% | $0 | $10,000 | $2,500 |
Each row assumes a $50,000 asset with a 5-year useful life.
At 0% bonus (2027+), the only deduction is the $10,000 annual straight-line amount.
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Understanding how depreciation affects operating profitability is important. Use our EBITDA Calculator to see how non-cash depreciation expenses impact your company's earnings before interest, taxes, depreciation, and amortization.
Depreciation Schedule Walkthrough
With partial bonus depreciation, the calculator generates a year-by-year schedule.
For a $50,000 asset at 60% bonus and 5-year life:
| Year | Opening Basis | Depreciation | Cumulative | Closing Basis |
|---|---|---|---|---|
| 1 | $50,000 | $34,000 | $34,000 | $16,000 |
| 2 | $16,000 | $4,000 | $38,000 | $12,000 |
| 3 | $12,000 | $4,000 | $42,000 | $8,000 |
| 4 | $8,000 | $4,000 | $46,000 | $4,000 |
| 5 | $4,000 | $4,000 | $50,000 | $0 |
Year 1 combines the $30,000 bonus with the $4,000 straight-line deduction.
The remaining $20,000 is spread evenly across the 5-year recovery period at $4,000 per year.
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To see how depreciation deductions affect your adjusted earnings, try our Adjusted EBITDA Calculator for a clearer picture of core operational performance.