How to Use This Calculator
- 1
Enter Cost of Equipment
Input the total purchase price of the qualifying equipment or software in dollars.
- 2
Enter Business Income
Provide your total taxable business income for the year. The Section 179 deduction cannot exceed this amount.
- 3
Enter Bonus Depreciation Rate
Input the bonus depreciation percentage for the current tax year (40% for 2026, phasing down annually).
- 4
Enter Tax Rate
Input your marginal federal + state income tax rate to estimate tax savings.
- 5
Optionally Expand Advanced Options
Click 'Show advanced options' to adjust the Section 179 limit if it differs from the default ($1,250,000 for 2026).
- 6
Review Your Results
See your total deduction, Section 179 amount, bonus depreciation, estimated tax savings, and remaining depreciable basis. The insights panel shows deduction utilization, the limiting factor, and your net equipment cost after tax savings.
Example Calculation
A small business purchases $50,000 worth of new equipment. They have $60,000 in taxable business income. The Section 179 limit is $1,250,000 and bonus depreciation is 40% for 2026.
Cost of Equipment ($)
50,000
Business Income ($)
60,000
Bonus Depreciation Rate (%)
40
Tax Rate (%)
25
Results
Total Deduction
$50,000.00
Section 179 Deduction
$50,000.00
Bonus Depreciation
$0.00
Estimated Tax Savings
$12,500.00
Remaining Depreciable Basis
$0.00
Tips
Check Annual Limits
The Section 179 deduction limit and bonus depreciation rates change annually. For 2026, the limit is approximately $1,250,000 and bonus depreciation is 40%. Use the advanced options to update these values for your specific tax year.
Business Income Limitation
Your Section 179 deduction cannot exceed your taxable business income. If your deduction is limited by income, the unused portion can typically be carried forward to future tax years.
Maximize Bonus Depreciation
If your equipment cost exceeds the Section 179 deduction (limited by business income), bonus depreciation covers a percentage of the remaining cost. Since it's phasing down (40% in 2026, 20% in 2027, 0% in 2028), consider timing large purchases accordingly.
Adjust Tax Rate for Accuracy
Use the Tax Rate field to enter your actual marginal rate (federal + state combined) for a more accurate tax savings estimate. The default 25% is a common rate, but yours may differ.
The Section 179 Deduction Calculator provides businesses with an accurate estimate of their immediate tax savings from qualifying equipment purchases.
By analyzing the cost of equipment, business income, and depreciation rates, the tool calculates the total potential deduction.
This is crucial for strategic financial planning in 2026, as Section 179 limits are adjusted annually for inflation (approximately $1,250,000 for 2026) and bonus depreciation continues to phase down (40% for 2026, 20% for 2027).
Strategic Asset Acquisition and Depreciation for Businesses
Section 179 and bonus depreciation are powerful tax incentives designed to encourage business investment by allowing immediate expensing of qualifying assets rather than depreciating them over several years. This accelerated write-off significantly reduces a business's taxable income in the year of purchase, thereby improving cash flow and providing substantial tax relief.
For instance, a small business investing $100,000 in new machinery could deduct the entire amount upfront, rather than taking smaller deductions over a 5- or 7-year period. This immediate benefit is particularly impactful for small and medium-sized businesses, enabling them to reinvest savings, upgrade technology, and enhance operational efficiency.
Calculating Your Equipment Tax Deduction
The calculation for the Section 179 deduction and bonus depreciation involves several steps to determine the maximum allowable deduction for qualifying equipment.
Here's the logic:
- Calculate Section 179 Deduction: This is the smallest of the equipment cost, the annual Section 179 limit, or your taxable business income.
Section 179 Deduction = MIN(Cost of Equipment, Section 179 Limit, Business Income) - Calculate Remaining Cost after Section 179:
Remaining Cost = Cost of Equipment - Section 179 Deduction - Calculate Bonus Depreciation: This is a percentage of the remaining cost.
Bonus Depreciation = Remaining Cost x (Bonus Depreciation Rate / 100) - Calculate Total Deduction:
Total Deduction = Section 179 Deduction + Bonus Depreciation - Calculate Estimated Tax Savings:
Tax Savings = Total Deduction x (Tax Rate / 100)
Worked Example: Maximizing Equipment Purchase Deductions
A small business buys $50,000 worth of new computer equipment.
For 2026, the Section 179 limit is $1,250,000, and the business has $60,000 in taxable income.
Bonus depreciation is available at 40%.
The business owner's marginal tax rate is 25%.
- Calculate Section 179 Deduction:
MIN($50,000, $1,250,000, $60,000) = $50,000- The full cost of the equipment can be deducted under Section 179.
- Calculate Remaining Cost:
$50,000 (Cost) - $50,000 (Section 179) = $0
- Calculate Bonus Depreciation:
$0 x (40 / 100) = $0
- Calculate Total Deduction:
$50,000 (Section 179) + $0 (Bonus Depreciation) = $50,000
- Calculate Estimated Tax Savings:
$50,000 x (25 / 100) = $12,500
The total deduction is $50,000, and the estimated tax savings are $12,500 at a 25% rate, making the effective equipment cost just $37,500.
Understanding the Bonus Depreciation Phase-Down
Bonus depreciation has been gradually phasing down since it was 100% in 2022. For 2026, the rate is 40%, and it will drop to 20% in 2027 before expiring entirely in 2028 (unless Congress extends it). This declining rate means businesses should plan equipment purchases carefully to maximize the benefit.
The sequence for deductions is: first, apply Section 179 (elective, up to the limit and income cap), then apply bonus depreciation to any remaining cost, and finally, regular MACRS depreciation for any residual basis. This layered approach ensures the maximum allowable write-off is achieved.
Understanding the Interplay of Section 179 and Bonus Depreciation
While both Section 179 and bonus depreciation provide immediate expensing for qualifying business assets, they operate under distinct rules and are often applied in tandem. Section 179 allows businesses to deduct a specific dollar amount of eligible property, subject to an annual limit (approximately $1,250,000 for 2026) and a taxable business income limitation. It is an elective deduction, meaning businesses choose which assets to apply it to.
Bonus depreciation, conversely, is typically applied after Section 179 has been taken, covering the remaining depreciable basis of eligible property. For 2026, the bonus depreciation rate is 40%, and it generally has no income limitation, making it particularly useful for businesses with very large capital expenditures or when the Section 179 deduction is capped by business income.
Frequently Asked Questions
What is the Section 179 deduction?
The Section 179 deduction is an IRS tax code provision that allows businesses to deduct the full purchase price of qualifying equipment and/or software placed in service during the tax year, rather than depreciating it over several years. This immediate expense deduction is designed to incentivize small and medium-sized businesses to invest in themselves, providing significant upfront tax savings and improving cash flow.
How does Section 179 differ from bonus depreciation?
Section 179 has an annual dollar limit (approximately $1,250,000 for 2026) and a business income limitation, and it's elected by the taxpayer for specific assets. Bonus depreciation is a percentage deduction (40% for 2026) applied to the remaining cost of eligible property after Section 179, often with no income limit, and it applies automatically unless opted out.
What types of property qualify for Section 179?
Generally, qualifying property for Section 179 includes tangible personal property purchased for business use, such as machinery, computers, office furniture, certain vehicles (with specific limits), and off-the-shelf software. Certain qualified real property improvements like roofs, HVAC, fire protection, and alarm systems also qualify. The property must be used more than 50% for business.
What happens if my Section 179 deduction exceeds my business income?
If your Section 179 deduction exceeds your taxable business income, the excess amount cannot be deducted in the current year. Instead, it is carried forward to future tax years. You don't lose the deduction — you simply defer it until you have sufficient business income to utilize it.
How much tax will I save on a $50,000 equipment purchase?
With a $50,000 equipment purchase and $60,000 in business income, the full cost is deductible under Section 179 (since it's below both the $1,250,000 limit and your business income). At a 25% tax rate, that saves $12,500 in taxes — making your effective equipment cost just $37,500.