Business Asset Depreciation Calculator
Businesses can depreciate tangible property (equipment, vehicles, machinery, furniture) using three methods: Section 179 expensing allows immediate write-off of up to dollar 1,220,000 in 2025 (with phase-out starting at dollar 3,050,000); bonus depreciation provides an additional first-year deduction of 40% in 2025 (phasing down by 20% annually through 2027); and MACRS (Modified Accelerated Cost Recovery System) depreciates property over its recovery class life (5-year, 7-year, 15-year, 27.5-year for residential, or 39-year for commercial real estate). Section 179 is applied first, then bonus depreciation to remaining basis, then MACRS. The calculator shows year-by-year depreciation schedules, applies the half-year convention, and estimates tax savings at your marginal rate. Depreciation reduces both ordinary income tax and, for sole proprietors, self-employment tax. Property classes and MACRS percentages are from IRS Publication 946.
A $50,000 asset (7-year property, 2025) can be expensed -- in year 1 using Section 179, or depreciated over 8 years using MACRS. With 40% bonus depreciation applied to any remaining basis, year-1 deduction is --.
Year-by-year depreciation schedule
| Year | Section 179 | Bonus Depr. | MACRS | Total Deduction | Remaining Basis |
|---|---|---|---|---|---|
| Calculating... | |||||
Depreciation methods explained
Section 179 expensing (2025 limit: $1,220,000)
Section 179 is the most straightforward way to deduct the full cost of a qualifying asset in the year it is placed in service. The 2025 deduction limit is $1,220,000, established by IRS Rev Proc 2024-40. The phase-out begins dollar-for-dollar when total qualifying property placed in service during the year exceeds $3,050,000, eliminating the deduction entirely at $4,270,000 of property. Section 179 cannot exceed the business's net taxable income; any disallowed amount carries forward.
Bonus depreciation (40% in 2025)
IRC Section 168(k) bonus depreciation applies automatically to qualified property unless the taxpayer elects out. The applicable percentage for property placed in service in 2025 is 40%. Unlike Section 179, bonus depreciation can create a net operating loss (NOL). Bonus depreciation is applied after Section 179 to the remaining depreciable basis. The phase-down schedule: 80% (2023), 60% (2024), 40% (2025), 20% (2026), 0% (2027+), absent future legislation.
MACRS recovery periods and rates
After Section 179 and bonus depreciation are applied, the remaining basis is recovered over the MACRS recovery period using the applicable method and convention. For 5-year and 7-year property, the 200% declining balance method is used with the half-year convention, switching to straight-line when that produces a larger deduction. Residential rental property (27.5-year) and commercial real estate (39-year) use straight-line depreciation.
MACRS rates reference (IRS Publication 946, Table A-1)
| Year | 5-year | 7-year | 15-year |
|---|---|---|---|
| 1 | 20.00% | 14.29% | 5.00% |
| 2 | 32.00% | 24.49% | 9.50% |
| 3 | 19.20% | 17.49% | 8.55% |
| 4 | 11.52% | 12.49% | 7.70% |
| 5 | 11.52% | 8.93% | 6.93% |
| 6 | 5.76% | 8.92% | 6.23% |
| 7 | 8.93% | 5.90% | |
| 8 | 4.46% | 5.90% | |
| 9-16 | 5.90-2.95% |
Source: IRS Publication 946, Table A-1. 27.5-year and 39-year property use straight-line; rates depend on the month placed in service.
Depreciation: frequently asked questions
What is Section 179 expensing and how does it differ from regular depreciation?
Section 179 (IRC Section 179) allows businesses to deduct the full cost of qualifying property in the year it is placed in service, rather than depreciating it over multiple years. For 2025, the limit is $1,220,000 with a phase-out beginning when total property placed in service exceeds $3,050,000. Section 179 cannot create a net loss; the deduction is limited to the business's taxable income. Qualifying property includes most tangible personal property (equipment, machinery, vehicles, furniture) and some qualified improvement property.
What is bonus depreciation and what percentage applies in 2025?
Bonus depreciation (IRC Section 168(k)) allows an additional first-year depreciation deduction on qualified property. The 100% bonus rate in effect from 2017 to 2022 has been phasing down: 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and 0% in 2027 and beyond (absent new legislation). Unlike Section 179, bonus depreciation can create or increase a net loss, and it applies automatically unless the taxpayer elects out.
What is MACRS and which property class applies to my asset?
MACRS (Modified Accelerated Cost Recovery System) is the depreciation system required for most property placed in service after 1986. Property is assigned to a recovery class: 3-year (small tools, some tractors), 5-year (computers, cars, office equipment, light trucks), 7-year (furniture, fixtures, most machinery), 15-year (land improvements, fencing, roads), 27.5-year (residential rental property, straight-line), and 39-year (commercial real estate, straight-line). The applicable percentages are published in IRS Publication 946 Tables A-1 through A-10.
What is the half-year convention?
Under the MACRS general depreciation system, assets are generally assumed to be placed in service at the midpoint of the year (the half-year convention), regardless of the actual date. This means the first year's deduction is half what it would otherwise be, and a full recovery year is added at the end of the recovery period. There is also a mid-quarter convention that applies if more than 40% of all personal property placed in service during the year is placed in service in the final quarter.
Can I use Section 179 and bonus depreciation on the same asset?
Yes. Section 179 is applied first, reducing the asset's basis. Bonus depreciation is then applied to any remaining basis. MACRS applies to whatever basis remains after both Section 179 and bonus depreciation. For most assets below the Section 179 limit, using Section 179 alone achieves full first-year expensing, making bonus depreciation redundant for that asset.
Does depreciation reduce self-employment tax?
Yes. Depreciation deducted on Schedule C reduces net self-employment income, which in turn reduces both income tax and self-employment tax. For a sole proprietor in the 22% income tax bracket and 15.3% SE tax bracket, each additional dollar of depreciation saves approximately 29 to 37 cents in combined taxes, depending on income level.
Official sources
- MACRS methods and rates: IRS Publication 946, How to Depreciate Property.
- Section 179 and bonus depreciation limits: IRS Rev Proc 2024-40.
- Form 4562 (depreciation and amortization): IRS Form 4562.
Reviewed by the CalculatorHub team, edited by James Graham, 13 June 2026. See our methodology. General information only, not tax advice. Consult a qualified tax professional for your specific situation.