1. What is Bonus Depreciation?

Bonus depreciation is a tax incentive that allows businesses to immediately deduct a large percentage of the purchase price of eligible business assets rather than depreciating them over time. This provides significant tax savings in the year assets are placed in service.

2. How Is Bonus Depreciation Calculated?

The calculation is straightforward:

Where:

• \( Cost \) — The purchase price of the eligible asset
• \( Bonus Rate \) — The percentage allowed for bonus depreciation (e.g., 100%, 80%, etc.)

Example: For a $100,000 asset with 100% bonus depreciation, the deduction would be $100,000 × 1.00 = $100,000.

3. Importance of Bonus Depreciation

Details: Bonus depreciation stimulates business investment by reducing taxable income in the year of purchase. It's particularly valuable for capital-intensive businesses making large equipment purchases.

4. Using the Calculator

Tips: Enter the asset cost in dollars and the bonus rate as a percentage (e.g., 100 for 100%). The calculator will compute the immediate tax deduction amount.

5. Frequently Asked Questions (FAQ)

Q1: What assets qualify for bonus depreciation?
A: Generally, new tangible property with a recovery period of 20 years or less, certain computer software, and qualified improvement property.

Q2: What's the current bonus depreciation rate?
A: Rates change with tax laws. As of 2023, it's 80% and will phase down annually until 2027. Always check current IRS guidelines.

Q3: Can bonus depreciation create a net operating loss?
A: Yes, bonus depreciation can create or increase a net operating loss, which may be carried forward or back under certain rules.

Q4: Is there an alternative to bonus depreciation?
A: Yes, Section 179 expensing is another option with different limitations and qualifications.

Q5: How does bonus depreciation affect state taxes?
A: Many states don't conform to federal bonus depreciation rules, requiring add-backs and separate state depreciation calculations.