Is it true that bonus depreciation: phases down annually — check current IRS rules?

Bonus depreciation: phases down annually — check current IRS rules

Is it true that a $50,000 equipment purchase can generate $17,500 in immediate tax savings?

A $50,000 equipment purchase can generate $17,500 in immediate tax savings

Is it true that the timing of the deduction creates real cash flow value?

The timing of the deduction creates real cash flow value

100% first-year deduction

Business equipment depreciation: Section 179 and bonus depreciation

How businesses legally write off equipment purchases immediately instead of over 5–7 years.

Quick answer

Business equipment depreciation methods include straight-line (equal annual amount), MACRS (accelerated, used for most US equipment), Section 179 (expense up to $1.16M in year 1, 2024 limit), and bonus depreciation (60% in 2024, phasing down). Choosing accelerated methods front-loads tax deductions but reduces them in later years.

Level

Try calculator

Key takeaways

04 · ideas

Section 179 allows immediate expensing of up to $1.16M of equipment (2023)
Bonus depreciation: phases down annually — check current IRS rules
A $50,000 equipment purchase can generate $17,500 in immediate tax savings
The timing of the deduction creates real cash flow value

When a business buys equipment — computers, machinery, vehicles — the IRS normally requires spreading the deduction over 5–7 years (depreciation). Two special rules let businesses deduct more in year one:

Section 179: Immediately expense equipment purchases up to $1,160,000 (2023 limit). No waiting — the full cost is deductible in year one.

Bonus Depreciation: An additional immediate deduction on top of regular depreciation. This percentage phases down each year (was 100% in 2022–2023). Check the current IRS rate before planning.

Why this matters: A $100,000 piece of equipment:

Normal depreciation: ~$14,000 deduction/year for 7 years
Section 179: $100,000 deduction in year 1

At a 25% tax rate, Section 179 saves $25,000 in taxes immediately vs. $3,500/year over 7 years. The present value of the immediate deduction is worth roughly 50% more than the spread-out deduction.