Federal Bonus Depreciation + Recapture Calculator

How this calculator works

Section 168(k) of the Internal Revenue Code lets a taxpayer immediately deduct a percentage of the cost basis of qualifying tangible property in the year the property is placed in service. The remaining basis depreciates over the property's MACRS recovery period. When the property is later sold, the depreciation that was taken — both the first-year bonus and the subsequent straight-line — is "recaptured" on the gain, with two distinct treatments depending on the property class. This calculator models the full lifecycle: the § 168(k) bonus computation, the subsequent-year straight-line, the accumulated depreciation through the hold period, the realized gain on sale, and the recapture-plus-LTCG tax stack on disposition.

Bonus depreciation history and the TCJA phase-down

Bonus depreciation has been part of federal tax law since 2001, originally as a 30% deduction to stimulate post-9/11 capital investment. The percentage has moved between 30%, 50%, 100%, and various intermediate rates across more than a dozen legislative amendments over two decades. The current schedule is governed by the Tax Cuts and Jobs Act of 2017 (Pub. L. 115-97), which set the bonus rate at 100% for property placed in service after September 27, 2017, then built in a deliberate phase-down: 100% through 2022, 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and 0% in 2027 and beyond.

The phase-down is a hard schedule. Property placed in service on December 31, 2025 takes 40% bonus depreciation; the same property placed in service one day later on January 1, 2026 takes only 20%. For a $1,000,000 piece of equipment, that single-day difference is a $200,000 swing in first-year deduction. For taxpayers planning large capital expenditures across calendar-year boundaries, the placed-in-service date is one of the highest-leverage decisions in the entire tax-planning playbook.

2026 is 20% — down from 100% in 2022

To put the 2026 phase-down in perspective: a taxpayer who placed $1,000,000 of equipment in service in 2022 took $1,000,000 of bonus depreciation in year one — a full immediate deduction. The same taxpayer placing the same property in service in 2026 takes only $200,000 of bonus in year one, with the remaining $800,000 spread over the 7-year recovery period at roughly $114,000 per year. At a 37% marginal rate, that is roughly $296,000 of first-year tax benefit in 2022 versus $74,000 in 2026 — a 75% reduction in the immediate tax shield. The economic logic of the 2017 TCJA cuts has not changed for the equipment; only the legislative bonus pacing has.

Eligible property

Under IRC § 168(k)(2), eligible property is tangible personal property with a MACRS recovery period of 20 years or less. In practice this covers most equipment and machinery (7-year recovery), computers and light vehicles (5-year), heavy trucks (5-year), office furniture (7-year), and certain transportation equipment (10-year). Off-the-shelf computer software is eligible under IRC § 167(f)(1) with a 3-year recovery period. Qualified film and television productions and qualified live theatrical productions are also eligible under their respective specific rules.

Qualified Improvement Property is the most important real-estate-adjacent category. QIP is defined under IRC § 168(e)(6) as interior improvements to non-residential real property — tenant build-outs, interior partitions, mechanical and electrical upgrades — excluding enlargement of the building, elevators, escalators, and internal structural framework. After the CARES Act of 2020 corrected a TCJA drafting error, QIP has a 15-year recovery period and is fully eligible for § 168(k) bonus depreciation. For commercial landlords and tenants, QIP is the workhorse of accelerated depreciation planning.

Real property generally is NOT eligible for § 168(k) bonus. Residential rental real property has a 27.5-year recovery period (over the 20-year ceiling); non-residential real property has a 39-year period. Both are excluded from bonus and depreciate on a straight-line schedule. Land is never depreciable. This calculator surfaces real-property exclusion explicitly — if the property type is set to § 1250 real property, the bonus is forced to zero regardless of the placed-in-service year.

Worked example 1: $1,000,000 equipment, 2024 placement, 7-year recovery

An equipment-heavy operator purchases $1,000,000 of machinery and places it in service in 2024. The 2024 bonus rate is 60%, the MACRS recovery period for machinery is 7 years, and the operator plans to hold the equipment for 3 years before selling.

• Bonus depreciation (year 1): $1,000,000 × 60% = $600,000.
• Remaining basis after bonus: $1,000,000 − $600,000 = $400,000.
• Straight-line annual: $400,000 / 7 = $57,143/year.
• Accumulated depreciation at year 3: $600,000 + ($57,143 × 3) = $771,429.
• Adjusted basis at sale: $1,000,000 − $771,429 = $228,571.
• Sale price at year 3: $850,000 → Realized gain = $850,000 − $228,571 = $621,429.
• Recapture treatment: § 1245 ordinary recapture on the full gain (gain $621,429 < accumulated $771,429), taxed at the operator's 37% marginal rate = $229,929 of federal tax.

The full gain in this example is ordinary income, with no LTCG portion. That outcome is the central economic feature of § 1245 personal property: aggressive first-year depreciation produces aggressive ordinary-income recapture on exit, with no preferential capital-gains treatment until the sale price exceeds the original cost basis.

Worked example 2: $1,000,000 QIP, 2026 placement, 15-year recovery

A commercial landlord places $1,000,000 of Qualified Improvement Property in service in 2026 — interior tenant build-out for a new office tenant. The 2026 bonus rate is 20%, QIP has a 15-year recovery period, and the landlord plans to sell the building after 5 years.

• Bonus depreciation (year 1): $1,000,000 × 20% = $200,000.
• Remaining basis: $800,000. Straight-line annual: $800,000 / 15 = $53,333/year.
• Accumulated depreciation at year 5: $200,000 + ($53,333 × 5) = $466,667.
• Adjusted basis at sale: $1,000,000 − $466,667 = $533,333.
• Sale price at year 5: $900,000 → Realized gain = $900,000 − $533,333 = $366,667.
• Recapture treatment: QIP is § 1250 real property, capped at 25% under IRC § 1(h)(6). Recapture portion = min($366,667, $466,667) = $366,667 at 25% = $91,667 of federal tax.

The QIP example illustrates the recapture-rate advantage of real-property classification. The same $1,000,000 of depreciation on § 1245 equipment would recapture at 37% (the operator's marginal rate); the same depreciation on QIP recaptures at the 25% unrecaptured § 1250 cap. The 12-point spread on $366,667 of recapture saves $44,000 of federal tax compared to the § 1245 treatment of an otherwise-identical investment.

Worked example 3: $500,000 residential rental, 2024 placement — NO bonus

A real-estate investor purchases a $500,000 residential rental property and places it in service in 2024. Residential rental is NOT eligible for § 168(k) bonus — the 27.5-year recovery period exceeds the 20-year ceiling. The investor plans to sell after 5 years.

• Bonus depreciation: $0 (residential rental excluded).
• Straight-line annual: $500,000 / 27.5 = $18,182/year.
• Accumulated depreciation at year 5: $18,182 × 5 = $90,909.
• Adjusted basis at sale: $500,000 − $90,909 = $409,091.
• Sale price at year 5: $600,000 → Realized gain = $600,000 − $409,091 = $190,909.
• Recapture: § 1250 unrecaptured at 25%. Recapture portion = min($190,909, $90,909) = $90,909 at 25% = $22,727.
• LTCG portion: $190,909 − $90,909 = $100,000 at 20% = $20,000.
• Total federal tax: $42,727 on $190,909 of realized gain, an effective rate of about 22.4% on the gain.

The residential-rental example shows the two-layer tax stack at work. The first $90,909 of gain (the recapture portion) is taxed at 25%; the remaining $100,000 (above accumulated depreciation, into pure appreciation) is taxed at the 20% LTCG rate. For an investor above the IRC § 1411(b)(1) threshold ($250,000 MAGI for joint filers), the 3.8% NIIT would add another $3,800 on the LTCG portion — the calculator surfaces the NIIT exclusion explicitly in the summary because the recapture portion is NOT subject to NIIT (it is already ordinary-treated under § 1250 sequencing).

The 2027 sunset and the OBBBA reset question

Under the TCJA phase-down schedule, the bonus rate drops to 0% for property placed in service in 2027 and beyond. That is a hard sunset under current statute. In 2024 and into 2025, the One Big Beautiful Bill Act (OBBBA) discussion contemplated resetting the bonus rate to 100% retroactively to 2023 and forward, packaged with other TCJA extensions. Multiple House versions cleared committee; the Senate negotiations had not produced an enacted statute as of the lastReviewed date on this calculator. For current planning, we recommend assuming the phase-down stays in place and treating any retroactive reset as upside. Practitioners should monitor IRS guidance for any technical-correction-style retroactive change before relying on it in planning.

Section 179 vs § 168(k) bonus

§ 179 expensing is the other major first-year-deduction mechanism. For 2025, § 179 permits the taxpayer to elect first-year expensing up to $1,160,000 of qualifying property, with the deduction phasing out dollar-for-dollar once total property purchased exceeds $2,890,000 (Rev. Proc. 2023-34). The optimal stack for most equipment purchases: apply § 179 first up to the limit, then § 168(k) bonus on the remaining basis, then regular MACRS on whatever is left.

§ 179 has tighter eligibility than § 168(k): the property must be used more than 50% in an active trade or business, there is a taxable-income limit that prevents § 179 from creating a loss, and real property is eligible only in narrow categories (HVAC, fire-suppression, security, roofing on non-residential buildings). § 168(k) is broader — no taxable-income limit, no business-use percentage requirement — but excludes real property except via QIP. This calculator models only § 168(k); for combined § 179 + § 168(k) planning, reduce the property cost basis by the § 179 election amount before entering it.

Bonus depreciation and § 1031 like-kind exchange

When § 1031 like-kind real-property exchanges and § 168(k) bonus interact, the depreciation history of the relinquished property carries forward via the substituted-basis formula under § 1031(d). Under Treas. Reg. § 1.168(i)-6, the replacement property's basis is split into two components: a CONTINUED-BASIS component (treated as if the taxpayer continued to depreciate the relinquished property, with the same recovery period and method) and an EXCESS-BASIS component (additional basis from new debt or cash on the replacement). The excess-basis component IS eligible for § 168(k) bonus depreciation; the continued-basis component is NOT.

For real-estate investors structuring a § 1031 exchange where the replacement property includes new QIP improvements, the new QIP basis is excess basis and eligible for bonus. For pure real-property exchanges with no new improvements, the bonus opportunity is typically zero — the deferred gain stays deferred, and the depreciation continues at the same rate as on the relinquished property. The tradeoff: deferral preserves the time value of the unrecognized gain; recognition unlocks the bonus on new basis. For property that has already been heavily depreciated, the deferral usually wins.

Common errors

• Bonus on real property. The single most common error in early § 168(k) planning was attempting to claim bonus on residential rental or non-residential real. The 27.5-year and 39-year recovery periods exceed the 20-year ceiling and the property is excluded. Only QIP, with its 15-year recovery period, qualifies as a real-property-adjacent bonus candidate.
• Missing the QIP CARES Act fix. A surprising number of practitioners still treat QIP as 39-year non-eligible because of the original TCJA drafting error. CARES Act 2020 corrected this retroactively; QIP is 15-year and bonus-eligible from 2018 forward. Amend prior-year returns if necessary.
• § 280F luxury auto cap. A $80,000 luxury sedan with 60% bonus does NOT deduct $48,000 in year one. The § 280F cap limits the first-year deduction to $20,400 (2024 figure per Rev. Proc. 2024-13), with the remaining basis depreciated over the 5-year recovery period subject to per-year caps. The cap applies only to passenger autos under the 6,000-lb GVW threshold; trucks, vans, and SUVs above 6,000 lbs are NOT subject to § 280F.
• Electing out without modeling exit recapture. § 168(k)(7) lets the taxpayer elect out of bonus on a class of property. Common reasons to elect out: low-income year, NOL preservation, planned near-term exit on § 1245 personal property. For § 1245 property with a near-term exit, accelerating depreciation increases the eventual ordinary-recapture exposure at 37% — sometimes the present-value benefit of the deduction is exceeded by the future recapture cost. Model both paths before electing.
• Forgetting the NIIT note. The 3.8% Net Investment Income Tax under IRC § 1411 applies to the LTCG portion of the gain, NOT to the § 1245 ordinary recapture portion (ordinary income is excluded from NIIT). For § 1250 / QIP unrecaptured gain at 25%, the NIIT layering question is more subtle — the 25% rate is a maximum, and the gain is included in net investment income for § 1411 purposes. Consult a CPA for the exact stacking on heavily-depreciated real property.

This calculator is a planning tool, not advice. The actual MACRS depreciation computation uses half-year or mid-quarter conventions and a declining-balance method that switches to straight-line; this calculator approximates with straight-line to keep the math auditable. For an actual tax filing, run the figures through IRS Form 4562 and consult Pub. 946 — or, better, a CPA who handles fixed-asset depreciation as a regular practice.