Bonus Depreciation in 2026 Is 40%. Here's How to Calculate What You Actually Deduct.

The Phase-Down Schedule Every Business Owner Must Know

The Tax Cuts and Jobs Act set 100% bonus depreciation through 2022, then mandated a 20-percentage-point reduction each year after that. For assets placed in service during calendar year 2026, the allowable bonus depreciation rate is exactly 40%. The schedule looks like this:

• 2022: 100%
• 2023: 80%
• 2024: 60%
• 2025: 40%
• 2026: 40% (no further reduction under current law, pending congressional action)
• 2027: 20%
• 2028: 0%

Note: The 2025 and 2026 rates are both 40% under the current statutory text. If Congress passes bonus depreciation legislation before you file, confirm the rate with IRS guidance or your tax advisor before finalizing your return.

The asset must be placed in service, meaning operational and in use in your business, before December 31, 2026. Purchased but uninstalled equipment does not qualify.

How to Calculate the 2026 Bonus Depreciation Deduction

The formula is straightforward: multiply the asset's depreciable basis by 0.40. The remaining 60% of the basis then depreciates under the standard Modified Accelerated Cost Recovery System schedule for that asset class.

Formula:

• Bonus Depreciation Deduction = Depreciable Basis x 0.40
• Remaining MACRS Basis = Depreciable Basis x 0.60

The depreciable basis is typically the purchase price plus sales tax, freight, and installation costs, minus any Section 179 expensing you apply first. You cannot claim both Section 179 and bonus depreciation on the same dollar of basis. Apply Section 179 first, then apply the 40% bonus rate to whatever depreciable basis remains.

Worked Example 1: $150,000 Piece of Manufacturing Equipment (7-Year MACRS Property)

A manufacturer places a $150,000 CNC machine in service in March 2026. The machine is 7-year MACRS property. The owner does not elect Section 179.

Step 1. Confirm depreciable basis: $150,000.

Step 2. Calculate bonus depreciation: $150,000 x 0.40 = $60,000 deducted in 2026.

Step 3. Calculate remaining MACRS basis: $150,000 x 0.60 = $90,000.

Step 4. Apply 7-year MACRS to the remaining $90,000. Using the half-year convention and a 200% declining balance rate, the Year 1 MACRS percentage for 7-year property is 14.29%. Year 1 MACRS deduction: $90,000 x 0.1429 = $12,861.

Total 2026 depreciation deduction: $60,000 + $12,861 = $72,861.

At a 37% marginal federal rate, that deduction generates $26,958 in federal tax savings in year one alone. Waiting until 2027, when the rate drops to 20%, would cut the bonus portion to $30,000 and cost roughly $11,100 in additional year-one taxes on this single asset.

Worked Example 2: $480,000 Commercial Vehicle Fleet (5-Year MACRS Property)

A logistics company places four delivery vans into service in 2026 at a combined cost of $480,000. Each van is 5-year MACRS property. The company elects $100,000 of Section 179 on this purchase first.

Step 1. Depreciable basis after Section 179: $480,000 - $100,000 = $380,000.

Step 2. Calculate bonus depreciation: $380,000 x 0.40 = $152,000.

Step 3. Calculate remaining MACRS basis: $380,000 x 0.60 = $228,000.

Step 4. Apply 5-year MACRS to $228,000. The Year 1 MACRS rate for 5-year property under the half-year convention is 20.00%. Year 1 MACRS deduction: $228,000 x 0.20 = $45,600.

Total 2026 depreciation deduction: $100,000 (Section 179) + $152,000 (bonus) + $45,600 (MACRS) = $297,600.

On a $480,000 purchase, the company deducts $297,600 in the first year. At a 21% corporate rate, that is $62,496 in federal tax savings in 2026.

The Section 179 vs. Bonus Depreciation Decision in 2026

Section 179 remains capped at $1,220,000 for 2026, with a phase-out beginning at $3,050,000 in total asset purchases. Bonus depreciation has no dollar cap. For most businesses spending under $3,050,000 on qualifying assets, the two tools work together rather than competing.

Apply Section 179 strategically to assets where you want a full first-year deduction and where you have enough taxable income to absorb it. Section 179 cannot create a net operating loss. Bonus depreciation can. If your business is reporting a loss year, bonus depreciation carries forward while Section 179 does not exceed your business income.

For real property improvements, Qualified Improvement Property (QIP) is 15-year MACRS property and qualifies for bonus depreciation. A $300,000 interior renovation placed in service in 2026 generates a $120,000 bonus deduction in year one.

State Conformity: The Deduction Your State May Disallow

Many states do not conform to federal bonus depreciation rules. California, New York, New Jersey, and several others either decouple entirely or cap the deduction at a lower rate. A business that takes a $100,000 federal bonus depreciation deduction may owe state income tax on some or all of that $100,000, depending on its filing state.

Check your state's IRC conformity date and any specific bonus depreciation addback requirements before projecting total tax savings. The federal deduction and the state deduction are separate calculations.

Run Your 2026 Numbers Before Year-End

The difference between placing an asset in service on December 30, 2026, and January 2, 2027, is 20 percentage points of bonus depreciation. On a $500,000 asset, that timing gap equals $100,000 in deductible basis and, at a 37% rate, $37,000 in federal tax savings.

The CalcMoney Income Tax Calculator lets you model your total taxable income after depreciation deductions, including both the bonus amount and the remaining MACRS schedule. Enter your asset cost, recovery period, and Section 179 election to see your effective 2026 tax liability before you finalize any purchase.

Run the numbers now. Your Q4 asset purchase decisions carry real dollar consequences that compound into 2027 and beyond.

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Results are estimates for informational purposes only. Consult a licensed financial professional before making financial decisions.