Section 179 Deduction Calculator

How the Section 179 deduction works (what this calculator estimates)

Section 179 (U.S. Internal Revenue Code) is an election that can let a business expense part or all of the cost of qualifying property in the year it’s placed in service, rather than depreciating it over several years. It’s often used for equipment, machinery, certain business vehicles, and some off‑the‑shelf software (subject to IRS rules). This calculator estimates (1) the maximum Section 179 deduction available after considering the annual dollar limit and the phase‑out, (2) bonus depreciation applied to any remaining basis after Section 179, and (3) the basis left for regular depreciation (e.g., MACRS).

Important: tax year context

The Section 179 annual limit and the phase‑out threshold change by tax year (and bonus depreciation rates have been phasing down). The default numbers shown in the form are commonly cited values for a recent year, but you should enter the figures that apply to the tax year and facts you’re modeling.

Inputs (what each field means)

• Equipment Cost ($): total cost of qualifying purchases you want to model (often the total qualifying Section 179 property placed in service during the year, not just one item).
• Section 179 Limit ($): the statutory maximum Section 179 deduction for the tax year (before phase‑out).
• Phase‑Out Threshold ($): the level of total qualifying purchases where the Section 179 limit begins to reduce dollar‑for‑dollar.
• Business Taxable Income ($): the taxable income limitation that can cap the current‑year Section 179 deduction. Amounts disallowed due to this limit may generally be carried forward (subject to rules).
• Bonus Depreciation Rate (%): the percent applied to the remaining basis after Section 179 (if the property qualifies for bonus depreciation and the rate is available for the placed‑in‑service year).

Formulas used

1) Phase‑out reduces the available Section 179 limit

Let:

• C = equipment cost (total qualifying purchases modeled)
• L = statutory Section 179 limit
• P = phase‑out threshold

The reduction amount is max(0, C − P), and the available limit is:

2) Section 179 deduction is limited by cost, available limit, and taxable income

Let I = business taxable income. Then:

D₁₇₉ = min(C, L_avail, I)

3) Bonus depreciation applies to remaining basis after Section 179

Let r = bonus depreciation rate as a decimal (e.g., 80% → 0.80). Then bonus depreciation is:

B = (C − D₁₇₉) × r

4) Remaining basis for regular depreciation

R = C − D₁₇₉ − B

5) Total first‑year deduction shown by this calculator

Total = D₁₇₉ + B

How to interpret the results

The results table breaks the first‑year write‑off into components:

• Section 179 deduction: the immediate expense amount elected under Section 179, after phase‑out and taxable income limits.
• Bonus depreciation: an additional immediate deduction computed on the leftover basis after Section 179 (when applicable).
• Remaining basis: the amount not deducted immediately; this is typically depreciated over the asset’s recovery period using the applicable method and convention.
• Total deduction: Section 179 plus bonus depreciation (i.e., what this calculator estimates as the first‑year expensing).

Worked example

Assume the following inputs (similar to the defaults):

• Equipment Cost, C = $50,000
• Section 179 Limit, L = $1,160,000
• Phase‑Out Threshold, P = $2,890,000
• Business Taxable Income, I = $80,000
• Bonus Depreciation Rate = 80% → r = 0.80

Step 1: Phase‑out
Since C ($50,000) is below P ($2,890,000), the reduction is zero, so L_avail = $1,160,000.

Step 2: Section 179
Compute D₁₇₉ = min(50,000; 1,160,000; 80,000) = $50,000.

Step 3: Bonus depreciation
Remaining basis after Section 179 is C − D₁₇₉ = 0, so B = 0 × 0.80 = $0.

Step 4: Remaining basis
R = 50,000 − 50,000 − 0 = $0.

Interpretation: in this scenario, Section 179 alone fully expenses the purchase in year one (because taxable income is high enough and the cost is well below the annual limit). Bonus depreciation does not add anything because there is no remaining basis after Section 179.

Comparison: how outcomes change under common scenarios

Limitations & assumptions (read before relying on results)

• Eligibility not validated: this calculator assumes the property qualifies for Section 179 and/or bonus depreciation. Some property types and situations are excluded or limited under IRS rules.
• Placed‑in‑service timing matters: results depend on the year the asset is placed in service, not merely purchased.
• Business‑use percentage: if an asset is partially personal‑use, the deductible basis may be reduced. This calculator assumes 100% business use unless you adjust the cost yourself.
• Total purchases vs. a single item: the phase‑out is based on total qualifying purchases for the year. If you enter the cost of one asset while your total purchases are higher, phase‑out may be understated.
• Taxable income limitation: we apply a single taxable income cap to the Section 179 amount. Treatment can vary by entity type and circumstances; carryforward rules can apply.
• State taxes not included: states may decouple from federal Section 179 or bonus depreciation rules.
• Regular depreciation not computed: the “remaining basis” is not further depreciated by this tool; recovery period, method, convention, and special rules are outside this calculator’s scope.
• Estimates only: outputs are simplified estimates for planning. Consult IRS guidance and/or a qualified tax professional for filing decisions.