Section 179, Bonus Depreciation, MACRS, and QBI

Calculate business asset deductions first, then recalculate qualified business income and the owner’s QBI deduction. The usual order is Section 179, bonus depreciation, and regular MACRS depreciation on the remaining basis. QBI is a separate owner-level deduction—not another way to expense equipment. A larger asset deduction can reduce QBI, so comparing depreciation deductions alone can overstate the reduction in taxable income. See the Form 4562 instructions and Form 8995 instructions.

How do Section 179, bonus depreciation, MACRS, and QBI differ?

For a pass-through business owner comparing equipment purchases, the first three rules determine when qualifying asset costs become deductions. Section 199A then determines whether the owner can deduct an additional amount based on qualifying business income.

These distinctions follow Publication 946 and the Form 8995-A instructions. C corporation income does not qualify for the owner-level QBI deduction; partnerships and S corporations generally provide the relevant information to their owners rather than claiming that deduction themselves.

Section 179 and bonus depreciation are not necessarily competing, all-or-nothing choices. They can apply to the same asset, but the same dollars of basis cannot be deducted twice.

What inputs belong in the planning worksheet?

Keep asset-level information separate from taxpayer-level limitations. One machine’s cost does not establish the Section 179 phaseout, and one business’s profit does not establish the owner’s QBI taxable-income threshold.

The official input requirements appear in Publication 946, the Form 4562 instructions, and the Form 8995-A instructions.

Placed in service means ready and available for a specific use. Ordering equipment, making a deposit, or receiving an uninstalled machine does not necessarily start depreciation.

For a newly purchased asset without special basis adjustments:

[
B=C\times u
]

Here, (B) is initial business-use basis in dollars, (C) is capitalized cost in dollars, and (u) is business use expressed as a decimal. Personal-use costs are not business depreciation deductions. Section 179 generally requires business use greater than 50%; listed property has additional qualified-business-use requirements.

How do Section 179 limits affect the comparison?

Section 179 has two separate constraints: an annual dollar limitation, reduced by aggregate qualifying property additions, and a business-income limitation.

For a basic comparison without special allocations:

[
L_{\text{available}}
=
\max\left(0,L-\max(0,P-T)\right)
]

Where:

• (L) is the tax-year Section 179 dollar limit.
• (P) is the aggregate cost of Section 179 property placed in service, determined under Form 4562.
• (T) is the tax-year property-cost phaseout threshold.
• (L_{\text{available}}) is the remaining dollar limit before the business-income limitation.

All four amounts are in dollars. Include eligible property in (P) even if no Section 179 deduction is elected for that property. The phaseout reduces the dollar limit dollar for dollar above the threshold.

These amounts appear in Publication 946, “What’s New for 2025” and “What’s New for 2026”. Vehicle-specific restrictions can apply separately; the general dollar limit does not establish a vehicle’s deductible amount.

The business-income limitation is not gross receipts, AGI, MAGI, or automatically the taxable income on Form 1040. For individuals, the prescribed calculation can include income from actively conducted businesses and employee compensation, with specific adjustments. Joint filers combine the applicable amounts for both spouses. Pass-through deductions can face restrictions at both the entity and owner levels.

An elected Section 179 amount disallowed by the business-income limitation may carry forward. Track it separately: it is not automatically fresh basis available for bonus depreciation or regular MACRS. Follow the basis and carryover instructions in Publication 946, chapter 2.

Which bonus-depreciation percentage applies?

Verify acquisition and placed-in-service dates before entering a percentage. Public Law 119-21, commonly called the One Big Beautiful Bill Act, restored a 100% bonus allowance for certain qualified property acquired and placed in service after January 19, 2025. An older phase-down schedule should not automatically be applied to property meeting the restored allowance’s requirements.

For ordinary qualified property acquired before January 20, 2025, and placed in service during calendar year 2025, the allowance is generally 40%. Certain long-production-period property and aircraft have different treatment, and a transition election can affect qualifying property in the first tax year ending after January 19, 2025. Check Publication 946, chapter 3, rather than selecting a percentage solely from the return’s tax year.

Bonus depreciation generally applies unless a valid election out or another exception applies. The election out generally applies to a property class, not simply whichever individual asset produces the preferred worksheet result.

Unlike Section 179, bonus depreciation does not have the same annual dollar cap or business-income limitation. It can create or increase a business loss, but other provisions may suspend or limit that loss. A depreciation deduction therefore does not necessarily produce an immediately usable owner-level deduction.

How do you carry remaining basis into MACRS?

For an uncomplicated asset with no Section 179 carryover or special adjustments:

[
D_{\text{bonus}}=(B-S)\times r
]

[
B_{\text{MACRS}}=B-S-D_{\text{bonus}}
]

[
B_{\text{year-end}}=B_{\text{MACRS}}-D_{\text{MACRS}}
]

Where:

• (B) is initial business-use basis.
• (S) is the applicable Section 179 basis reduction.
• (r) is the verified bonus percentage expressed as a decimal.
• (D_{\text{bonus}}) is bonus depreciation.
• (B_{\text{MACRS}}) is basis available for regular depreciation.
• (D_{\text{MACRS}}) is regular depreciation for the year.
• (B_{\text{year-end}}) is year-end adjusted depreciable basis.

Dollar amounts must reflect any additional required basis adjustments. If only part of the remaining property qualifies for bonus, calculate the qualifying portion separately. The deduction order comes from the Form 4562 instructions, line 14.

Regular MACRS is not necessarily cost divided by recovery period. The result depends on the depreciation system, method, and convention. A half-year convention does not apply automatically: additions elsewhere in the business can trigger the mid-quarter convention. See Publication 946, chapter 4.

Why can a larger asset deduction reduce the QBI deduction?

QBI generally includes the qualified business deductions allowed in calculating taxable income. Consequently, currently deductible Section 179, bonus depreciation, and regular depreciation attributable to a qualified business generally reduce its QBI. Suspended deductions generally enter QBI when they become deductible, rather than when first elected or recorded.

For a simplified single-business calculation with positive QBI, no REIT/PTP component, no qualified loss carryforward, and no applicable wage/property restriction:

[
Q=\min\left(0.20\times QBI,;
0.20\times\max(0,TI_{\text{before QBI}}-G)\right)
]

Here, (Q) is the ordinary QBI deduction calculation in dollars, (TI_{\text{before QBI}}) is taxable income before that deduction, and (G) is net capital gain increased by qualified dividends, as specified in the applicable form instructions. This is not a formula using gross income, AGI, or MAGI.

If the QBI component controls before and after an additional deduction, each additional dollar of qualifying asset deduction can reduce the QBI deduction by 20 cents. Under those conditions, the net reduction in taxable income is 80 cents—not a full dollar. That relationship changes when another limitation controls, losses arise, or an income threshold is crossed.

For tax years beginning after 2025, an applicable minimum deduction for active qualified business income must also be considered. The ordinary formula above is therefore not a complete calculation for every later-year taxpayer. Use the applicable year’s official instructions and the IRS explanation of the QBI deduction and active qualified businesses.

When do W-2 wages and UBIA change the result?

Once taxable income exceeds the applicable threshold, the QBI component for a non-specified-service business may be limited using:

[
W=\max\left(0.50\times\text{W-2 wages},;
0.25\times\text{W-2 wages}+0.025\times UBIA\right)
]

The wages are qualifying wages paid by the business—not the owner’s unrelated employment wages. UBIA means unadjusted basis immediately after acquisition of qualified property.

For tax year 2025, the limitation begins phasing in above $394,600 for married filing jointly and $197,300 for other returns. The phase-in ranges are $100,000 and $50,000, respectively. Within the range, a non-SSTB calculation phases in the excess of the tentative QBI component over the wage/property limit; it does not immediately impose the full limit. Specified service trades or businesses have an additional eligibility reduction. See the 2025 Form 8995-A instructions.

Use the thresholds and phase-in rules for the actual year being modeled. Do not carry the 2025 ranges into a later-year worksheet.

Does expensing an asset eliminate its UBIA?

Not necessarily. UBIA is different from adjusted depreciable basis. The regulations determine UBIA without reductions for regular depreciation, bonus depreciation, or Section 179 expensing. A fully expensed asset can therefore still contribute qualified-property UBIA while satisfying the holding, use, and depreciable-period requirements. See Treasury Regulation §1.199A-2(c).

Qualified property generally must be held and used in producing QBI at year-end. Its QBI depreciable period generally ends on the later of 10 years after first placement in service or the last day of the last full year in the applicable recovery period. Keep adjusted basis and UBIA in separate worksheet columns.

What does a complete depreciation-and-QBI comparison look like?

Consider a hypothetical tax-year 2025 married couple filing jointly. One spouse owns an S corporation that purchases and places a $40,000 machine in service on July 1, 2025.

Assume:

• The machine was acquired from an unrelated seller after January 19, 2025, qualifies for Section 179 and 100% bonus depreciation, and is used entirely for business.
• It is five-year GDS property using the 200% declining-balance method and half-year convention.
• The business has sufficient Section 179 business income, and neither entity-level nor owner-level limits restrict the $20,000 partial election.
• Before this machine’s deductions, the owner has $120,000 of QBI and $180,000 of taxable income before QBI, after all other relevant adjustments.
• There are no qualified dividends, net capital gains, qualified loss carryforwards, REIT/PTP components, or suspended deductions.
• Other return items remain unchanged across scenarios.
• The regular-MACRS and partial-Section-179 scenarios include a valid election out of bonus depreciation for the relevant property class.

The assumed $180,000 of pre-deduction taxable income is below the $394,600 married-filing-jointly QBI threshold for tax year 2025. The wage/property restriction therefore does not apply. Under the assumed asset classification and convention, the first-year MACRS percentage is 20%, from Publication 946, Appendix A, Table A-1.

The partial-Section-179 scenario works as follows:

1. Subtract the $20,000 election from $40,000 of basis, leaving $20,000 for regular MACRS.
2. Multiply $20,000 by the assumed first-year MACRS percentage of 20%: $4,000.
3. Add Section 179 and MACRS: $20,000 + $4,000 = $24,000.
4. Reduce QBI: $120,000 − $24,000 = $96,000.
5. Reduce taxable income before QBI: $180,000 − $24,000 = $156,000.
6. Compare the QBI component, $96,000 × 20% = $19,200, with the taxable-income limit, $156,000 × 20% = $31,200.
7. Deduct the smaller amount: $156,000 − $19,200 = $136,800.

Compared with regular MACRS alone, full bonus depreciation produces $32,000 more asset deductions but $6,400 less QBI deduction. The resulting reduction in taxable income is $25,600, not $32,000.

These are hypothetical worksheet results, not tax-savings or refund amounts. All calculations produce exact whole-dollar amounts, so no rounding adjustment is needed. A complete return calculation would still apply the applicable tax-year tax computation and other relevant provisions.

How should the site’s calculators be used together?

The tools model separate parts of the worksheet. Their displayed outputs should not be added together without transferring basis and recalculating QBI.

Section 179: establish aggregate limits outside the single-asset estimate

The Section 179 Deduction Calculator calculates phaseout from the entered asset’s business cost. It does not separately collect total taxpayer-wide eligible additions, an elected amount, or prior-year carryovers. Consequently, a single-asset estimate does not capture the full phaseout when other qualifying property was placed in service. Replace its illustrative dollar-limit inputs with the official amounts for the actual tax year.

Bonus depreciation: transfer only the remaining eligible basis

The Bonus Depreciation Calculator applies entered business use, qualifying-property percentage, and bonus rate. It does not independently determine the legal percentage or subtract a Section 179 election. When combining the methods, first determine the proper post-Section-179 basis. If that amount already represents business-only basis, do not apply the original mixed-use percentage again.

Depreciation schedule: distinguish straight-line estimates from MACRS

The Business Depreciation Schedule Calculator divides business-use basis by an entered recovery period and applies an entered first-year fraction. It is a preliminary straight-line estimate, not an automatic MACRS table calculation. It does not reproduce the example’s 200% declining-balance MACRS calculation simply by entering a five-year recovery period.

QBI: recalculate after allowed business deductions

The QBI Deduction Calculator uses entered QBI and taxable income, with an on/off wage/property limitation. That switch does not reproduce a partial phase-in. The displayed formula also does not calculate SSTB eligibility, qualified loss netting, REIT/PTP components, or the post-2025 active-business minimum deduction. Use the appropriate official Form 8995 or 8995-A calculation when those provisions matter.

US Tax Calculators provides scenario estimates from entered assumptions. It does not inspect supporting records, establish eligibility, make elections, or prepare or file returns. The user remains responsible for the underlying facts and for checking results against the applicable official instructions.

What else changes the decision beyond the first-year deduction?

A deduction multiplied by an assumed marginal tax rate is only an illustration. A marginal rate measures tax on an additional increment of income; an effective rate measures tax relative to a broader income base. Neither substitutes for recalculating both scenarios, particularly when QBI limitations or other income-dependent rules change.

For a sole proprietor, business depreciation can affect net earnings used in the self-employment tax calculation. The QBI deduction itself does not reduce net earnings from self-employment. It is therefore incorrect to treat all four deductions as having the same payroll or self-employment tax effect.

Compare future depreciation as well as the current year. Accelerating cost recovery leaves less adjusted basis for later deductions. A sale or a decline in business use can also produce recapture; Section 179 recapture can apply when business use falls to 50% or less during the applicable recovery period. Keep acquisition, use, election, carryover, and depreciation records after the first-year deduction. See Publication 946.

Maintain a separate state worksheet where required. A federal deduction does not establish state treatment, and the federal depreciation worksheet may not supply the records needed for state adjustments. Obtain the applicable return-year depreciation instructions from the relevant state revenue department before carrying federal deductions into a state estimate.

Finally, changes in estimated payments or wage withholding affect how tax is paid, not the amount of the depreciation or QBI deduction. Evaluate the final tax liability first; then address payment timing separately.