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US tax provisions including Section 179 and bonus depreciation can reduce effective machine cost by 25–40% in the first year for a profitable company. A $350,000 machine can yield $87,500–140,000 in first-year tax savings. Talk to your tax advisor before buying.
United States Tax Benefits
Section 179 Expensing
| Parameter | 2024 Limit | Notes |
|---|---|---|
| Maximum deduction | $1,160,000 | Applies to total equipment purchased in tax year |
| Phase-out threshold | $2,890,000 | Deduction phases out dollar-for-dollar above this |
| Eligible property | New and used (new to you) | Must be placed in service by Dec 31 |
| Qualifying use | >50% business use | Personal use reduces deduction |
Bonus Depreciation
| Year | Bonus Percentage | Notes |
|---|---|---|
| 2023 | 80% | Phasing down from 100% |
| 2024 | 60% | |
| 2025 | 40% | |
| 2026 | 20% | |
| 2027 | 0% | Expires unless extended by Congress |
MACRS Depreciation
| Year | 5-Year MACRS | 7-Year MACRS |
|---|---|---|
| 1 | 20.00% | 14.29% |
| 2 | 32.00% | 24.49% |
| 3 | 19.20% | 17.49% |
| 4 | 11.52% | 12.49% |
| 5 | 11.52% | 8.93% |
| 6 | 5.76% | 8.92% |
| 7 | 8.93% | |
| 8 | 4.46% |
Combined Example: $350,000 Machine
| Calculation | Amount |
|---|---|
| Machine cost | $350,000 |
| Section 179 deduction (if eligible) | $350,000 |
| Tax savings at 21% corporate rate | $73,500 |
| State tax savings (5% average) | $17,500 |
| Total first-year tax savings | $91,000 |
| Effective machine cost after tax | $259,000 |
Tip: Section 179 can reduce your tax bill only to zero — it cannot create a refund. Bonus depreciation can create a net operating loss, which may offset income from other sources.
International Tax Incentives
| Country | Incentive | Limit | Notes |
|---|---|---|---|
| United Kingdom | Annual Investment Allowance (AIA) | £1,000,000 | 100% deduction for qualifying equipment |
| Germany | Degressive depreciation | 2.5× straight-line, max 25% | Declining balance method |
| France | Accelerated depreciation | 3× straight-line | For manufacturing equipment |
| Italy | Industry 4.0 plan | Up to 40% credit | For advanced manufacturing equipment |
| Canada | Accelerated Investment Incentive | 1.5× first-year allowance | For manufacturing equipment |
| China | Accelerated depreciation | Varies | For manufacturing enterprises |
State-Level Incentives (US)
| State | Incentive Type | Typical Benefit |
|---|---|---|
| Texas | Chapter 313 (replaced by Texas Jobs & Investment Credit) | Property tax limitation for large investments |
| Ohio | Job Creation Tax Credit | Refundable tax credit based on job creation |
| Georgia | Manufacturing tax exemption | Sales tax exemption on manufacturing equipment |
| North Carolina | Machinery and equipment exemption | Sales tax exemption on manufacturing equipment |
| Indiana | EDGE credit | Refundable payroll-based credit |
Eligibility Requirements
To Claim Depreciation
- Machine must be placed in service during the tax year
- You must have documentation: purchase agreement, invoice, delivery receipt, installation sign-off
- The machine must be used for business purposes (>50% business use)
- Depreciation begins when the machine is ready and available for use, not necessarily when you pay for it
To Claim State Incentives
- Vary by state — typically require minimum investment thresholds
- May require job creation or retention commitments
- Often require application and approval before purchase
- Some have recapture provisions if conditions are not met
Documentation Needed
| Document | Purpose |
|---|---|
| Purchase agreement or contract | Proof of purchase |
| Commercial invoice | Cost basis documentation |
| Delivery and installation sign-off | Placed-in-service date |
| Financing documents | Interest deduction (if applicable) |
| State incentive application (if applicable) | Pre-approval documentation |
| Asset register entry | Internal tracking |
FAQ
Can I deduct the full machine cost in year one?
If your business qualifies for Section 179 and the machine costs less than $1,160,000 (2024 limit), you can expense the full cost in year one. Bonus depreciation offers additional first-year deductions.
Do tax benefits apply to used machines?
Section 179 applies to new and used equipment (new to you). Bonus depreciation requires the machine to be new (first use begins with you).
Can I claim depreciation if I finance the machine?
Yes. Depreciation and financing are separate. You claim depreciation on the full machine cost regardless of how you finance it. Financing interest is a separate deductible expense.
What is the "placed in service" date?
The date the machine is ready and available for its intended use, not the delivery date. A machine delivered December 28 but installed January 5 is placed in service in January.
Does leasing affect tax benefits?
Yes. Under an operating lease, the leasing company claims depreciation. Under a capital lease (finance lease), you claim depreciation as if you purchased the machine.
Tax benefits depend on your business structure, profitability, and jurisdiction. Consult a qualified tax professional for advice specific to your situation. This article reflects general US tax rules as of 2026.