To better understand how this works, let's walk through an example. Susie and Mark started a specialty bakery and purchased commercial ovens and other kitchen equipment worth $2,100,000. Here is how the deductions for their business look in the first year of operations. Note that the IRS requires Section 179 depreciation to be calculated before bonus depreciation.Equipment Purchase Price $2,100,000Maximum allowed Section 179 write-off ($1,040,000)
Bonus depreciation for remaining cost ($1,060,000)
Total write-off in year one ($2,100,000)Net income has now been reduced by the full purchase price of $2,100,000. Let's assume a corporate tax rate of 21%. By using both deductions, the bakery has just reduced net income by the full purchase price of $2,100,000. Multiply that by the 21% tax rate for a savings of $441,000.