Tax Depreciation Calculator 2026

How to Use This Calculator: Step-by-Step Guide

This calculator helps you determine the optimal depreciation strategy for your CNC equipment investment. Follow these steps to get accurate results:

Step 1: Enter Equipment Costs

Start by entering the initial purchase price of your equipment. This is the total cost including delivery, installation, and any capitalized expenses. Next, estimate the salvage value—the expected resale value at the end of the equipment's useful life. For CNC equipment, salvage values typically range from 10-20% of original cost, depending on condition and market demand.

Step 2: Set Depreciation Parameters

Specify the useful life in years. For CNC laser cutting equipment, the standard useful life is 7-10 years, though this may vary by jurisdiction. Select your depreciation method based on your location: Straight-Line (required in most EU countries and China), MACRS (US standard for 7-year property), Declining Balance (accelerated method), or Sum-of-Years-Digits (moderate acceleration).

Step 3: Configure Tax Settings

Choose your tax region from the dropdown menu. The calculator automatically displays regional tax rate averages and allowed depreciation methods. You can override the default tax rate if your specific situation differs. For US businesses, the combined federal and state rate typically ranges from 21-35%. EU rates average 23% (ranging from 9% in Hungary to 30% in Germany), while China uses 25% standard or 15% for qualified high-tech enterprises.

Step 4: Apply Bonus Depreciation (If Applicable)

If you're eligible for Section 179 (US) or bonus depreciation, enter the additional first-year deduction percentage. Section 179 allows immediate expensing up to $1.16 million (2026 limit) for qualifying equipment, providing dollar-for-dollar reduction in taxable income. This is particularly valuable for businesses with strong profitability seeking immediate cash flow benefits.

Step 5: Calculate and Interpret Results

Click "Calculate Depreciation & Tax Savings" to generate comprehensive results. Review the depreciation schedule, total tax savings, NPV analysis, and method comparison. The calculator provides actionable recommendations based on your inputs, helping you optimize your tax strategy.

Real-World Calculation Examples

Example 1: US Manufacturing Company

A US manufacturer purchases a $150,000 CNC laser cutting system with an estimated $15,000 salvage value and 7-year useful life. Using MACRS depreciation at a 30% combined tax rate (21% federal + 9% state):

• Year 1 Depreciation: $21,435 (14.29% of $150,000)
• Year 1 Tax Savings: $6,431 (30% × $21,435)
• Total Tax Savings (7 years): $40,500
• NPV Tax Savings (8% discount): $35,200
• Effective Equipment Cost: $109,500 (after tax benefits)

With Section 179 immediate expensing, Year 1 tax savings jump to $45,000, improving cash flow by $38,569 in the first year alone.

Example 2: EU Manufacturing Company

A German manufacturer purchases €120,000 equipment with €12,000 salvage value over 10 years. Using straight-line depreciation at 30% corporate tax rate (required in Germany):

• Annual Depreciation: €10,800 ((€120,000 - €12,000) / 10)
• Annual Tax Savings: €3,240 (30% × €10,800)
• Total Tax Savings (10 years): €32,400
• NPV Tax Savings (6% discount): €23,800

While straight-line provides consistent annual deductions, the NPV benefit is lower than accelerated methods due to the time value of money.

Example 3: China High-Tech Enterprise

A qualified high-tech enterprise in China purchases ¥800,000 equipment with ¥80,000 salvage value over 10 years. Using straight-line depreciation at 15% preferential tax rate:

• Annual Depreciation: ¥72,000
• Annual Tax Savings: ¥10,800 (15% × ¥72,000)
• Total Tax Savings: ¥108,000 over 10 years

The 15% preferential rate significantly reduces tax benefits compared to the standard 25% rate, but still provides meaningful savings.

Understanding Your Results

Depreciation Schedule

The depreciation schedule shows annual depreciation amounts, accumulated depreciation, remaining book value, and corresponding tax savings for each year. This helps you understand the timing of tax benefits and plan cash flow accordingly.

Total Tax Savings vs. NPV Tax Savings

Total Tax Savings represents the sum of all annual tax savings without considering the time value of money. NPV Tax Savings discounts future tax savings to present value using your discount rate (typically 6-8%), providing a more accurate measure of economic benefit. The difference between these two figures highlights the importance of early tax deductions.

Effective Equipment Cost

This metric shows the true cost of equipment after accounting for tax benefits. For example, $100,000 equipment with $30,000 total tax savings has an effective cost of $70,000. This helps compare equipment options on an after-tax basis.

Method Comparison

The calculator compares all four depreciation methods side-by-side, showing Year 1 depreciation, Year 1 tax savings, and total depreciation. While total depreciation is identical across methods, accelerated methods provide significantly higher early-year benefits, improving cash flow and NPV.

2026 Tax Regulations and Updates

Tax depreciation rules continue to evolve. As of 2026, key regulations include:

United States

• Section 179 Limit: $1.16 million for 2026 (indexed for inflation)
• Phase-Out Threshold: Begins at $2.89 million in total equipment purchases
• Bonus Depreciation: Phasing down from 100% (2023) to 60% (2026) for qualified property
• MACRS: Remains the standard for equipment classified as 7-year property
• Corporate Tax Rate: 21% federal, with state rates varying from 0-12%

European Union

• Depreciation Methods: Most countries require straight-line, though some allow accelerated methods for specific industries
• Useful Life Standards: Typically 5-10 years for manufacturing equipment, varying by country
• Tax Rates: Range from 9% (Hungary) to 30% (Germany), with average around 23%
• R&D Credits: Many EU countries offer additional tax credits for equipment used in R&D activities

China

• Standard Tax Rate: 25% for most enterprises
• Preferential Rate: 15% for qualified high-tech enterprises and encouraged industries
• Useful Life: GB/T standards specify 10-year useful life for machinery and equipment
• Accelerated Depreciation: Available for equipment in encouraged industries, allowing up to 60% first-year deduction
• Depreciation Methods: Straight-line and sum-of-years-digits are most commonly used

Strategic Tax Planning Tips

Maximizing depreciation benefits requires strategic planning:

• Coordinate with Profitability: Time equipment purchases to coincide with profitable years to maximize immediate tax benefits
• Consider Multi-Year Planning: If you expect higher tax rates in future years, accelerated depreciation may be less advantageous
• Evaluate Lease vs. Buy: While leases provide immediate deductions, purchasing with accelerated depreciation typically offers 10-15% lower total cost for businesses with adequate taxable income
• Leverage Section 179 Strategically: Use Section 179 for equipment purchases up to the limit, then apply regular depreciation to remaining basis
• Document Everything: Maintain detailed records of equipment costs, useful life determinations, and depreciation calculations for tax audit purposes

For comprehensive analysis including maintenance costs, operating expenses, and total cost of ownership, use our Total Cost of Ownership Calculator. To evaluate return on investment and capacity utilization, explore our ROI & Capacity Calculator.