Dollar figures in this piece are for tax year 2026.
Buy equipment for your business in 2026 and you can usually deduct all of it right away, two ways. Section 179 is an election to expense qualifying property up to a dollar limit and up to your business income. Bonus depreciation, formally the special depreciation allowance under section 168(k), is 100% of cost again for property acquired after January 19, 2025. It is automatic unless you opt out.
The choice decides whether you can create a loss, whether you can take less than the full amount on purpose, and how much your state adds back. Below are the 2026 numbers, the real differences, a computed example and what to do before December 31. This is general information about federal rules for one tax year, not advice on a specific purchase. If you want the numbers run for your situation, see tax planning.
The 2026 section 179 numbers
Section 179 lets you elect to expense the cost of qualifying property instead of capitalizing it. The deduction belongs to the year the property is placed in service, meaning ready and available for use. Ordering it or paying for it does not count. The OBBBA raised the base limit to $2,500,000 with a $4,000,000 phase-out threshold, both indexed for inflation after 2025. Rev. Proc. 2025-32 gives the 2026 amounts.
The dollar limit only bites when you buy a lot. If the cost of section 179 property placed in service in 2026 is above $4,090,000, the $2,560,000 limit is reduced by the excess and reaches zero at $6,650,000 of purchases. Most small businesses never get near that, which is why the second limit matters more.
That second limit is the income cap. The deduction cannot exceed the taxable income you derive from actively running a trade or business during the year, figured before the section 179 deduction itself. For an owner who also works in the business, wages count toward that income. Whatever the cap blocks is not lost. It carries forward to a later year, subject to the same limits.
Three other rules come up often. Property must be acquired by purchase for use in your trade or business, so property inherited or received in certain related-party or controlled-group transfers does not qualify. Estates and trusts cannot use section 179. For a partnership or S corporation, the limits apply to the entity and again to each owner, so an owner with several businesses has one combined limit.
Section 179 limits for 2026
| Limit | 2026 amount | What it does |
|---|---|---|
| Maximum deduction | $2,560,000 | Most you can expense for the year |
| Phase-out starts | $4,090,000 | Limit drops $1 for each $1 of cost above this |
| Phase-out ends | $6,650,000 | Limit reaches zero (computed: $2,560,000 plus $4,090,000) |
| Sport utility vehicles | $32,000 | Cap on cost of an SUV that can be expensed |
| Income cap | Active business income | Deduction cannot exceed it; excess carries forward |
Bonus depreciation after the 2025 law change
Bonus depreciation had been stepping down under the 2017 law. The 2025 legislation, P.L. 119-21, restored it to 100% of adjusted basis for qualified property acquired after January 19, 2025. The acquisition date is what counts, and property is not treated as acquired after the day you sign a written binding contract for it. If you signed a purchase contract before January 20, 2025 and the property went into service later, ask before assuming 100% applies. Different rules cover property acquired before that date.
Qualified property generally means property with a recovery period of 20 years or less, plus certain software and a few other categories. Used property can qualify if you never used it before and the purchase meets the same related-party tests section 179 has. Office furniture, machinery, computers and qualified improvement property (a 15-year class for interior improvements to nonresidential buildings) all fit. Buildings themselves, at 27.5 or 39 years, do not.
Bonus is the default. Do nothing on Form 4562 and the allowance is taken. To avoid it, you elect out, and the election covers an entire class of property placed in service that year, such as all your 5-year property. You generally make it on a timely filed return, including extensions.
How the two compare
Section 179
- How it startsElection, by asset
- 2026 dollar limit$2,560,000, phased out from $4,090,000
- Income limitActive business income, carryforward
- Used propertyQualifies if purchased
- Choose the amountYes, any amount up to the limit
- Real propertyRoofs, HVAC, fire and security systems, QIP
- If you sell the propertyGain up to the deduction is generally ordinary income
Bonus (section 168(k))
- How it startsAutomatic, elect out by class
- 2026 dollar limitNone
- Income limitNone, can create a loss
- Used propertyQualifies if not previously used by you and purchased
- Choose the amountNo, all or nothing for the class
- Real propertyOnly classes of 20 years or less, so QIP yes, buildings no
- If you sell the propertyGain up to the allowance is generally ordinary income
Federal rules, tax year 2026. Both reduce the basis that regular depreciation is figured on.
See it as a table
| Feature | Section 179 | Bonus (section 168(k)) |
|---|---|---|
| How it starts | Election, by asset | Automatic, elect out by class |
| 2026 dollar limit | $2,560,000, phased out from $4,090,000 | None |
| Income limit | Active business income, carryforward | None, can create a loss |
| Used property | Qualifies if purchased | Qualifies if not previously used by you and purchased |
| Choose the amount | Yes, any amount up to the limit | No, all or nothing for the class |
| Real property | Roofs, HVAC, fire and security systems, QIP | Only classes of 20 years or less, so QIP yes, buildings no |
| If you sell the property | Gain up to the deduction is generally ordinary income | Gain up to the allowance is generally ordinary income |
The tax code says it that way. Here is what it means.
| What you read | What it means |
|---|---|
| The property is ready and available for use. Ordering or paying for it does not count | |
| You choose to expense qualifying property, asset by asset, up to the limit | |
| The automatic 100% first-year allowance for qualified property acquired after January 19, 2025 | |
| Decline bonus for a whole class of property placed in service that year | |
| Section 179 the income cap blocks, allowed in a later year | |
| Gain on a sale, up to the deduction taken, taxed as ordinary income |
Worked example: the income cap and the bracket effect
Example, hypothetical, 2026: a single owner of a sole proprietorship buys $120,000 of 7-year equipment in the spring. It is the only property placed in service this year. I ignore self-employment tax, the QBI deduction and state tax so the numbers are easy to redo. The standard deduction is $16,100 and the brackets are the single 2026 brackets from Rev. Proc. 2025-32.
Start with the income cap. If the business earns $85,000 before this equipment, section 179 can deduct only $85,000 this year and $35,000 carries forward. Bonus takes the full $120,000 and leaves a $35,000 loss on the Schedule C. Whether you can use that loss against other income depends on other loss limits, so check those before choosing bonus for that reason alone. With $140,000 of income, both methods deduct the full $120,000.
Now the bracket effect. At $140,000 of business income, taxable income with no equipment deduction is $123,900 and the tax is $22,334. Expensing the whole $120,000, by either method, cuts taxable income to $3,900 and the tax to $390. That saves $21,944. Elect out of bonus and use regular depreciation (half-year convention, 14.29% in year one) and the first-year deduction is $17,148, the tax is $18,218, and the saving is $4,116.
The extra $102,852 of deduction moved into 2026 saved $17,828, or about 17.3 cents per dollar, because most of it landed in the 10%, 12% and 22% brackets. Spread over later years, the same deduction might land in the 24% bracket or higher if your income rises. That is no reason to avoid expensing. It is a reason to compare years before you accept the largest number by default.
- Section 179
- Bonus (100%)
- Regular MACRS only
| Section 179 | Bonus (100%) | Regular MACRS only | |
|---|---|---|---|
| $60,000 income | $60,000 | $120,000 | $17,148 |
| $85,000 income | $85,000 | $120,000 | $17,148 |
| $140,000 income | $120,000 | $120,000 | $17,148 |
Section 179 stops at the income cap while bonus takes the full cost, and regular depreciation takes $17,148 regardless.
Computed: section 179 = lesser of cost and business income; MACRS = 14.29% half-year rate, Pub. 946 Table A-1
- Bonus (100%)
- Regular MACRS
| Bonus (100%) | Regular MACRS | |
|---|---|---|
| Year 1 | $120,000 | $17,148 |
| Year 2 | $0 | $29,388 |
| Year 3 | $0 | $20,988 |
| Year 4 | $0 | $14,988 |
| Year 5 | $0 | $10,716 |
| Year 6 | $0 | $10,704 |
| Year 7 | $0 | $10,716 |
| Year 8 | $0 | $5,352 |
With bonus the entire $120,000 is deducted in year one; regular 7-year MACRS spreads it over eight tax years.
Computed: $120,000 x Pub. 946 Table A-1 7-year half-year rates (14.29, 24.49, 17.49, 12.49, 8.93, 8.92, 8.93, 4.46)
Why the biggest deduction is not always the right one
Section 179 has one edge over bonus: you choose the amount. If expensing the full cost would push taxable income into the lowest brackets or below zero, you can expense part and let regular depreciation handle the rest. Bonus is all or nothing for the class, so the only dial is the class-wide election out. The two also stack. A section 179 deduction reduces basis first, and bonus then applies to what is left. That is why the usual way to hit an exact target is to elect section 179 for the dollar amount you want and elect out of bonus.
Timing inside the year matters too. The mid-quarter convention applies when more than 40% of the year's depreciable basis goes into service in the last three months, and it shrinks year-one depreciation. In that 40% test, basis is reduced by section 179 but not by bonus. Say the equipment above were the only property placed in service in the fourth quarter and you elected out of bonus. The 7-year first-year rate would be 3.57%, which is $4,284 instead of $17,148. A section 179 or bonus deduction avoids that problem for the asset itself.
Neither deduction is permanent the way a regular deduction feels. Sell the property and gain up to the bonus or section 179 amount deducted is generally ordinary income. If business use of section 179 property drops to 50% or less, the benefit can be recaptured. Plan on holding what you expense.
The usual way versus doing it right
Take the biggest number
- The biggest deduction wins by default
- Bonus is left on without a look at brackets
- A late-year purchase gets ordered, not placed in service
Compare the years
- Compare tax across this year and next before choosing
- Size the amount with section 179 and elect out of bonus if needed
- Count the in-service date, not the order date
Common mistakes
- Ordering equipment by December 31 and assuming that counts, when both deductions depend on the property being placed in service by year-end.
- Forgetting the income cap and expecting section 179 to create a loss, when the excess carries forward instead.
- Taking bonus automatically without checking whether it wastes low brackets, a state add-back, or a loss limit.
- Missing the class-wide nature of the bonus election, so one asset cannot be left out while the rest of its class takes the allowance.
- Skipping both deductions on a late-year purchase and triggering the mid-quarter convention with a first-year rate of 3.57% for 7-year property.
- Assuming a large vehicle can be expensed in full; the cost of a sport utility vehicle that counts toward section 179 is capped at $32,000 for 2026, and other vehicles have separate limits.
- Selling or converting expensed property to personal use without planning for recapture.
What to do before December 31
List what is coming
Write down every asset you plan to buy this year with cost, class (5-year, 7-year, 15-year), and the date it will be in service. Delivery and setup dates decide the year.
Project business income
Estimate taxable income from your trades or businesses before depreciation. That number is the section 179 cap.
Pick the target deduction
Decide whether you want everything now or an amount sized to your brackets. A modeled tax comparison across this year and next is worth more than a rule of thumb.
Choose the tool
Use bonus for the simple full deduction, section 179 when you want to choose the amount, and elect out of bonus by class if you do. Elections are made on the return, so keep the invoices and in-service dates.
Check the state
Run the NC add-back before relying on the federal figure, and remember that partners and S corporation shareholders apply the limits at the owner level too.
Put it in writing
Keep purchase contracts, invoices, in-service evidence and business-use records. A binding contract date can decide whether 100% applies.
