Last updated: October 19, 2026. This article is for general information only and is not tax, legal, or financial advice. Depreciation rules depend on your entity type, income and state, so confirm details with the IRS (Form 4562 instructions and Publication 946) or a qualified tax professional before you buy.
If your business plans to buy equipment, computers, machinery or a work vehicle, the timing matters. Under current federal law you may be able to deduct much or all of the cost in the first year instead of spreading it over many years, using either the Section 179 deduction or 100% bonus depreciation. For a 2026 deduction on a calendar-year business, the property generally has to be bought and placed in service by December 31, 2026, which is about 10 weeks away.
The short answer: Section 179 gives you a deliberate, elective deduction that is capped by a dollar limit and by your business income, while bonus depreciation has no dollar cap and can create a tax loss. Many small businesses can use either, and some use both in combination.
What changed: the 2025 tax law
The One Big Beautiful Bill Act (Public Law 119-21), signed in July 2025, made two changes that matter for 2026 purchases:
- Section 179 was raised. The IRS says the expensing limit is $2,500,000 for property placed in service in tax years beginning after December 31, 2024, with the phase-out starting at $4,000,000 of qualifying purchases. Both amounts are indexed for inflation after 2025. Published 2026 figures are about $2.56 million and $4.09 million (from Rev. Proc. 2025-32 as summarized by tax publishers), so check the IRS notice for the exact numbers.
- 100% bonus depreciation became permanent. The IRS describes a permanent 100% additional first-year depreciation deduction for qualified property acquired after January 19, 2025. Before the law, the rate was scheduled to fall to 20% for 2026 and then to zero.
The IRS has also issued interim guidance on the bonus depreciation rules in Notice 2026-11, so your tax professional can confirm how it applies to your purchase.
Section 179 vs bonus depreciation: side by side
| Feature | Section 179 | Bonus depreciation |
|---|---|---|
| Dollar limit | About $2.5 million, indexed (phase-out starts near $4 million in purchases) | No dollar limit |
| Can it create a loss? | No. The deduction is limited to your taxable business income; the excess carries forward | Yes. It can create or increase a net operating loss |
| Election | You must elect it (Form 4562) | Automatic unless you opt out for a class of property |
| Choose asset by asset? | Yes, you pick which assets and how much | Applies to the whole class of property unless you opt out |
| New and used property | Both | Both, if you did not use it before and it was not acquired from a related party |
| Placed-in-service deadline | Last day of your tax year | Last day of your tax year |
What typically qualifies
- Machinery, tools, computers, furniture and other tangible business equipment.
- Off-the-shelf software.
- Business vehicles, subject to weight and luxury-auto limits. Heavy SUVs, trucks and vans over 6,000 pounds gross vehicle weight have a lower Section 179 cap (published at $32,000 for recent years), and regular passenger cars have strict first-year limits.
- Certain improvements to nonresidential buildings, such as roofs, HVAC, fire protection and security systems.
Land and buildings themselves do not qualify, and property used mostly outside the business or outside the U.S. generally does not qualify either.
The December 31 rule: placed in service, not just ordered
The deduction applies to the year the property is placed in service, meaning it is delivered, set up and ready for its intended use. Signing a purchase order or paying a deposit by December 31 is not enough if the equipment arrives in January. Custom or large equipment with long lead times may already be too late for 2026, so ask suppliers for firm delivery and installation dates.
A hypothetical example
This is an illustration, not a prediction. A sole proprietor expects $90,000 of net business profit in 2026 and buys a $40,000 piece of equipment that is installed in November. If she elects Section 179 for the full $40,000, her taxable business income drops to $50,000. At a 22% marginal federal income tax rate, the federal income tax reduction would be about $8,800 ($40,000 × 22%), before considering self-employment tax and state tax. Without the deduction, she would instead recover the $40,000 over several years of regular depreciation. Her cash outlay is still $40,000 either way: a deduction reduces tax, it does not pay for the equipment.
Common mistakes to avoid
- Buying only for the tax break. A deduction saves only a portion of what you spend. Do not buy something you do not need.
- Forgetting the income limit. Section 179 cannot exceed your taxable business income. If profit is small this year, bonus depreciation or a smaller election may fit better.
- Ignoring state rules. Many states do not follow federal bonus depreciation or have their own Section 179 limits, so your state return may differ.
- Overlooking depreciation recapture. If you sell the equipment later for more than its remaining tax basis, part of the gain can be taxed as ordinary income. Dropping business use of listed property to 50% or less can also trigger recapture.
- Weak records. Keep invoices, proof of payment, delivery and in-service dates, and a mileage log for vehicles.
- Financing assumptions. Financed equipment can still qualify, but check your loan costs. With the Federal Reserve having raised rates in September, borrowing costs matter. See our guide on the September 2026 Fed rate hike and small business borrowing.
A quick checklist before you buy
- Confirm you need the equipment and can afford the cash flow, with or without the deduction.
- Estimate your 2026 taxable business income to see how much Section 179 you could use.
- Confirm the delivery and set-up date will be on or before December 31, 2026.
- Ask your tax professional whether Section 179, bonus depreciation, or regular depreciation fits best, and how your state treats it.
- Plan your quarterly tax payments around the deduction. Our guide to the fourth-quarter estimated tax payment for 2026 explains the safe harbor rules and the January deadline.
- Keep documentation and file Form 4562 with your return.
If you filed an extension this year, our October 15 tax extension checklist covers what to do next, and our tax bracket guide helps you estimate your marginal rate.
Frequently asked questions
Can I use both Section 179 and bonus depreciation?
Yes. Section 179 is applied first to the assets you choose, and bonus depreciation can then apply to the remaining basis of qualified property. Your tax professional can show how to order them.
Does used equipment qualify?
Generally yes, if it is new to you, was not previously used by you or a related party, and meets the other rules.
Does the equipment have to be paid for in full by December 31?
No. Financed purchases can qualify if the property is placed in service in the year. What matters is the in-service date and the business use.
Can an employee or LLC take Section 179?
Section 179 is for business owners and certain businesses, not for ordinary employee expenses. How an LLC, S corporation or partnership claims it depends on its tax classification, so ask a tax professional.
Bottom line
Section 179 and 100% bonus depreciation can make equipment purchases cheaper after tax, but only if the property is truly placed in service by December 31, 2026, and the purchase makes business sense on its own. Compare both methods with a tax professional, check your state’s rules, and keep clean records.
Sources: IRS, “Working Families Tax Cuts: Businesses” and IRS Notice 2026-11 (interim guidance on bonus depreciation); Public Law 119-21; Haynes Boone summary of the One Big Beautiful Bill Act; SparkReceipt Section 179 2026 guide (figures citing Rev. Proc. 2025-32).
