When your business buys equipment, vehicles, or other qualifying assets, you have options for how quickly you take the tax deduction. The default is straight-line depreciation — spreading the cost over the asset's useful life, which can be five, seven, fifteen, or more years depending on the asset type.
Section 179 and bonus depreciation are both methods for accelerating that deduction — taking it faster than straight-line, sometimes in the very year you make the purchase.
Section 179 — Full First-Year Expensing With an Income Cap
Section 179 allows businesses to deduct the full cost of qualifying property in the year it's placed in service, rather than depreciating it over time.
The 2026 deduction limit is $2,560,000. The phase-out threshold is $4,090,000 — for most small businesses, these limits are academic.
What qualifies: tangible personal property used in business — equipment, machinery, computers, office furniture, vehicles (subject to limits), and certain software. Qualified improvement property also qualifies. Land and buildings do not.
The critical limitation: Section 179 cannot create a loss. Your Section 179 deduction is limited to your taxable income from all active businesses. If you have $80,000 in business income and want to take $100,000 in Section 179, the deduction is capped at $80,000. The remaining $20,000 carries forward to the following year.
This limitation matters if you're having a low-income year and want to use a large asset purchase to reduce your tax bill significantly. Section 179 alone won't get you there.
Bonus Depreciation — Larger Deduction, Can Create a Loss
Bonus depreciation allows a percentage of the cost of qualifying property to be deducted in the year of acquisition.
Under the One Big Beautiful Bill Act, signed July 4, 2025, bonus depreciation is permanently 100 percent for qualifying property acquired after January 19, 2025.
What qualifies: new and used property with a recovery period of 20 years or less, computer software, and qualified improvement property.
The key difference from Section 179: bonus depreciation can create a net operating loss. If your business has $50,000 in income and you take $80,000 in bonus depreciation, you have a $30,000 net operating loss that can be carried forward to offset income in future years.
This makes bonus depreciation the better tool when you want to create or increase a loss — for example, in a year where you expect significantly higher income the following year.
Planning an equipment purchase? Model the depreciation before you buy, not after.
Using Both Together
Section 179 and bonus depreciation can be used on the same asset, in a specific order.
Section 179 is applied first. Then bonus depreciation applies to the remaining cost after Section 179.
Say you purchase equipment for $100,000. You apply $80,000 of Section 179 (limited by your income). Then 100 percent bonus depreciation applies to the remaining $20,000, so the full $100,000 is deducted in the first year.
Vehicle Limitations
Vehicles get more complicated because the IRS applies luxury auto limits that cap depreciation deductions on passenger automobiles.
The IRS publishes first-year depreciation limits for passenger vehicles each year, and they are significantly lower than the actual cost of most vehicles.
Larger vehicles — those with a gross vehicle weight rating over 6,000 pounds — have different rules. SUVs over 6,000 GVWR are subject to a $32,000 Section 179 limit in 2026. Pickups with a cargo bed at least six feet long that isn't accessible from the passenger compartment, and certain other vehicles, aren't subject to that SUV limit.
The Year-End Decision
For most businesses, the Section 179 and bonus depreciation decision comes up at year end when you're evaluating whether to make a major purchase before December 31 or wait until January.
The relevant questions are:
What is your projected taxable income for the current year? If it's significantly higher than expected, pulling a planned purchase into the current year makes sense.
Is your income lower than last year — meaning you're in a lower bracket this year? In that case, deferring the purchase until next year when you might be in a higher bracket could make the deduction more valuable.
Do you expect next year's income to be significantly higher? If so, the bonus depreciation deduction might be worth more next year.
Bonus Depreciation Is Now Permanent
The phase-down that was scheduled under prior law no longer applies. Qualifying property acquired after January 19, 2025 is eligible for 100 percent bonus depreciation, and that rule is permanent.
That removes the rush to buy before a deadline — but timing still matters, because the deduction lands in the year the property is placed in service. Planned purchases worth making anyway should be timed to the year the deduction does you the most good.
Modeling it before the purchase, rather than after, is what actually captures the benefit. For clients with capital expenditures on the horizon, equipment purchase timing is a standing part of our year-end planning.