Section 179 vs. Bonus Depreciation in 2026: How Business Owners Deduct Equipment Purchases

Between the Section 179 deduction and bonus depreciation, most small and mid-size businesses can now write off the full cost of equipment, vehicles, and other qualifying assets in the year they’re placed in service — a direct result of the One Big Beautiful Bill Act (OBBBA) making 100% bonus depreciation permanent again.

Section 179: The 2026 Numbers

For 2026, the Section 179 expensing limit is $2.56 million, with the phase-out threshold starting at $4.09 million of total qualifying purchases (both figures are inflation-adjusted under OBBBA going forward). If your business buys more than the phase-out threshold in eligible property in a single year, the $2.56 million cap is reduced dollar-for-dollar by the excess.

Bonus Depreciation: Back to 100%, and Permanent

Before OBBBA, bonus depreciation was on a scheduled phase-down (60% in 2024, 40% in 2025, and so on toward zero). OBBBA reinstated 100% bonus depreciation under IRC Section 168(k) for qualifying property acquired and placed in service after January 19, 2025, and made it permanent — no future phase-down built into the law. Unlike Section 179, bonus depreciation has no dollar cap and isn’t limited by business income, though it does apply automatically unless you elect out.

How the Two Work Together

Section 179 is applied first, business-income-limited, and lets you choose which assets to expense. Bonus depreciation then applies to what’s left, with no income limitation, potentially creating a net operating loss. In practice, most advisors use Section 179 to target specific assets (like a vehicle with weight-based deduction limits) and let 100% bonus depreciation cover the rest of a large purchase.

What Counts as Qualifying Property

Both provisions cover new and used tangible personal property with a recovery period of 20 years or less — machinery, equipment, computers, furniture, and certain vehicles — as well as qualified improvement property for nonresidential real estate (like HVAC, roofs, and interior renovations). Land and buildings themselves generally don’t qualify for either.

Why Entity and Timing Choices Matter

Because bonus depreciation can create losses that pass through to owners, the benefit depends heavily on your entity structure — similar to how the choice between a Solo 401(k) and a SEP-IRA depends on your specific income and business structure. A pass-through loss from bonus depreciation is far more useful if you have other income to offset it against; talk to a CPA before making a large purchase solely for the tax write-off.

Written by Samuel, Certified Public Accountant

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