Section 179 and Bonus Depreciation: Writing Off Business Equipment in 2026

Buying equipment for a business used to mean a choice between two write-off tools with sharply different limits and rules — and the One Big Beautiful Bill Act just made that choice considerably more generous by permanently restoring 100% bonus depreciation.

Section 179: A Large But Capped Deduction

Section 179 lets you elect to expense (deduct immediately, rather than depreciating over several years) the cost of qualifying business property in the year it's placed in service. For 2026, the maximum Section 179 deduction is $2,560,000, with a phase-out that begins once your total qualifying property placed in service during the year exceeds $4,090,000 — the deduction is reduced dollar-for-dollar above that threshold, fully eliminated once total purchases reach roughly $6.65 million for the year. A separate, much lower cap of $32,000 applies to heavy SUVs (over 6,000 lbs gross vehicle weight rating).

Section 179 is limited by your business's taxable income — it cannot be used to create or deepen a net operating loss. Any amount you can't use in the current year due to this income limitation carries forward to future years.

Bonus Depreciation: No Dollar Limit, No Income Cap

Bonus depreciation (the "additional first-year depreciation deduction" under Section 168(k)) works differently: it applies automatically (unless you affirmatively elect out) to eligible property, has no dollar limit, and — unlike Section 179 — has no income limitation, meaning it can create or increase a net operating loss that can be carried to other tax years.

Before the OBBBA, bonus depreciation was on a scheduled phase-down from its post-TCJA peak of 100%: 80% in 2023, 60% in 2024, 40% in 2025, and just 20% for 2026 before disappearing entirely after that. The OBBBA reversed this trajectory: for qualifying property acquired and placed in service after January 19, 2025, bonus depreciation is 100%, permanently — not just for 2025, but going forward with no further scheduled phase-down.

How They Work Together

The two aren't mutually exclusive — a common approach is to elect Section 179 first on priority assets (up to your income limitation and the dollar caps), then apply 100% bonus depreciation to any remaining eligible basis that Section 179 didn't cover. Because bonus depreciation now matches Section 179's 100% rate and has no dollar cap, the combination means nearly any equipment purchase a small or mid-size business makes in 2026 can be fully deducted in the year of purchase, subject only to the two specific limitations described above (Section 179's income limitation and the dollar-based phase-out at high total purchase volumes).

A Worked Example

A business places $4.3 million of qualifying equipment in service during 2026 — above the $4,090,000 Section 179 phase-out threshold by $210,000. The maximum Section 179 deduction is reduced by that same $210,000, to $2,350,000 (subject also to the business's taxable income limitation). The remaining $1,950,000 of basis that Section 179 didn't cover flows automatically to 100% bonus depreciation instead, meaning the business can still fully deduct the entire $4.3 million in year one through the combination of both provisions.

State Conformity Varies Significantly

Not every state automatically follows these federal rules — some states decouple from bonus depreciation, Section 179, or both, requiring separate add-back calculations on the state return even when the federal deduction is fully allowed. If you're in a state with its own income tax and making a large equipment purchase, check your specific state's conformity before assuming the full federal benefit carries through to your state return.

Common Questions

Does bonus depreciation apply to real estate? Generally not to the building structure itself, but certain shorter-recovery-period components identified through a cost segregation study can qualify — this is a specialized area worth discussing with a tax professional for significant real estate purchases.

Can I use both Section 179 and bonus depreciation on the same asset? Not on the exact same dollar of basis — you typically elect Section 179 on a specific asset up to whatever amount you choose (including zero), and bonus depreciation then applies to whatever basis remains after that election.

What happens if I sell the asset later? Depreciation recapture rules apply — the amount you deducted through Section 179 or bonus depreciation is generally recaptured as ordinary income (not capital gain) if you sell the asset for more than its remaining depreciated basis, or if you stop using it predominantly for business.