Section 179 vs Bonus Depreciation: 2026 Limits and Example

Quick answer: In the Section 179 vs bonus depreciation choice for 2026, both let you deduct the full cost of equipment in the year you place it in service. Section 179 is elective, capped at $2,560,000 and limited to business income. Bonus depreciation is 100% for property acquired after January 19, 2025, has no dollar cap and can create a loss.

The One Big Beautiful Bill Act made both tools more generous, so most small businesses can now write off a new laptop, van or machine in year one either way. The differences show up in years with low profit, large purchases or state tax bills. This guide compares the two, gives the 2026 limits and works through an example with real numbers.

Important: This is general information, not tax advice. Depreciation rules have many exceptions, especially for vehicles, real property and state taxes. Check with a qualified tax adviser before choosing a method.

What is Section 179?

Section 179 lets a business elect to deduct the cost of qualifying property in the year it is placed in service instead of depreciating it over several years. Qualifying property includes most tangible business equipment, such as computers, machinery, furniture, tools and many vehicles, plus off-the-shelf software and certain improvements to nonresidential buildings, including roofs, HVAC, fire protection and security systems.

The key features of the Section 179 deduction for 2026:

• Limit: $2,560,000 for tax years beginning in 2026.
• Phase-out: the limit falls dollar for dollar once qualifying purchases in the year exceed $4,090,000.
• Income limit: the deduction cannot exceed taxable income from your active trades or businesses. The excess carries forward.
• Elective: you choose which assets and how much, and make the election on Form 4562.
• Business use: property must be used more than 50% for business.

What is bonus depreciation?

Bonus depreciation, formally the special depreciation allowance under Section 168(k), lets you deduct a percentage of the cost of qualified property in its first year. Qualified property is generally property with a MACRS recovery period of 20 years or less, which covers most equipment, vehicles and qualified improvement property.

Under the 2017 law, bonus depreciation dropped from 100% to 80% in 2023, 60% in 2024 and 40% in 2025. The One Big Beautiful Bill Act reversed that. 100% bonus depreciation is now permanent for qualified property acquired after January 19, 2025. The IRS confirmed in Notice 2026-11 that the existing rules carry over with this new date.

Key features:

• No dollar limit and no business income limit, so it can create a loss.
• Automatic unless you elect out, and the election out applies to a whole class of property for the year.
• Used property qualifies if you have not used it before and did not buy it from a related party.
• Transition election: for the first tax year ending after January 19, 2025, you could elect 40% instead of 100% on eligible property.

Section 179 vs bonus depreciation: side-by-side comparison

Feature	Section 179	Bonus depreciation
2026 amount	Up to $2,560,000	100% of cost, no cap
Phase-out	Starts at $4,090,000 of purchases	None
Can create a loss	No, limited to business income	Yes
How it applies	Elective, asset by asset	Automatic, elect out by class
Building improvements	Roofs, HVAC, fire and security systems, qualified improvement property	Qualified improvement property
Business use test	More than 50%	More than 50% for listed property such as vehicles
Recapture if business use drops	Yes, if 50% or less	Yes, for listed property
State treatment	Many states follow, sometimes with lower caps	Many states decouple

The order matters when you use both. Section 179 is applied first, to the assets and amounts you choose. Bonus depreciation then applies to the remaining cost of qualified property, and regular MACRS depreciation applies to anything still left. In practice, the Section 179 vs bonus depreciation question is often answered with "both, in that order".

Vehicles: extra limits apply

Vehicles are where the two methods most often differ. A heavy SUV, pickup or van with a gross vehicle weight rating over 6,000 pounds is not subject to the annual luxury auto caps, but Section 179 on an SUV in that weight class is capped separately, at about $32,000 for 2026 according to published inflation figures. Bonus depreciation can usually cover the remaining cost. Passenger cars under 6,000 pounds are subject to annual first-year depreciation limits whichever method you use. For any vehicle, the business use must be more than 50%, and you need a mileage log to prove it. If business use later drops to 50% or less, part of the earlier deduction is added back to income.

Timing: acquired, then placed in service

Two dates matter. For 100% bonus depreciation, the property must be acquired after January 19, 2025; a binding written contract signed earlier counts as an earlier acquisition date, even if delivery came later. For both methods, the deduction is taken in the year the asset is placed in service, meaning ready and available for its intended use. Equipment ordered in December 2026 but delivered and set up in January 2027 is a 2027 deduction, not a 2026 one.

Worked example: a freelance studio with a lower-profit year

Jordan runs a video production business as a single-member LLC taxed as a sole proprietorship. In 2026, Jordan's net profit before depreciation is $60,000. In April, Jordan buys and starts using $80,000 of new camera, lighting and editing equipment, all used 100% for business, with supplier invoices dated in April.

Option A: Section 179 only. Jordan can elect up to $80,000, but Section 179 is limited to business taxable income. The deduction is capped at $60,000, which brings Schedule C profit to $0. The remaining $20,000 carries forward to 2027.

Option B: bonus depreciation. The full $80,000 is deducted automatically. Schedule C shows a $20,000 loss. That loss can offset other income on Jordan's return, such as a spouse's wages on a joint return, subject to the excess business loss rules. Any unused loss becomes a net operating loss carried forward.

Option C: mix and match. Jordan elects Section 179 on $50,000 of the equipment and elects out of bonus depreciation for that class, depreciating the remaining $30,000 over five years under MACRS. That spreads deductions into later years, when Jordan expects higher income and a higher tax bracket.

Option	2026 deduction	2026 Schedule C result	Left for later years
A: Section 179 only	$60,000	$0 profit	$20,000 carryforward
B: 100% bonus depreciation	$80,000	$20,000 loss	Possible loss carryforward
C: Section 179 plus regular depreciation	About $56,000	About $4,000 profit	About $24,000 over later years

The Option C figure assumes the half-year convention, under which the first-year MACRS deduction on five-year property is 20% of $30,000, or $6,000. Your actual numbers will depend on the conventions that apply to you.

Which option is best? If Jordan expects 2026 to be a low-income year and 2027 to be much stronger, deferring some deductions can save more tax overall, because deductions are worth more in a higher bracket. Bigger deductions also reduce self-employment tax, and they reduce qualified business income, which lowers the QBI deduction. Our guide to the QBI deduction explains that interaction.

A larger business example: hitting the Section 179 phase-out

A construction company buys $4,500,000 of equipment in 2026. Because purchases exceed $4,090,000 by $410,000, the Section 179 limit falls from $2,560,000 to $2,150,000. That rarely matters in practice, because 100% bonus depreciation can cover the rest of the cost. This is one reason the Section 179 vs bonus depreciation choice has become less about the cap and more about flexibility, losses and state rules.

When to choose Section 179

• You want to expense some assets and depreciate others in the same class.
• Your state follows Section 179 but not bonus depreciation.
• You are improving a commercial building and want to expense a roof, HVAC or security system.
• You do not want to create a loss this year.

Section 179 is also useful when you want precise control. Because you choose the dollar amount, you can expense exactly enough to bring taxable income down to a target, such as just under a QBI threshold or the top of a tax bracket, and depreciate the rest normally.

When to choose bonus depreciation

• Your purchases are large or your business income is low.
• You want a loss to offset other income or carry forward.
• You prefer automatic treatment with less paperwork.
• You bought used equipment from an unrelated seller and want the full first-year write-off.

Remember that deducting everything now is not always best. A deduction taken in a year when you are in the 12% bracket saves less than the same deduction in a later 24% year. Bonus depreciation is all or nothing for each class of property, so if you want to keep deductions for later, electing out for a class, or using Section 179 selectively, gives you that choice. When you weigh Section 179 vs bonus depreciation, look at least two years ahead.

Records you need for either method

Both deductions depend on proving what you bought, when you bought it and when you started using it. Keep:

1. The supplier invoice with date, description, quantity and price. Make sure purchases are not confused with expenses; see CapEx vs OpEx.
2. Proof of the placed-in-service date, such as delivery notes or installation records.
3. Business use records for vehicles and mixed-use items, such as a mileage log.
4. A fixed asset register listing cost, method and deductions taken. Our guide on how to calculate depreciation shows how to set one up.
5. Organised expense records. See how to track business expenses.

Small items may not need depreciation at all. Under the IRS de minimis safe harbor, a business without audited financial statements can elect to expense items costing $2,500 or less per invoice or per item.

How depreciation shows up on your return

Sole proprietors report depreciation and Section 179 on Form 4562, and the total flows to Schedule C. Our guide to Schedule C for freelancers walks through the form. Partnerships and S corporations pass Section 179 through to owners on Schedule K-1, where each owner's own limits apply. Large write-offs also show clearly on your profit and loss statement, which lenders may want to see.

Before year-end, review planned purchases alongside your year-end invoicing checklist, so income and deductions land in the year you intend.

Conclusion

For 2026, the Section 179 vs bonus depreciation decision is less about which one is bigger and more about control. Bonus depreciation gives a permanent, uncapped 100% write-off. Section 179 lets you choose asset by asset and avoids creating a loss. Many businesses use both. Whichever you pick, it starts with good paperwork, so keep dated invoices for what you buy and sell. You can create professional invoices free with our US invoice generator, and read our overview of the One Big Beautiful Bill for small businesses for the wider picture. Confirm your plan with a qualified tax adviser.