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Key takeaways
- 100% bonus depreciation is permanent for qualifying property acquired after January 19, 2025.
- The Section 179 limit is about $2.56 million for 2026, phasing out above roughly $4.09 million of purchases.
- Section 179 can't create a loss; bonus depreciation can.
- Assets must be placed in service — not just ordered — by year-end to count.
Normally, when a business buys equipment, it deducts the cost over several years through depreciation. Two provisions let you skip the wait and deduct most or all of the cost immediately. After the 2025 tax law, both are more generous than they've been in years.
The two tools
Bonus depreciation
Bonus depreciation lets you deduct a percentage of the cost of qualifying property in the first year. Under the 2017 law it was 100%, then began phasing down by 20 points a year starting in 2023. The 2025 law restored 100% bonus depreciation permanently for qualifying property acquired after January 19, 2025. Qualifying property generally includes new and used equipment, machinery, computers, furniture, certain vehicles and qualified improvement property, with a recovery period of 20 years or less.
Section 179 expensing
Section 179 lets you elect to expense the cost of qualifying property, up to an annual limit. The 2025 law raised that limit to $2.5 million, indexed for inflation — about $2.56 million for 2026. The deduction phases out dollar for dollar once total qualifying purchases exceed about $4.09 million.
How they differ
| Bonus depreciation | Section 179 | |
|---|---|---|
| Annual dollar limit | None | About $2.56M (2026) |
| Can create a loss | Yes | No — limited to business taxable income, with carryforward |
| Asset-by-asset choice | Elect out by class of property | Choose specific assets and amounts |
| Some building improvements (roofs, HVAC, security systems) | Generally no | Yes, for nonresidential property |
| State conformity | Many states don't follow it | Many states follow it, often with lower limits |
In practice, the flexibility of Section 179 makes it useful for fine-tuning: you can expense exactly as much as you need to reach a target income. Bonus depreciation is the blunt instrument — it's automatic unless you elect out, and it applies to everything in a class.
Timing: "placed in service" is what counts
The deduction belongs to the year the asset is placed in service — ready and available for its intended use — not the year you order or pay for it. A machine delivered on December 28 and installed in January is a next-year deduction. If you're planning a year-end purchase, confirm the delivery and setup dates, not just the invoice date.
Financing doesn't change this. You can generally deduct the full cost of equipment placed in service this year even if you're paying for it over five years — which is why equipment dealers push year-end deals.
Traps to avoid
- Buying to save tax. A 100% deduction at a 35% combined rate means the purchase still costs you 65 cents on the dollar. Buy what the business needs.
- Wasting the deduction in a low-income year. Expensing everything in a year you're in a low bracket can mean giving up deductions that would have been worth more later. Depreciating normally is sometimes the better choice.
- Vehicles. Passenger vehicles have annual depreciation caps, and business use must exceed 50%. See vehicle deductions.
- Recapture. When you sell an asset you've fully expensed, the gain up to the amount deducted is generally taxed as ordinary income. If business use drops to 50% or less, some of the deduction can be recaptured early.
- State differences. A large federal deduction may be partly added back on your state return — California, for example, doesn't follow federal bonus depreciation.
- QBI side effects. Large write-offs reduce qualified business income, which reduces your 20% QBI deduction for the year.
A decision checklist
- Does the business need the asset regardless of tax?
- What's your projected taxable income this year versus next?
- Will it be placed in service before December 31?
- Is it used more than 50% for business?
- How does your state treat the deduction?
- Do you expect to sell it within a few years?
Equipment timing is part of every ExcelTax year-end review. We model the deduction both ways — expense now or depreciate — so you choose with the full picture, not the dealer's.
This article is general information, current as of September 2026, and isn't tax advice for your situation. Figures are federal unless noted, and indexed amounts change each year — confirm current numbers with your tax pro before acting.