Section 179 + Bonus Depreciation 2026: What's Still Available

Published May 20, 2026.

For most of the last decade, the standard advice on capital equipment purchases was the same: buy it, expense the whole thing, deal with the cash flow later. Between Section 179 expensing and 100% bonus depreciation, almost any business asset could be written off in the year of purchase. That world is closing. Section 179 is still robust in 2026 — $1.16 million expense limit, phase-out starting at $2.89 million. But bonus depreciation is now down to 60%, the third step of a five-year phase-down to zero. The window is narrowing, and the tax math on equipment purchases needs to be redone.

This is a practical guide to what's actually available in 2026, how the two rules interact, what qualifies, and the mistakes that keep tripping up small-business owners and their CPAs. Published May 20, 2026.

2026 limits at a glance

The Section 179 thresholds are indexed for inflation each year — the 2026 values will be confirmed by an IRS revenue procedure in late 2025. Verify final figures against IRS Publication 946 (How to Depreciate Property) and Form 4562 instructions before filing.

The bonus depreciation rate is set by statute (the Tax Cuts and Jobs Act of 2017 set a phase-down schedule), not indexed for inflation. The full schedule:

Note: bonus depreciation rates have been the subject of multiple legislative proposals to restore 100%. As of May 20, 2026, the operative rate for property placed in service this year is the rate above. Always verify against current IRS guidance before relying on a specific rate for tax planning.

How Section 179 works in 2026

Section 179 of the Internal Revenue Code lets a business elect to expense (rather than depreciate over a period of years) the cost of qualifying property in the year it is placed in service. In 2026, you can elect up to $1,160,000 of qualifying property — but with two limits:

• Dollar limit: $1,160,000 of expense in 2026.
• Phase-out: starts when total qualifying property purchases exceed $2,890,000, and reduces the expense allowance dollar-for-dollar. At $4,050,000 of purchases, Section 179 is gone entirely.
• Taxable income limit: you cannot use Section 179 to create or increase a tax loss. The election is limited to your business taxable income (before the Section 179 deduction). Unused Section 179 carries forward indefinitely.

For nearly every small business under $2.89M of equipment purchases per year, Section 179 alone covers everything you would ever want to expense. The bonus-depreciation question only becomes relevant once you cross that phase-out threshold or once your purchases exceed your taxable income.

Bonus depreciation — the phase-down schedule

Bonus depreciation (IRC §168(k)) is a different mechanism. It is not capped at a dollar amount, it is not limited by your taxable income (so it can create a tax loss), and you do not have to elect it asset-by-asset — it is the default, and you actively elect out if you do not want it.

The 60% rate in 2026 means: for any qualifying asset placed in service this year, 60% of the basis is deducted in 2026, and the remaining 40% is depreciated under the asset's normal MACRS recovery period (typically 5 or 7 years).

Example: you buy a $50,000 piece of manufacturing equipment in 2026.

• Section 179 alone: $50,000 deducted in 2026 (assuming you have enough taxable income).
• Bonus depreciation alone: $30,000 deducted in 2026 (60% × $50,000), plus the remaining $20,000 depreciated over 7 years under MACRS (~$2,858/year initially).
• Stack both (see below): $50,000 fully deducted in 2026.

The 60% is the new baseline. If you have been used to 100% bonus and have not updated your equipment-purchase model, your projected first-year tax savings on a 2026 buy are 40% lower than they were three years ago. That changes the after-tax cost of buying versus leasing, and it changes whether financing equipment makes sense at higher interest rates.

How to stack Section 179 and bonus depreciation

You can use both rules in the same year on the same purchase, in this order:

1. Section 179 first: elect to expense up to your limit, subject to taxable-income constraints.
2. Bonus depreciation next: apply the 60% to whatever basis is left after Section 179.
3. Regular MACRS depreciation: apply normal depreciation to whatever basis remains.

The stacking only matters in two situations: (1) you bought enough that Section 179 alone cannot cover it, or (2) your taxable income is too low for full Section 179 and you want to use bonus depreciation to create a loss. For most small businesses, just electing Section 179 on everything is the cleanest answer and the math is identical.

For multi-entity owners and PE-portfolio companies — the kind that work with a fractional CFO — there is a more nuanced reason to use bonus depreciation: it flows through differently for state tax purposes. Many states decouple from federal bonus depreciation (require their own depreciation method) while accepting Section 179 fully. The state-tax differential can be material.

What equipment actually qualifies

Both Section 179 and bonus depreciation apply to tangible personal property with a MACRS recovery period of 20 years or less, used more than 50% in business. Common qualifying items:

• Machinery, equipment, tools
• Office furniture and fixtures
• Computers, servers, printers, network gear
• Off-the-shelf software (Section 179 expressly includes it)
• Business vehicles (subject to the SUV / passenger-auto caps)
• HVAC, roofs, fire protection, alarm, and security systems for nonresidential real property (Section 179 only, post-TCJA expansion)
• Qualified Improvement Property (QIP) — interior nonstructural improvements to nonresidential buildings, 15-year MACRS, eligible for both Section 179 and bonus depreciation

Common non-qualifying items:

• Real estate (buildings, land, structural improvements) — not eligible
• Inventory — separately capitalized
• Intangible property — patents, copyrights, customer lists (separate amortization rules apply)
• Property used 50% or less for business
• Property held by lessors of certain types

The SUV trap: a "luxury auto" (passenger automobile under 6,000 lbs GVWR) is subject to capped first-year depreciation regardless of which method you use — usually around $20,400 in the first year including bonus. SUVs and trucks over 6,000 lbs GVWR avoid the luxury-auto cap but are limited to about $30,500 of Section 179 expense in 2026. Pickups and vans built with a cargo area separate from the passenger compartment can sometimes escape both caps entirely. This is the rule that creates the "buy a G-Wagon to save taxes" social-media advice, which is technically correct and financially insane.

How to elect and file Form 4562

Section 179 is an active election made on Form 4562 (Depreciation and Amortization) in the year the asset is placed in service. You list each asset, the cost, and the Section 179 amount elected. The election is generally irrevocable.

Bonus depreciation is the default. To opt out, you make an affirmative election (Form 4562, Part II, line 14 says "If you are making the election to expense the cost of any section 179 property..."; opting out of bonus is a separate election noted in the instructions). You make the opt-out by class of property — 5-year, 7-year, etc. — not asset-by-asset.

Form 4562 attaches to your business return:

• Schedule C (sole proprietor)
• Form 1065 (partnership / multi-member LLC)
• Form 1120 (C-corp)
• Form 1120-S (S-corp)

The "placed in service" date matters: it is the date the asset is ready and available for its intended use, not the purchase date. A $200,000 CNC machine delivered December 28, 2026 but still uncrated on January 5, 2027 is a 2027 asset, not a 2026 one. Plan delivery and installation dates with this in mind.

Five common mistakes

1. Buying equipment in December to "save tax" without checking the taxable-income limit. Section 179 cannot create a loss. If your business made $40K of taxable income and you spend $80K on equipment, you get $40K of Section 179 (carrying forward $40K to next year). The cash is out the door now; the tax benefit is partly deferred.
2. Missing the over/under 6,000-lb GVWR rules on vehicles. A $90,000 SUV under 6,000 lbs gets capped at about $20,400 in year one. The same $90,000 spent on a heavy truck or SUV over 6,000 lbs gets you ~$30,500 of Section 179 plus 60% bonus on the rest. The vehicle weight changes the tax math by tens of thousands of dollars.
3. Forgetting state decoupling. California, New York, New Jersey, Pennsylvania, and several others do not conform to federal bonus depreciation. State taxable income is calculated differently — and underpaid state estimated tax penalties result. Multi-state filers should model state-by-state.
4. Using Section 179 when bonus depreciation is the better lever. Real-estate developers, businesses with NOL carryforwards, and multi-entity groups where losses can be used elsewhere sometimes do better with bonus because it can create a loss. Section 179 cannot.
5. Treating leased equipment as eligible. Operating leases do not give you basis in the asset and do not qualify for Section 179 or bonus depreciation. Finance leases and capital leases generally do, but the lease structure has to be reviewed. Verify the lease classification before assuming a deduction.

FAQs

Q: Can I use Section 179 on a used vehicle or equipment?
Yes. Both Section 179 and bonus depreciation apply to new and used property, as long as it is "new to you" (you did not previously own or lease it, and it was not acquired from a related party). A used commercial truck or used CNC machine qualifies the same as a new one.

Q: How does bonus depreciation work if I bought the asset in 2025 but placed it in service in 2026?
The rate is based on the year the asset is placed in service, not the year of purchase. An asset placed in service in 2026 gets the 60% rate, regardless of when you bought it. This is why year-end purchase planning is partly about the calendar and partly about logistics — installation timing matters.

Q: My LLC bought equipment but didn't generate enough income to use Section 179. Did I lose the deduction?
No. The unused Section 179 carries forward indefinitely until you have taxable income to absorb it. Bonus depreciation does not carry forward the same way — it just creates an NOL, which has its own rules (limited to 80% of current-year taxable income under TCJA). Either way, you do not lose the deduction outright; the timing changes.

Q: Will bonus depreciation be restored to 100%?
There have been multiple legislative proposals to do so, including the Tax Relief for American Families and Workers Act (which passed the House in 2024 but did not become law). As of May 20, 2026, the operative rate is 60% under current law. Tax legislation is fluid; do not rely on speculative legislation in your planning. Plan to the law that exists.

Get your 2026 capex decisions modeled properly

If you are planning material equipment purchases this year, the right answer depends on your taxable income, your state, your entity structure, and your cash position — none of which a generic depreciation calculator captures. We model the federal-and-state after-tax cost of capex decisions for owner-managed businesses across the US.

Tell us about your business — we will run the depreciation math against your real numbers, not a generic example.