If you’re a business owner staring down an equipment purchase before the year ends, here’s the headline: for 2026, Section 179 lets you immediately deduct up to $2,560,000 of qualifying equipment placed in service this year — and it starts phasing out once your total qualifying purchases pass $4,090,000. On top of that, 100% bonus depreciation is back permanently under the One Big Beautiful Bill Act, which means the deduction math for big purchases in 2026 is the most generous it’s been in years.
Those numbers are inflation-adjusted for 2026 under IRS Revenue Procedure 2025-32. The IRS lays out the full depreciation mechanics in Publication 946, How To Depreciate Property — worth a bookmark alongside this guide. For context, before the One Big Beautiful Bill Act (OBBBA, signed July 4, 2025), the limit was $1.25 million with a $3.13 million phase-out threshold. OBBBA roughly doubled the limit to $2.5 million and the threshold to $4 million for 2025, and inflation adjustments pushed them to $2.56M / $4.09M for 2026.
A quick orientation before we get into the weeds: Section 179 is an election — you choose which assets to expense, asset by asset. Bonus depreciation is automatic unless you opt out, and applies to a whole class of property. Both can put the full cost of equipment on this year’s return, but the rules around them differ in ways that matter. And there is a real deadline: equipment must be placed in service by December 31, 2026 to count for 2026. That’s roughly ten weeks from today — which is exactly why equipment dealers start running out of popular configurations in November.
A quick note before we start: this is general information about tax rules, not professional tax advice — everyone’s situation differs, so run your final plan past a CPA before buying.
How Section 179 Actually Works in 2026
The basic mechanic is simple. Normally, when your business buys equipment — a machine, a work truck, office furniture, computers — you recover the cost over several years through depreciation. Section 179 lets you skip the wait and deduct the full cost in the year you start using the asset, up to the $2.56 million cap.
Three conditions control everything:
- The property must qualify. Tangible personal property used in your business: equipment, machinery, tools, furniture, computers, off-the-shelf software, and certain real property improvements (more on those below). It must be used more than 50% for business.
- It must be placed in service during 2026. “Placed in service” means delivered, installed, and ready for its intended use — not ordered, not paid for. A machine that arrives December 28 and is bolted down and running December 30 counts. A machine with a January 2027 delivery date doesn’t, even if you wired the deposit months ago.
- Your deduction can’t exceed your business taxable income. Section 179 cannot create or deepen a business loss. If your net business income is $200,000 and you buy $300,000 of equipment, your Section 179 deduction is capped at $200,000. The unused $100,000 doesn’t vanish — it carries forward indefinitely to future years. Bonus depreciation, by contrast, can create a net operating loss.
That last point is one of the biggest practical differences between the two tools, and it’s where most purchase decisions get made.
The $4.09 Million Trip Wire: How Phase-Out Works
The $2.56 million deduction doesn’t shrink gradually — it starts shrinking dollar-for-dollar once your total 2026 qualifying purchases exceed $4,090,000. At $6,650,000 in purchases ($4.09M + $2.56M), the deduction hits zero.
A worked example, using a construction company’s numbers:
- Total 2026 equipment purchases: $5,000,000
- Over the threshold by: $5,000,000 − $4,090,000 = $910,000
- Maximum Section 179 deduction: $2,560,000 − $910,000 = $1,650,000
- The remaining $3,350,000 doesn’t go unclaimed — it goes to 100% bonus depreciation, which has no dollar cap.
Honestly, very few small businesses will ever brush against the phase-out. The trip wire mainly matters for mid-size companies making unusually large capital years — a manufacturer adding a production line, or a fleet buyer refreshing dozens of trucks at once. For most readers of this site, the takeaway is simpler: you can buy up to $2.56 million of equipment in 2026 and expense every dollar of it under Section 179, as long as you have the business income to absorb the deduction.
Section 179 vs. 100% Bonus Depreciation: Which to Use
This is the decision that actually lands in front of you at tax time, so let’s lay it out plainly. Under OBBBA, both provisions are now permanently generous — but they’re built for different jobs.
| Factor | Section 179 | 100% Bonus Depreciation |
|---|---|---|
| 2026 dollar cap | $2.56M, phases out above $4.09M in purchases | No cap, no phase-out |
| Income limit | Can’t exceed business taxable income (excess carries forward) | Can create or increase a net operating loss |
| How you claim | Elect asset by asset (precision targeting) | Automatic per class of property unless you opt out |
| Business-use threshold | More than 50% business use | General trade-or-business use standard |
| Expiration risk | Permanent under current law | Permanent at 100% under OBBBA — no more phase-down |
| Vehicles | SUV-specific caps (see below) | Picks up where Section 179 leaves off on SUVs |
In practice, here’s how business owners use the two together. Say you buy $800,000 of qualifying equipment in 2026 and your business taxable income is $500,000. You elect Section 179 on specific assets up to the $500,000 income limit — precision targeting, and the remaining basis of those assets is gone from future depreciation schedules. The other $300,000 flows through 100% bonus depreciation automatically, even though it pushes you into a loss position for the year. That loss can be carried forward to offset future income.
One more thing people get wrong: financed equipment counts. If you finance a $400,000 machine in November and it’s running in December, you can deduct the full $400,000 on your 2026 return — not just the down payment, not just the loan payments you’ve made. Only the interest gets deducted separately as it accrues. Leases are different: an operating lease generally doesn’t qualify because you don’t own the asset; a capital/finance lease where you’re treated as the owner can.
The Vehicle Rules: Where It Gets Complicated
Vehicles are the single most misunderstood part of Section 179, because the cap you hit depends on the vehicle’s weight — and the outcome flips what you’d expect. The heavier work truck can give you a bigger deduction than the luxury sedan.
Heavy SUVs (6,001–14,000 lbs GVWR): the $32,000 cap. Congress wrote a separate, much lower Section 179 cap for sport utility vehicles to stop the full write-off of large SUVs. For 2026 it’s $32,000 (up from $31,300 in 2025, per Rev. Proc. 2025-32). This is the number that kills the “buy a $95,000 SUV, write off the whole thing” myth in one stroke.
But — and this is the part every dealer email skips — the $32,000 cap applies only to the Section 179 portion. After you take your $32,000, the remaining cost basis can take 100% bonus depreciation, which has no SUV cap. On a $90,000 SUV used 100% for business and placed in service in 2026:
- Section 179 (heavy SUV cap): $32,000
- Remaining basis: $58,000
- 100% bonus depreciation on the remainder: $58,000
- Total first-year deduction: $90,000 — the entire cost
The cap genuinely bites only if bonus depreciation isn’t available or you elect out of it, or if you lack the business income to absorb the Section 179 piece (bonus can carry the rest into a loss).
Pickups and cargo vans over 6,000 lbs that meet the design test: full cost, no SUV cap. Vehicles with a 6-foot-plus cargo bed or cargo-only configurations (think a work van with no rear seats) are treated as commercial vehicles, not SUVs — the whole cost can go through Section 179 up to the $2.56M limit.
Vehicles over 14,000 lbs GVWR: no vehicle cap at all. Dump trucks, semi tractors, heavy-duty commercial trucks — the full Section 179 deduction applies, no per-vehicle limit. A $200,000 dump truck can be fully expensed under Section 179 in 2026 (subject to the usual income limit).
Cars and light vehicles under 6,000 lbs: the luxury-auto caps. These fall under the Section 280F passenger-automobile limits instead: for 2026, $20,300 in year one if you take bonus depreciation, $12,300 if you don’t, with capped annual amounts ($19,800 / $11,900 / $7,160 in following years). An expensive sedan bought for the business might take a decade of capped deductions to recover — a $100,000+ difference in first-year treatment versus a heavy SUV of the same price.
Two non-negotiables apply to every vehicle: more than 50% business use (50% or less, and neither Section 179 nor bonus depreciation is available — period), and a mileage log kept throughout the year, not reconstructed at tax time. The IRS expects contemporaneous records. A dedicated app takes thirty seconds per trip and is the cheapest audit insurance you’ll ever buy.
One timely note for EV buyers: the federal EV tax credit expired September 30, 2025. In 2026, Section 179 plus 100% bonus depreciation is now the largest federal benefit available on a business EV — a deduction is not as valuable as a dollar-for-dollar credit, but on a $92,000 vehicle at a 32% effective rate, a full first-year write-off still cuts your tax by roughly $29,000.
What Qualifies Beyond Vehicles
Section 179 covers more than equipment, and this is where service businesses leave money on the table:
- Qualified improvement property (QIP): interior improvements to existing nonresidential buildings — the restaurant that renovates its dining room, the office that reconfigures its interior space. QIP also qualifies for 100% bonus depreciation.
- Certain nonresidential real property improvements: roofs, HVAC systems, fire protection and alarm systems, and security systems placed in service after the building itself was first placed in service. The landlord who replaces a commercial building’s roof or HVAC in 2026 can often expense it under Section 179 rather than depreciating it over 39 years.
- Off-the-shelf software purchased or licensed outright. Monthly or annual subscription software is just an ordinary business expense — simpler, but don’t confuse the two in your books.
Repairs vs. improvements still matter: properly classifying a genuine repair as a deductible repair can be better than running it through Section 179 or bonus, because repair deductions don’t eat into your Section 179 capacity or depend on placed-in-service timing the same way. If your CPA tells you something is a repair, that’s usually good news, not bad.
And used equipment qualifies — the only test is that it’s new to you. Buying a used CNC machine from an unrelated seller and putting it into service in 2026 gets the same treatment as a new one.
Three Worked Examples at Different Scales
Each example assumes you’re stacking the deduction with whatever else you’re entitled to — if you run a pass-through business, the 20% QBI deduction is usually the other half of the 2026 small-business tax math.
The $200,000 purchase (typical small shop). A metal fabrication shop with $350,000 of business income buys a $200,000 press brake in October, installed and running by December. Section 179: deduct the full $200,000 against 2026 income (well under both the $2.56M cap and the income limit). Tax saved at a ~25% combined effective rate: roughly $50,000. Under old-style depreciation that machine would have dribbled out over 5–7 years.
The $1,000,000 purchase (growing mid-size company). A regional contractor with $1.5M of business income buys $1M of equipment. Section 179 covers the whole $1M (income and caps both fine). The contractor could alternatively split it — $1M through Section 179 in one election is cleaner — and the phase-out threshold ($4.09M) is nowhere in sight. If income were only $600,000, Section 179 would absorb $600,000 and carry $400,000 forward; the smarter play might be to let bonus depreciation take the whole $1M and carry a $400,000 loss forward instead. Same economics, different paperwork — worth a conversation with your CPA.
The $5,000,000 purchase (phase-out territory). A logistics company places $5M of qualifying property in service in 2026. Section 179 deduction: $2,560,000 − ($5,000,000 − $4,090,000) = $1,650,000. Remaining $3,350,000: 100% bonus depreciation. Total first-year deduction: the full $5M, just routed through two provisions. The phase-out costs nothing in total deduction — it just moves dollars from Section 179 to bonus.
The Year-End Playbook: What to Do Before December 31
With about ten weeks left in 2026, here’s the practical sequence:
- Inventory your needs now, not in December. Equipment dealers run out of popular configurations in November. Decide what you actually need — buying equipment purely for a deduction is buying a dollar to save thirty cents.
- Confirm placed-in-service timing in writing. Get the delivery and installation schedule from the vendor in the purchase agreement. If the machine lands January 5, 2027, the deduction belongs to 2027, and there’s no fixing that after the fact.
- Model your 2026 income before you elect. Section 179’s income limit means the deduction only helps to the extent you have business income. If 2026 is a down year, you may prefer bonus depreciation (which can create a loss to carry forward) or a smaller Section 179 election with carryforward. And if the election changes what you’ll owe, you have until the January 15, 2027 estimated-tax deadline to true up your Q4 payment.
- Check your state. States don’t always follow the federal script. Georgia, for example, doesn’t adopt federal bonus depreciation — bonus amounts get added back on the state return and depreciated over the asset’s normal life — but it generally follows federal Section 179. That distinction alone can decide which provision you elect. Check your state’s 2026 conformity before you sign.
- Set up the documentation habit now. Mileage logs for vehicles, placed-in-service dates for equipment, business-use percentages. The IRS wins depreciation disputes on documentation, not on law.
And a word on the “buy it on December 31” strategy: it works — placed in service by midnight counts — but it’s the riskiest version of this game. Delivery delays, installers who don’t show, software that won’t activate. If you’re cutting it that close, build in a week of buffer, or accept that the deduction slides to 2027.
Common Mistakes That Cost Real Money
- Assuming “purchased” equals “deducted.” Payment alone is never enough. The asset must be ready and available for use by December 31. Ordering on December 20 with February delivery gets you a 2027 deduction.
- Electing Section 179 without checking income. If the election exceeds your business income, the excess carries forward — fine — but you might have been better off with bonus depreciation creating a loss you can use sooner.
- Forgetting the SUV cap — or forgetting bonus picks up the rest. The $32,000 cap is real, and so is the 100% bonus on the balance. The two mistakes are opposites: dealers who pretend the cap doesn’t exist, and owners who think the cap ends the story.
- Skipping the mileage log. The vehicle deduction is the most audited part of Section 179. No contemporaneous log, no deduction — the law is blunt about this.
- Ignoring state rules. A federal deduction strategy that backfires at the state level isn’t a strategy. The five minutes it takes to ask your CPA about your state’s conformity is the highest-ROI five minutes of this whole exercise.
Frequently Asked Questions
What is the Section 179 deduction limit for 2026?
$2,560,000 — the maximum you can immediately expense in 2026 for qualifying property placed in service during the year. It begins phasing out dollar-for-dollar once your total 2026 qualifying purchases exceed $4,090,000, and reaches zero at $6,650,000 in purchases.
What’s the difference between Section 179 and bonus depreciation in 2026?
Section 179 is an election you make asset by asset, capped at $2.56M and limited to your business taxable income (excess carries forward). Bonus depreciation is automatic per property class unless you opt out, has no dollar cap, and can create a net operating loss. For 2026, bonus depreciation is 100% and permanent under OBBBA.
Does the $32,000 heavy SUV cap mean I can only deduct $32,000 on an SUV?
No. The $32,000 cap (for 2026) applies only to the Section 179 portion of a heavy SUV (6,001–14,000 lbs GVWR). The remaining cost basis can take 100% bonus depreciation, so a business-use SUV can still be fully written off in year one — the cap just routes the deduction through two provisions instead of one.
Can I deduct equipment I financed?
Yes. Financed equipment qualifies for the full deduction once it’s placed in service — you deduct the full purchase price, not just what you’ve paid so far. Interest on the loan is deducted separately as it accrues.
Does used equipment qualify for Section 179 and bonus depreciation in 2026?
Yes, as long as it’s new to you — you didn’t previously use it and didn’t buy it from a related party. This is one of the most underused angles: a used machine placed in service by December 31 gets the same first-year treatment as a new one.
Do I need business income to use Section 179?
For Section 179, yes — the deduction can’t exceed your net taxable business income for the year, though unused amounts carry forward indefinitely. Bonus depreciation has no income limit and can create a loss. If 2026 is a lean year, bonus depreciation may be the better tool.