Section 179 vs. Bonus Depreciation in 2026: Which Equipment Deduction Saves You More
By Scott Vance, EA · Taxvanta · Updated October 5, 2026
Section 179's cap jumped to $2.5M and bonus depreciation is back to 100% in 2026. Here's which strategy fits your business.
The quick answer
For most small businesses in 2026, Section 179 and 100% bonus depreciation can both write off the full cost of equipment in the year you buy it. The difference is in the rules around the edges:
Choose Section 179 when you want to pick exactly which assets, and how many dollars, to expense. It is also the only one of the two that covers commercial roofs, HVAC, fire protection and security systems.
Choose bonus depreciation when your equipment costs more than your business income, when you spend more than $4.09 million in a year, or when you want a deduction that can create a loss.
Use both when a large purchase year calls for it. Section 179 is applied first, then bonus depreciation covers the rest.
For 2026, the Section 179 limit is $2,560,000, the phase-out starts at $4,090,000 of equipment placed in service, and bonus depreciation is 100% with no dollar cap.
What the One Big Beautiful Bill Act changed for 2026
The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, made two big changes to equipment write-offs. It doubled the Section 179 limit and brought back 100% bonus depreciation permanently.
Timing matters for bonus depreciation. Property must be acquired and placed in service after January 19, 2025 to get the permanent 100% rate. If you signed a binding contract on or before January 19, 2025, the asset is treated as acquired on the contract date. That keeps it under the old phase-down rate, even if it was delivered later. The IRS confirmed this in Notice 2026-11.
The 2026 Section 179 figures come from the IRS's annual inflation update, Rev. Proc. 2025-32.
Section 179 vs. bonus depreciation: 2026 side-by-side comparison
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How each deduction works
What is Section 179?
Section 179 lets a business elect to deduct the cost of qualifying equipment, software and certain building improvements in the year it's placed in service, instead of depreciating it over several years. You choose which assets and how much. The deduction can't exceed your business's taxable income for the year. Any excess carries forward to future years.
What is bonus depreciation?
Bonus depreciation (Section 168(k)) is an automatic first-year deduction for a set percentage of a qualifying asset's cost. For property acquired after January 19, 2025, that percentage is 100%. It applies to most assets with a recovery period of 20 years or less, plus qualified improvement property. It has no dollar cap and no income limit. You can elect out, but only for an entire class of property (for example, all 5-year property) at once.
Three 2026 scenarios
1. Equipment costs more than your profit
A landscaping S corporation buys $180,000 of mowers, trailers and attachments. Its income before the deduction is $120,000.
Section 179 only: deduction limited to $120,000. The other $60,000 carries forward.
Bonus depreciation: full $180,000 deduction, creating a $60,000 loss that passes through to the owner. The owner may use it against other income, subject to basis and loss limits.
Winner: bonus depreciation, if the owner can use the loss this year.
2. A big expansion year
A manufacturer places $4,500,000 of machinery in service in 2026. That's $410,000 over the phase-out threshold.
Section 179: limit drops to $2,150,000 ($2,560,000 − $410,000).
Bonus depreciation: covers the other $2,350,000, or all $4,500,000 on its own.
Winner: bonus depreciation does the heavy lifting at this size. Section 179 adds little.
3. Building systems plus equipment
A contractor spends $90,000 on a new roof and $60,000 on HVAC for the shop it owns, and $50,000 on an excavator. Its income is $400,000.
Bonus depreciation: covers only the $50,000 excavator. The roof and HVAC are 39-year property, so they'd deduct roughly $3,800 a year.
Section 179: can expense all $200,000 this year.
Winner: Section 179. It's the only one of the two that reaches roofs and HVAC.
Which one fits your business?
Ask these four questions, in order:
Is the purchase a roof, HVAC, fire protection or security system on a commercial building? Use Section 179. Bonus depreciation doesn't cover these.
Is the cost more than your business income this year? Lean on bonus depreciation. Section 179 stops at your income.
Will you place more than $4.09 million in service this year? Bonus depreciation, since your Section 179 limit is shrinking.
Do you want to deduct only part of the cost this year? Use Section 179 on just the assets or dollars you choose, and elect out of bonus for that asset class. Then depreciate the rest normally.
Stacking Section 179 and bonus depreciation
You can use both in the same year. Section 179 comes off the cost first, then 100% bonus depreciation applies to whatever is left. Many businesses use Section 179 for building systems and bonus depreciation for everything else.
When a full write-off isn't the best move
A 100% deduction now isn't always worth the most. Spreading it out can make sense when:
You expect to be in a higher tax bracket in future years.
A big deduction would shrink your 20% qualified business income (QBI) deduction.
You plan to sell the equipment within a few years. Depreciation you took is taxed back as ordinary income when you sell.
Your state doesn't follow federal bonus depreciation, so you'll track two sets of numbers anyway.
Common mistakes to avoid
Buying in December, installing in January. Both deductions depend on when the asset is placed in service, meaning ready and available to use, not when you paid for it.
Ignoring the contract date. Equipment under a binding contract signed on or before January 19, 2025 doesn't get the permanent 100% rate.
Weak vehicle records. Trucks and SUVs need more than 50% business use, backed by a mileage log. If use drops to 50% or less later, part of the deduction is taxed back.
Assuming your state agrees. Many states don't follow federal bonus depreciation, and some cap Section 179 far lower. California, for example, limits Section 179 to $25,000. Your state return may show a much smaller deduction.
Buying equipment just for the write-off. A $100,000 purchase saves you $100,000 times your tax rate, not $100,000. Buy what the business needs, then pick the best way to deduct it.
Frequently asked questions
What is the Section 179 limit for 2026?
The 2026 Section 179 limit is $2,560,000. It begins phasing out dollar for dollar once you place more than $4,090,000 of qualifying property in service, and is fully phased out at $6,650,000.
Is bonus depreciation 100% in 2026?
Yes. The One Big Beautiful Bill Act made 100% bonus depreciation permanent for property acquired and placed in service after January 19, 2025.
Can I use Section 179 and bonus depreciation together?
Yes. Section 179 is applied first, and 100% bonus depreciation then applies to any remaining cost.
Which is better for a small business, Section 179 or bonus depreciation?
Both can deduct 100% of equipment costs in 2026. Section 179 is better for choosing specific assets and for commercial roofs, HVAC and security systems. Bonus depreciation is better when costs exceed business income or total purchases top $4.09 million.
Does used equipment qualify?
Yes, for both. The equipment must be new to your business, and you can't buy it from a related party.
Do I have to pay for the equipment in full to deduct it?
No. Financed equipment qualifies for the full deduction in the year it's placed in service, even if you're still making payments
Run your equipment deduction scenario with us
Section 179, bonus depreciation, or both? The right mix depends on your income this year, what you're buying, your state, and your plans for the business. Taxvanta will run your 2026 equipment purchases through each option and show you the tax difference before you buy.