The One Big Beautiful Bill raised Section 179 to $2.56M and restored 100% bonus depreciation permanently. Here's how both rules work — and how they interact — in the 2026 tax year.
The One Big Beautiful Bill Act (P.L. 119-21) permanently changed equipment expensing for small businesses. Section 179 limit: $2,560,000 for the 2026 tax year, with the phase-out starting at $4,090,000 of qualifying property placed in service. Bonus depreciation: 100% for qualifying property placed in service after January 19, 2025 — made permanent, no more annual phase-down. For most small businesses, this means full first-year deduction on most equipment, machinery, computers, and off-the-shelf software. Key limit: Section 179 cannot reduce business income below zero — any amount you can't use carries forward to the next tax year. Bonus depreciation has no income limitation and can create a loss.
If you bought equipment, machinery, or other business property at any point after January 19, 2025, the tax math just got materially better. The One Big Beautiful Bill Act (P.L. 119-21) made two changes that affect how quickly small businesses can deduct those costs: it raised the Section 179 deduction limit to $2,560,000 for the 2026 tax year, and it permanently restored 100% bonus depreciation — reversing the gradual phase-down that had been in effect since 2023.
Here's what each provision does, how they interact, and what this means for equipment-buying business owners planning their 2026 taxes.
Section 179 of the Internal Revenue Code lets businesses deduct the full cost of qualifying property in the year it's placed in service, rather than depreciating it over several years under the standard Modified Accelerated Cost Recovery System (MACRS) schedule. Before Section 179, a $50,000 piece of equipment might be depreciated over 5–7 years — you'd capture the deduction in small increments rather than all at once.
The deduction is elective: you choose to apply it to specific assets, up to the annual limit. You can Section-179 one piece of equipment and depreciate another on a standard schedule if that fits your tax situation better.
Per the IRS Instructions for Form 4562, the 2026 Section 179 limits are: - Maximum deduction: $2,560,000 - Phase-out begins: $4,090,000 of qualifying property placed in service during the year - Phase-out rate: dollar-for-dollar reduction above the threshold - SUV cap: $32,000 for sport utility vehicles over 6,000 lbs GVWR
The practical effect of the phase-out: businesses placing more than $6,650,000 in qualifying property in service during 2026 lose the Section 179 deduction entirely (the full $2.56M is phased out at $4,090,000 + $2,560,000). For the vast majority of small businesses — those buying well under $4M in equipment per year — the phase-out is irrelevant.
Section 179 has one rule that catches many first-time users: it cannot reduce your business income below zero. You can't use Section 179 to create or increase a net operating loss.
If your business has $80,000 in net income before depreciation and you place $200,000 of equipment in service, you can deduct $80,000 via Section 179 — and carry the remaining $120,000 forward to the next tax year. The carryforward is indefinite. This is different from bonus depreciation, which has no income limitation and can create a loss.
Per IRS Publication 946, if you have multiple businesses or are a partner in a partnership, the Section 179 limitation applies at the entity level and may further restrict the individual deduction — this is where a CPA review of your specific structure matters.
Bonus depreciation (also called the "special depreciation allowance") is an additional first-year deduction on top of regular MACRS depreciation. Unlike Section 179, it's automatic unless you affirmatively elect out, and it has no dollar limit and no income cap — it can create or deepen a net operating loss, which can carry forward or back to other tax years.
The Tax Cuts and Jobs Act (TCJA) of 2017 set bonus depreciation at 100% for property placed in service from September 27, 2017 through December 31, 2022, then scheduled it to phase down: - 80% for 2023 - 60% for 2024 - 40% for 2025 - 20% for 2026 - 0% after 2026
The One Big Beautiful Bill Act (P.L. 119-21) changed that trajectory. According to IRS guidance on the One Big Beautiful Bill provisions, for qualifying property acquired and placed in service after January 19, 2025, the bonus depreciation rate is 100% — permanently. The phase-down schedule under TCJA no longer applies to this property.
This means equipment you bought on January 20, 2025 or later — and all equipment you buy going forward — qualifies for 100% first-year expensing via bonus depreciation, with no annual cap.
When you have qualifying property that exceeds your Section 179 budget (or where you want to maximize deductions beyond the $2.56M limit), the two provisions stack. The IRS applies them in this order:
1. Section 179 first: You elect to apply Section 179 to chosen assets, up to your income limit and the $2.56M cap. 2. Bonus depreciation next: Applied to the remaining adjusted basis (the portion not already deducted under Section 179).
For most small businesses buying less than $1–2M of equipment in a year, Section 179 alone handles full expensing. Bonus depreciation becomes especially useful when: - Purchases exceed the Section 179 limit - Your business has a loss year and you want to carry it back - You want to elect out of Section 179 for strategic reasons (e.g., spreading deductions across years) but still want first-year expensing via bonus depreciation
Both provisions apply to the same general category of property — tangible personal property used more than 50% for business. Common qualifying assets include:
What doesn't qualify: - Land and buildings (the structure itself — not equipment inside it) - Property used 50% or less for business - Inventory or property held for sale to customers - Property purchased from a related party or contributed by a shareholder
The 50%-business-use threshold matters for vehicles especially. If a truck is used 60% for business and 40% personal, only the business-use percentage qualifies. If business use falls below 50% in a subsequent year, recapture rules under IRS Publication 946 require you to add back some or all of the prior deduction to income.
A frequent source of confusion: the Section 179 deduction is based on the total cost of the asset, not on how much you paid out of pocket. Financing the purchase doesn't reduce the deduction.
If you finance $180,000 of equipment with a 10% down payment ($18,000 cash) and an equipment loan for the remaining $162,000, you can still deduct the full $180,000 under Section 179 in year one — assuming you have sufficient business income to absorb it. The loan payments are separate from the tax deduction.
This is one of the primary reasons equipment financing and Section 179 are often planned in tandem: financing preserves cash flow while the tax deduction front-loads the cost recovery. The loan interest may also be deductible as a business expense (subject to the Section 163(j) business interest limitation for larger businesses). See equipment financing for small businesses for how the different financing structures — term loan, equipment loan, SBA 7(a) — compare on rate, term, and collateral requirements.
A few points worth coordinating with your CPA:
Placed-in-service date is what counts. The deduction applies to the year the asset is placed in service — meaning it's ready and available for business use — not the year you ordered it or signed the financing documents. An order placed in December that doesn't arrive until January falls in the next tax year.
Electing out of bonus depreciation. If your business is in a low-income year or you anticipate higher income in future years, you may want to spread deductions rather than front-load them. You can elect out of bonus depreciation for a class of assets (e.g., 5-year property) while still taking Section 179 on specific chosen assets.
S-corp and partnership limitations. Section 179 deductions pass through to partners or shareholders, but the income limitation applies at both the entity and individual levels. Partners and S-corp shareholders may face additional constraints based on their share of the entity's income. The S-corp payroll and compensation explainer covers how S-corp structure decisions cascade through your tax picture.
Recapture risk. If you take Section 179 or bonus depreciation on an asset and later convert it to personal use (or sell it at a gain), recapture provisions may require you to report a portion of the deduction as ordinary income. Tracking placed-in-service dates and business use percentages avoids surprises.
For the broader tax picture for self-employed owners and small businesses — including what triggers IRS attention when expensing is aggressive — see IRS audit red flags for self-employed owners and small business tax basics for first-time filers.
If you're planning an equipment purchase and want to understand the financing side before your CPA runs the tax numbers, start an application — the platform evaluates which equipment financing structures fit your business profile, including term loan, SBA 7(a), and equipment-specific loan options.
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*This content is for educational purposes only and does not constitute tax or legal advice. Section 179 limits, bonus depreciation rates, and qualifying-property rules are set by the Internal Revenue Code and may change — verify current limits with your tax advisor and at irs.gov/publications/p946 before filing.*
For the 2026 tax year, the maximum Section 179 deduction is $2,560,000. This limit is reduced dollar-for-dollar once the total cost of qualifying property placed in service during the year exceeds $4,090,000. For sport utility vehicles (SUVs) over 6,000 lbs GVWR, a separate cap of $32,000 applies. These figures are from the IRS Instructions for Form 4562, which contains the inflation-adjusted limits for each tax year.
The One Big Beautiful Bill Act (P.L. 119-21) permanently restored 100% bonus depreciation for qualifying property acquired and placed in service after January 19, 2025. Before this legislation, the Tax Cuts and Jobs Act had set bonus depreciation on a phase-down schedule: 100% in 2022, 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, 0% after 2026. The OBBB reversed that phase-down and made 100% first-year expensing permanent for qualifying assets. Per IRS guidance on the One Big Beautiful Bill provisions, the 100% rate applies to property acquired and placed in service after January 19, 2025.
Both allow immediate expensing of qualifying property, but they work differently. Section 179 is elective — you choose which assets to apply it to, up to the annual limit ($2,560,000 for 2026). It cannot reduce your business income below zero; unused amounts carry forward. Bonus depreciation is automatic (unless you elect out) and applies to the remaining basis after Section 179. Bonus depreciation has no dollar cap and no income limitation — it can create or deepen a net operating loss. For most small businesses, Section 179 is applied first to assets you want to expense immediately, and bonus depreciation picks up any remaining basis.
Yes. The Section 179 deduction is based on the cost of the property placed in service — not on how you paid for it. If you financed $120,000 worth of equipment, you can deduct the full $120,000 under Section 179 in year one, even if you only made a down payment. You still owe the loan payments, but the tax deduction is front-loaded. This is one reason equipment financing and Section 179 are often planned together: you preserve cash through financing while capturing the full year-one deduction. See equipment financing for small businesses for the product landscape.
Qualifying Section 179 property includes tangible personal property used more than 50% for business: machinery, equipment, business vehicles (subject to limits), computers and peripherals, office furniture, and off-the-shelf software. Certain qualified improvement property (interior improvements to nonresidential real property) also qualifies. Real property (land and buildings themselves) does not qualify for Section 179. The property must be placed in service during the tax year in which you claim the deduction. Per IRS Publication 946, the asset must be used for business more than 50% of the time — if business use drops below 50% in a later year, recapture rules apply.