Section 179 & Bonus Depreciation for Business Owners: 2026 Guide

Two tools let you write off qualifying business purchases in the year you make them rather than depreciating over 5–7 years. In 2026, both are more powerful than they've ever been: the Section 179 limit jumped to $2,560,000 and the One Big Beautiful Bill Act permanently restored 100% bonus depreciation. Here's how each works, when to use which, and how they interact with your QBI deduction.

What changed in 2026

Until 2025, business owners watched bonus depreciation phase down 20% per year — from 80% in 2023 to 60% in 2024 and 40% in 2025 — before the OBBBA reversed the slide entirely. For equipment acquired after January 19, 2025, 100% bonus depreciation is now permanent under §168(k), with no sunset date.¹

At the same time, the Section 179 expensing limit — which the OBBBA raised to $2.5 million — is now $2,560,000 for 2026 after inflation adjustment.² Most small and mid-size business owners will never hit it. The practical implication: you can expense virtually any equipment purchase outright in the year it's placed in service.

Section 179 — the basics

Section 179 lets you elect to deduct the full cost of qualifying property in the year it is placed in service, up to the annual limit. Think of it as accelerated expensing by election.

2026 Section 179 limits

Source: Section179.org, IRS Form 4562 instructions (2026). Limits indexed annually for inflation per §179(b)(6).

Key Section 179 rules

• Taxable income cap. Your §179 deduction cannot exceed your net taxable income from active business income. You cannot use §179 to push your return into a loss. Any amount disallowed by this rule carries forward to future years.
• Must be placed in service. "Placed in service" means the asset is operational, not just purchased. Ordering equipment in December that arrives in January means you get the deduction next year.
• Used and new property both qualify. Unlike the original TCJA bonus depreciation rules that favored new property, §179 has always allowed used equipment. So does post-OBBBA bonus depreciation (discussed below).
• Entity structure matters. For S-corporations and partnerships, the §179 deduction passes through to owners, but each owner's deduction is capped by their allocated share of the entity's taxable income. The entity-level election is what matters; coordinate with your CPA before year-end.

Bonus depreciation — the OBBBA rules

Bonus depreciation under §168(k) allows an immediate first-year deduction for a percentage of the cost of qualifying property. The OBBBA permanently restored it to 100%.

Acquisition date determines the rate

Source: IRS Notice 2026-11 (OBBBA §168(k) interim guidance). Long-production-period property and certain aircraft: taxpayer may elect 40% instead of 100%.

What qualifies for bonus depreciation

• Tangible personal property with a recovery period of 20 years or less (5-year: computers/vehicles; 7-year: most machinery/furniture; 15-year: land improvements and Qualified Improvement Property)
• Qualified Improvement Property (QIP) — interior improvements to nonresidential real property (but NOT the building itself, enlargements, or structural components like elevators)
• Off-the-shelf computer software
• Both new and used property (as long as the taxpayer or a related party hasn't previously used the property)

Does NOT qualify: land, buildings, 27.5-year residential rental property, 39-year commercial real property (unless QIP), inventory, or property used outside the US.

No income limitation

Unlike §179, bonus depreciation has no taxable income cap. It can create — and carry forward — a net operating loss. This is a critical planning difference, discussed below.

Section 179 vs. bonus depreciation: how to choose

Vehicle depreciation rules

Vehicles get more complicated because §280F imposes "luxury auto" caps on passenger automobiles, regardless of cost.

Passenger automobiles (≤6,000 lbs GVWR)

These cars and light trucks are subject to §280F annual caps regardless of actual cost:

Source: Rev. Proc. 2026-15. Caps apply regardless of purchase price. A $90,000 sedan and a $35,000 sedan get identical treatment.

Heavy SUVs and trucks (>6,000 lbs GVWR)

Vehicles over 6,000 lbs gross vehicle weight rating are exempt from §280F luxury auto caps. Two rules govern them instead:

• §179 SUV cap: If the vehicle is classified as an SUV, the Section 179 election is capped at $32,000. This cap does NOT apply to pickup trucks with a cargo bed ≥6 ft, cargo vans, or vehicles with a GVWR over 14,000 lbs.
• Bonus depreciation: Not subject to the $32,000 §179 SUV cap. You can take 100% bonus depreciation on a $90,000 heavy SUV — the full $90,000 in year one — provided it's 100% business use (or prorated for mixed use).

Many business owners mistakenly believe the $32,000 cap applies to all vehicle depreciation for heavy SUVs. It doesn't — the cap is §179-specific. Bonus depreciation on the same vehicle is unrestricted (subject to actual business-use percentage).

The §199A QBI deduction interaction

For pass-through business owners (S-corps, sole proprietors, partnerships) currently eligible for the §199A qualified business income deduction, large depreciation deductions create a trade-off worth understanding.

Both §179 and bonus depreciation reduce your QBI dollar-for-dollar. If you're currently deducting 20% of QBI under §199A, a $200,000 equipment deduction doesn't save you just the deduction times your marginal rate — it also shrinks your QBI deduction by $40,000 (20% × $200K), costing you approximately $15,000-$17,000 in additional taxes at high income levels.

The practical math: the true after-tax cost of accelerating depreciation is somewhat lower than it first appears because the QBI deduction was already reducing your effective rate on that income. This rarely changes the decision — accelerating a large deduction into a high-income year almost always wins — but it's worth including in a detailed year-end tax projection.

For owners near the §199A W-2 wage threshold: the UBIA (unadjusted basis immediately after acquisition) of qualified property factors into the alternative W-2+capital limitation. Acquiring significant depreciable assets increases the capital component of this limit, which can unlock additional QBI deduction capacity for owners whose QBI deduction is wage-constrained. This is advanced planning; model it with your CPA.

Planning scenarios

Common mistakes

• Treating the §179 SUV cap as a bonus depreciation cap. The $32,000 limit is §179-specific. Bonus depreciation on a heavy SUV is uncapped (limited only by actual purchase price and business-use %).
• Buying equipment in December without confirming "placed in service." An asset purchased December 30 but not operational until January doesn't count as 2026 property. The placement date controls the tax year, not the payment date.
• Ignoring the taxable income limitation on §179. If your business has a mediocre year, §179 may not deliver the full deduction. Bonus depreciation can still create the deduction — as a carryforward NOL.
• Missing the QBI connection. Large equipment purchases affect your QBI calculation. A year-end projection should model the depreciation alongside retirement plan contributions, reasonable comp optimization, and estimated state taxes to find the true optimal amount to accelerate.
• Using 100% business-use for mixed-use vehicles. The IRS examines vehicle logs. If a vehicle is actually 70% business use, your deduction is 70% of what you claimed. Document with a mileage log — especially for vehicles where the full cost was expensed.
• Overlooking used equipment. Both §179 and post-OBBBA bonus depreciation cover used property that's new to you. A $200,000 used CNC machine purchased in 2026 gets the same 100% first-year treatment as a new one.

Sources

1. IRS — Treasury and IRS issue guidance on OBBBA bonus depreciation (IRS Notice 2026-11). Confirms 100% permanent additional first-year depreciation deduction under §168(k) for eligible property acquired after January 19, 2025.
2. Section179.org — 2026 Section 179 Deduction Limits. Maximum deduction $2,560,000; phase-out begins at $4,090,000; full phase-out at $6,650,000; heavy SUV cap $32,000. Reflects OBBBA increase to $2.5M baseline plus 2026 inflation adjustment.
3. IRS Rev. Proc. 2026-15 — 2026 Luxury Automobile Depreciation Limits. §280F passenger auto first-year cap: $20,300 with §168(k) bonus depreciation, $12,300 without. Years 2–3–4+: $19,800 / $11,900 / $7,160.
4. RSM — The OBBBA restores and expands bonus depreciation. Analysis of OBBBA §168(k) changes, qualifying property, and acquisition date rules. Confirms permanent 100% rate with no phasedown schedule.
5. IRS — Instructions for Form 4562 (2025). Authoritative instructions for §179 election, MACRS schedules, listed property rules, and §280F vehicle limitations.

Section 179 limits verified against 2026 IRS and Section179.org figures. Bonus depreciation rules per OBBBA (enacted July 2025) and IRS Notice 2026-11. Vehicle caps per Rev. Proc. 2026-15. Values current as of May 2026.