Business Equipment Tax Deduction: Section 179 and Bonus Depreciation

A business equipment tax deduction lets you recover the cost of tangible property you buy for your trade or business, and in most cases you can deduct the full cost in the year the equipment is placed in service. For the 2026 tax year, the two main tools are the Section 179 deduction, capped at $2,560,000, and bonus depreciation, which is back at 100% and now permanent. Anything you don’t expense immediately gets depreciated over a set number of years under standard IRS schedules.

Deductions don’t begin on the day you pay. They begin on the “placed in service” date, meaning the day the equipment is ready and available for its intended use in your business. A machine sitting crated on the dock isn’t placed in service; the day it’s installed, tested, and ready to run is.¹

What Property Qualifies

Most tangible property used in a trade or business qualifies for some form of cost recovery: office furniture, industrial machinery, delivery vehicles, computers, and off-the-shelf software are the usual examples. The property has to be used in the business, not held purely for personal use.

For a category the IRS calls “listed property,” business use must be more than 50% to claim accelerated deductions like Section 179 or bonus depreciation. If business use later drops to 50% or below, you have to recapture some of the tax benefit and pay additional tax in the year the use drops.² For any asset that pulls double duty between business and personal use, keep a contemporaneous usage log.

Section 179 Expensing

Section 179 lets you deduct the full purchase price of qualifying equipment in the year it’s placed in service instead of spreading the cost over several years. For 2026, the maximum deduction is $2,560,000. That cap starts shrinking dollar-for-dollar once total equipment purchases for the year exceed $4,090,000, and the deduction zeros out at $6,650,000 in total spending.³ The phase-out steers the biggest benefit toward small and mid-sized businesses.

One rule catches people off guard: your Section 179 deduction for the year can’t exceed the taxable income you earned from the active conduct of your business. If the business had a loss or earned less than the deduction, Section 179 can’t create or increase a net loss. The unused portion carries forward, so you don’t lose it permanently, but you have to wait for a profitable year to absorb it.⁴

Bonus Depreciation at 100%

Bonus depreciation works alongside Section 179 under different rules. Under the One Big Beautiful Bill Act signed on July 4, 2025, qualifying property acquired after January 19, 2025, is eligible for a permanent 100% first-year deduction. The prior phase-down schedule, which had dropped the rate to 60% for 2024, is gone.⁵

Two features make bonus depreciation more flexible than Section 179. It has no dollar cap and no spending-based phase-out, and it has no taxable income limit, so it can create or increase a business loss that can be carried to other years. Property with a recovery period of 20 years or less qualifies, which covers nearly all business machinery and equipment.⁶

Used equipment qualifies as long as it’s new to you. The IRS requires that you didn’t previously use the property, that you didn’t buy it from a related party, and that your basis isn’t carried over from the seller’s basis.⁷

Vehicles Have Their Own Caps

Vehicles are common business purchases, and they come with separate limits regardless of what you paid. For passenger automobiles placed in service in 2026, the first-year depreciation limit is $20,300 if bonus depreciation applies, or $12,300 if it doesn’t.⁸

Heavy vehicles get better treatment. The rules turn on gross vehicle weight rating, printed on the manufacturer’s sticker inside the driver-side door jamb:

6,000 lbs or less (cars and light trucks): subject to the annual passenger automobile caps above.
6,001 to 14,000 lbs (heavy SUVs and trucks): the Section 179 deduction is capped at $32,000 for 2026, but bonus depreciation applies to the remaining cost with no cap.
Over 14,000 lbs (heavy-duty trucks and vans): fully deductible under Section 179 and bonus depreciation up to normal limits, with no special vehicle restrictions.

The $32,000 SUV cap applies to vehicles designed primarily to carry passengers. Pickup trucks with a cargo bed at least six feet long and vans with no seating behind the driver’s row generally aren’t treated as SUVs and can qualify for the full deduction without hitting the ceiling.³

What’s Not Expensed: MACRS Recovery

When you don’t expense the full cost through Section 179 or bonus depreciation, the remaining basis is recovered over a set number of years under the Modified Accelerated Cost Recovery System. The classes most businesses see:

5-year property: computers, copiers, calculators, and other office machinery.
7-year property: office furniture and fixtures such as desks, file cabinets, and safes.
15-year property: qualified improvement property (interior renovations to commercial buildings).

Vehicles, certain manufacturing equipment, and specialized assets have their own classes in IRS Publication 946.¹

Under the standard half-year convention, property is treated as placed in service at the midpoint of the year, giving you a half-year of depreciation in year one and the remaining half in the final year of the recovery period. If more than 40% of your total depreciable property for the year was placed in service during the last three months, you switch to the mid-quarter convention, which generally produces a smaller first-year deduction for late-year additions. Property expensed under Section 179 or bonus depreciation doesn’t count toward the 40% test.¹

Small Purchases: The De Minimis Safe Harbor

Lower-cost items like tools, small electronics, or minor fixtures don’t have to be capitalized at all. The de minimis safe harbor election lets you deduct items costing $2,500 or less per invoice, or $5,000 if your business has audited financial statements. You make the election annually on a timely filed return, and qualifying purchases come off as ordinary business expenses without going through a depreciation schedule.⁹

What Happens When You Sell the Equipment

The tax benefits don’t simply vanish on sale. If you sell equipment for more than its depreciated value (original cost minus depreciation claimed), the IRS taxes part of that gain as ordinary income through depreciation recapture. This applies to all prior depreciation, including amounts claimed under Section 179 and bonus depreciation.¹⁰

An example. You buy a $100,000 machine and deduct the entire cost using Section 179. Your adjusted basis is now $0. If you sell it later for $60,000, the entire $60,000 is taxed as ordinary income at your marginal rate. Any gain above the original purchase price would fall to the lower capital gains rate, but that’s rare for used equipment. Report these sales on Form 4797.¹¹

Planning matters here. Claiming 100% bonus depreciation on a large purchase and then selling the equipment a year later produces a hefty recapture bill. Factor the eventual tax hit into the choice between immediate expensing and spreading deductions over time.

State Rules May Not Match

Federal treatment and state treatment can look very different. A significant number of states decouple from federal bonus depreciation, requiring you to add back some or all of the federal deduction on your state return and depreciate the asset over a longer schedule for state purposes. Some states also cap Section 179 below the federal amount. Check your state’s conformity rules before assuming the state bill will mirror the federal benefit.

How to Claim the Deduction

You report equipment deductions and depreciation on Form 4562, attached to your annual income tax return. The form asks for the cost basis of each asset, the placed-in-service date, and the depreciation method and recovery period.¹²

Keep purchase receipts, invoices, and financing documents. You’ll want records showing the vendor, price, transaction date, and a description sufficient to justify the property class. For mixed-use assets, keep a contemporaneous log of business use percentage. Records for depreciable property should be held for as long as you own the asset plus at least three years after you report its disposition.¹³

If You Missed Depreciation in a Prior Year

Forgotten depreciation from earlier years doesn’t necessarily require a stack of amended returns. Form 3115 lets you request a change in accounting method and claim all previously missed depreciation as a single adjustment on your current-year return. The filing requirements are specific, and the form should be included with a timely filed return.

1
Internal Revenue Service. Publication 946 – How To Depreciate Property
2
eCFR. 26 CFR 1.280F-6 – Special Rules and Definitions
3
Internal Revenue Service. Internal Revenue Bulletin 2025-45 – Rev. Proc. 2025-32
4
Office of the Law Revision Counsel. 26 USC 179 – Election to Expense Certain Depreciable Business Assets
5
Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One Big Beautiful Bill
6
Office of the Law Revision Counsel. 26 USC 168 – Accelerated Cost Recovery System
7
Internal Revenue Service. Additional First Year Depreciation Deduction (Bonus) – FAQ
8
Internal Revenue Service. Rev. Proc. 2026-15 – Depreciation Limitations for Passenger Automobiles
9
Internal Revenue Service. Tangible Property Final Regulations
10
Office of the Law Revision Counsel. 26 USC 1245 – Gain From Dispositions of Certain Depreciable Property
11
Internal Revenue Service. About Form 4797, Sales of Business Property
12
Internal Revenue Service. Instructions for Form 4562
13
Internal Revenue Service. How Long Should I Keep Records?