CMI Fixed Assets: Section 179, Bonus Depreciation & MACRS

Fixed asset depreciation and Section 179 come down to a single question for every business purchase: deduct the whole cost this year, or spread it across several? For 2026, you have strong tools to deduct big-ticket items immediately, including a Section 179 limit of roughly $2,560,000 and 100% bonus depreciation on qualifying property acquired after January 19, 2025. Everything that doesn’t get expensed outright is recovered over time under MACRS, and the rules differ enough from one asset type to another that the choice is rarely automatic.

What Has to Be Capitalized

A fixed asset is tangible property you use in your business and expect to last longer than one year: buildings, machinery, vehicles, furniture. Because the asset serves you across multiple tax years, its cost generally gets spread across those years through depreciation rather than deducted all at once.

One line to get right from the start: land is never depreciated. Unlike a building that wears out, land doesn’t deteriorate or become obsolete, so the IRS prohibits any depreciation deduction for the land portion of a purchase.¹ When you buy real property, allocate the purchase price between the building and the land using the sales contract, an appraisal, or the local property tax assessment ratio. Only the building portion goes into your depreciable basis.

Expensing Small Purchases Right Away

Not every long-lived item has to be capitalized. The IRS de minimis safe harbor lets you deduct small-dollar purchases outright, no matter how long they last. With an Applicable Financial Statement (such as a certified audited statement), the ceiling is $5,000 per invoice or item. Without one, it drops to $2,500.²

There’s a procedural catch. If you have an AFS, you need a written accounting policy at the start of the tax year specifying your capitalization threshold. Without an AFS, a consistent accounting procedure on your books at the start of the year is enough. You elect the safe harbor annually on your return.

Separately, materials and supplies are their own category: components costing $200 or less, items with a useful life under 12 months, and consumables like fuel and lubricants. Incidental materials and supplies get deducted when purchased; non-incidental ones get deducted when first used. A $150 replacement part on your shelf is deducted when you install it, not when it arrives.

Section 179 for 2026

Section 179 lets you elect to expense the full cost of qualifying property in the year you place it in service. The base statutory limit is $2,500,000, adjusted for inflation; for 2026 that figure rises to approximately $2,560,000.³ Once your total equipment purchases for the year exceed roughly $4,090,000, the deduction phases out dollar-for-dollar and eventually reaches zero.

Three constraints shape how useful the election is to you:

The deduction cannot exceed your taxable income from active business operations for the year. Any unused amount carries forward.
Sport utility vehicles have their own cap of $25,000. A $70,000 SUV only generates $25,000 of Section 179 deduction, even though the rest of the cost may still be depreciated.
The property must be tangible, depreciable, and used in your trade or business. Real property generally doesn’t qualify, with the exception of certain improvements to nonresidential buildings: roofing, HVAC, fire protection, and security systems.

Because Section 179 is elective, you choose how much to expense, which gives you year-end control over your taxable income.

Bonus Depreciation and the January 19, 2025 Cutoff

Bonus depreciation works on different mechanics than Section 179. It applies automatically unless you elect out, has no dollar cap, and isn’t limited by business income. The variable that matters most in 2026 is when the property was acquired.

Under the One Big Beautiful Bill Act, qualifying business property purchased and placed in service after January 19, 2025, is eligible for 100% first-year depreciation.⁴ A machine ordered in March 2025 and installed in 2026 qualifies for a full write-off.

Property acquired before January 20, 2025, follows the earlier phase-down. Equipment bought in 2024 but placed in service in 2026 gets only 20% bonus depreciation. Property acquired before that cutoff and placed in service after 2026 gets no bonus depreciation at all. If you have older uninstalled equipment sitting in a warehouse, acquisition date, not in-service date, drives the first-year deduction.

Using Section 179 and Bonus Together

Most businesses use both. Section 179 goes first because it’s elective and lets you dial in exactly how much to expense. Bonus depreciation then picks up any remaining cost automatically. The key difference in a loss year: bonus depreciation still applies and can create or increase a net operating loss, while Section 179 is capped at your business income and the excess carries forward.

MACRS for What’s Left

Cost that doesn’t get expensed through a safe harbor, Section 179, or bonus depreciation is recovered under the Modified Accelerated Cost Recovery System. MACRS assigns every type of property a specific recovery period.¹ The common classes under the General Depreciation System:

5-year: automobiles, light trucks, computers, office machinery, research equipment.
7-year: office furniture, fixtures, and any asset without an assigned class life.
15-year: land improvements such as fences, roads, sidewalks, and shrubbery.
27.5-year: residential rental buildings.
39-year: nonresidential commercial buildings.

MACRS also uses conventions that govern the first and last years. Most personal property uses the half-year convention, which treats the asset as placed in service at the midpoint of the year regardless of actual date. Real property uses the mid-month convention. You can’t claim a full year of depreciation on something you bought in December.

Passenger Vehicle Caps

Passenger automobiles are subject to annual depreciation caps under Section 280F that override the normal class life. For vehicles placed in service during 2026:⁵

Year 1 with bonus depreciation: $20,300
Year 1 without bonus depreciation: $12,300
Year 2: $19,800
Year 3: $11,900
Each year after: $7,160

A $60,000 sedan takes far longer to fully depreciate than its five-year class suggests. Heavy SUVs and trucks over 6,000 pounds gross vehicle weight aren’t subject to these caps, which is why they’re a common business choice, though the $25,000 Section 179 limit on SUVs still applies.

Repairs vs. Improvements on Existing Assets

Once an asset is on your books, every follow-on expenditure reopens the same question. The IRS tangible property regulations use what practitioners call the BAR test: you must capitalize a cost if it’s a Betterment, Adaptation, or Restoration of the property.² Anything that fails all three tests is a deductible repair.

Betterment increases capacity, efficiency, or strength beyond original condition. Replacing a standard roof with a higher-grade, energy-efficient system is a betterment.
Adaptation converts the property to a fundamentally different use. Converting a warehouse into office space is the classic example.
Restoration returns a deteriorated or failed asset to working condition, or replaces a major component. A full HVAC replacement or a new structural beam falls here.

Costs that just keep the property in its current working condition stay deductible: repainting, patching small roof sections, routine oil changes. A repair puts things back to normal; an improvement makes them better or different.

Routine Maintenance Safe Harbor

Recurring maintenance has its own safe harbor. You can expense activities you reasonably expect to perform more than once during the asset’s class life, as long as the work keeps the property in its ordinary operating condition. For buildings, the test period is 10 years from the date placed in service. If you expected to replace the carpet every seven years when you first occupied the building, those replacements qualify even though individual jobs look expensive. The test is your expectation at the time you placed the property in service, not what later happens.

Safe Harbor for Small Taxpayers

If average annual gross receipts are $10 million or less and you own or lease a building with an unadjusted basis under $1 million, you can expense all repair, maintenance, and improvement costs for that building, provided the total doesn’t exceed the lesser of 2% of the building’s unadjusted basis or $10,000. The election is annual and per building, so you can use it for one property and follow the standard rules for another.

Fixing a Prior-Year Mistake

If you discover you’ve been expensing costs that should have been capitalized, or capitalizing costs that should have been expensed, you can’t just amend one return. The IRS treats capitalization as a method of accounting, so switching requires Form 3115 for an automatic change.⁶ Designated change numbers identify the specific correction: DCN 192 for changing to capitalizing acquisition or production costs, DCN 184 for capitalizing improvement costs.

The change triggers a Section 481(a) adjustment that captures the cumulative effect across open and closed years. If you’ve been improperly expensing, the adjustment increases taxable income by the total improperly deducted minus the depreciation you would have claimed had you capitalized correctly. A positive adjustment is generally spread over four tax years.

Beyond the adjustment, the IRS can impose a 20% accuracy-related penalty on any underpayment resulting from a substantial understatement. For individuals, a substantial understatement exists when the underpayment exceeds the greater of 10% of the tax due or $5,000. For corporations other than S corporations, the threshold is the lesser of 10% of the tax due (or $10,000 if greater) and $10,000,000.⁷ Filing Form 3115 voluntarily, before the IRS raises the issue, generally supports reasonable cause and helps you avoid the penalty.

1
Internal Revenue Service. Publication 946, How To Depreciate Property
2
Internal Revenue Service. Tangible Property Final Regulations
3
Office of the Law Revision Counsel. 26 US Code 179 – Election To Expense Certain Depreciable Business Assets
4
Internal Revenue Service. One Big Beautiful Bill Provisions
5
Internal Revenue Service. Rev Proc 2026-15, Depreciation Limitations for Passenger Automobiles
6
Internal Revenue Service. Instructions for Form 3115
7
Internal Revenue Service. Accuracy-Related Penalty