Do You Have to Take Section 179 Before Bonus Depreciation?

Yes. When you claim both deductions on the same asset, Section 179 must be applied before bonus depreciation. The order is fixed by the IRS: Section 179 reduces the asset’s cost basis first, bonus depreciation applies to whatever remains, and regular MACRS handles any leftover balance.¹ But Section 179 is entirely elective. You can skip it and let bonus depreciation do the work on its own, which is a real option again now that the One Big Beautiful Bill Act has restored 100% bonus depreciation permanently for property acquired after January 19, 2025.²

The Required Sequence

The IRS locks in a three-step order for depreciating a business asset when more than one method is in play. If you elect Section 179, that dollar amount comes off the top of the asset’s cost. Bonus depreciation then applies to the reduced basis. Whatever is left after both deductions gets recovered over the asset’s useful life through the MACRS system.¹

Form 4562 follows the same sequence: Part I handles Section 179, Part II handles the bonus allowance, Part III handles regular MACRS.³

You cannot reverse the order. Taking bonus depreciation first and then subtracting Section 179 from what’s left would inflate the bonus deduction and misstate the asset’s remaining basis. The sequence is designed so that the flat-dollar deduction (Section 179) always reduces the pool before a percentage-based deduction (bonus depreciation) is calculated against it.

One Is a Choice, the Other Is Automatic

This is where a lot of business owners get tripped up. Section 179 is a deliberate election. You pick which assets to expense, how much of each asset’s cost to claim, and you can take anywhere from one dollar up to the annual cap.⁴ Don’t want to use it at all? Skip Part I of Form 4562.

Bonus depreciation works the opposite way. It applies automatically to every qualifying asset you place in service during the year. If you don’t want it on a particular asset, you have to affirmatively elect out, and that election applies to every asset in the same MACRS class placed in service that year. You cannot cherry-pick individual assets within a class.⁵ The election out has to be filed with your Form 4562 by the due date (including extensions) of the return for the year the property goes into service.

The practical upshot: if you buy five pieces of seven-year MACRS equipment in 2026, you can apply Section 179 to just one or two while leaving the rest alone. You cannot opt out of bonus depreciation on three of them while keeping it on the other two. It’s all or nothing within each class.

How the Basis Reduction Plays Out

Say your business buys a $200,000 piece of production equipment in 2026. You elect to expense $80,000 under Section 179. That leaves a remaining basis of $120,000. Bonus depreciation at the current 100% rate then wipes out the entire $120,000.¹ Total first-year write-off: $200,000. Nothing rolls into MACRS.

With 100% bonus back in play, any asset that qualifies for both deductions gets fully expensed in year one no matter how you split the cost between Section 179 and bonus. The math only changes when you elect out of bonus depreciation, or when the asset doesn’t qualify for bonus. In that case, Section 179 handles whatever portion you designate, and the rest enters the MACRS schedule. On a $200,000 seven-year asset where you take $80,000 in Section 179 and skip bonus, the remaining $120,000 depreciates over the MACRS recovery period using the applicable percentage tables.³

Why Use Section 179 First at All When Bonus Is 100%?

Fair question. If bonus depreciation zeros out the basis anyway, why bother running anything through Section 179? Three reasons.

Income control. Section 179 cannot reduce your business’s taxable income below zero. If your business earns $300,000 and you place $500,000 of equipment in service, your Section 179 deduction is capped at that $300,000 of business income. The $200,000 you couldn’t use carries forward indefinitely.⁶ Bonus depreciation has no such income floor. It can push your business into a net operating loss. That NOL carries forward, but some owners would rather not generate paper losses, especially if they expect higher income later or worry about lender covenants.

The Section 179 carryforward rules are specific: the earliest disallowed year’s amounts must be claimed first when you use them, and you designate the specific assets and cost amounts subject to the carryover in the year the property is placed in service.⁷

Qualified real property. Section 179 covers certain nonresidential building improvements that may not qualify for bonus depreciation. Roofs, HVAC systems, fire protection, alarm systems, and security systems in nonresidential buildings are all eligible as qualified real property under Section 179.⁸

State conformity. A number of states don’t conform to federal bonus depreciation and require businesses to add back the deduction on the state return, then depreciate the asset over its regular life for state purposes. Many of those same states do conform to Section 179. Leaning on Section 179 and away from bonus depreciation can simplify state filings and cut down on tracking two separate depreciation schedules for years.

Granularity: Asset-by-Asset vs. Class-Wide

Section 179 lets you fine-tune. You can expense $50,000 of a $150,000 purchase and depreciate the rest, or expense the full cost up to the annual limit, or skip an asset entirely. That flexibility is the main tactical advantage over the all-or-nothing class-wide nature of the bonus election.

Bonus depreciation gives you one lever per MACRS class per year: on or off. You can also elect a reduced 40% bonus rate for the first tax year ending after January 19, 2025, which offers some middle ground for businesses that want partial acceleration without a full write-off.⁵

Electing Out of Bonus Depreciation

Legitimate reasons to opt out exist even at 100%. A business expecting significantly higher income in future years might prefer spreading deductions forward through MACRS. A company with expiring net operating loss carryforwards may want current-year taxable income to absorb those losses rather than creating new deductions it can’t use. State nonconformity, as noted, is another common driver.

The election out must be attached to your timely filed return (including extensions) for the year the property is placed in service, and it applies to all qualifying property in the same MACRS class placed in service during that year.⁵ Miss the deadline and you’re stuck with bonus depreciation on that class for the year.

Qualifying Property, in Short

Section 179 covers tangible personal property used in the active conduct of a trade or business (machinery, office furniture, equipment, computers, off-the-shelf software) plus the qualified real property improvements described above. The property must be purchased (not leased from a related party) and placed in service during the tax year. Business use must exceed 50% for the entire time you own the asset. If business use drops to 50% or less in a later year, you’ll owe recapture on part of the deduction.⁸

Bonus depreciation applies to assets with a MACRS recovery period of 20 years or less, which covers most equipment, vehicles, furniture, and machinery, along with qualified improvement property and certain longer-lived assets like water utility property.² The asset must be placed in service during your tax year and acquired after January 19, 2025, to qualify for the restored 100% rate. There is no general above-50%-business-use requirement for most property, though listed property such as passenger vehicles does carry that threshold.

The Short Version

On the same asset, Section 179 comes first, bonus depreciation second, MACRS last. That ordering is not optional. What is optional is whether to use Section 179 at all. At 100% bonus, some businesses skip Section 179 entirely and let bonus do the work. Others still run part of the cost through Section 179 to control taxable income, capture qualified real property that bonus won’t reach, or match up with state rules. Pick your split before you file Form 4562, and if you want to opt out of bonus for a MACRS class, do it on a timely filed return for the year the property goes into service.

1
Internal Revenue Service. Publication 946 (2024), How To Depreciate Property – Section: Claiming the Special Depreciation Allowance
2
Office of the Law Revision Counsel. 26 USC 168 – Accelerated Cost Recovery System
3
Internal Revenue Service. Instructions for Form 4562 (2025)
4
Internal Revenue Service. Publication 334 (2025), Tax Guide for Small Business
5
Internal Revenue Service. Additional First Year Depreciation Deduction (Bonus) – FAQ
6
eCFR. 26 CFR 1.179-2 – Limitations on Amount Subject to Section 179 Election
7
eCFR. 26 CFR 1.179-3 – Carryover of Disallowed Deduction
8
Office of the Law Revision Counsel. 26 USC 179 – Election to Expense Certain Depreciable Business Assets