How Much Depreciation Can I Claim? Section 179, Bonus, and Caps

How much depreciation you can claim on business property depends on three things: your depreciable basis in the asset, the recovery period and method that apply to it, and whether you elect one of the accelerated write-offs. For 2026, Section 179 lets you expense up to $2,560,000 of qualifying property in the first year, and bonus depreciation is back to 100% on a permanent basis for property acquired after January 19, 2025.¹² If you don’t use either, regular MACRS depreciation spreads the cost over anywhere from five years for equipment to 39 years for a commercial building.

What Counts Toward the Amount You Can Depreciate

Your depreciable basis is the ceiling on your lifetime deduction. It starts with the purchase price and adds the costs of getting the asset in place and ready to use: sales tax, freight, delivery, and installation.³ Reconditioning a used machine before putting it to work adds to basis too. Later capital improvements that extend the asset’s life or add value get folded in as they happen.

Not everything you pay at closing goes into basis. On real estate, mortgage points, lender-required appraisal fees, and loan origination fees stay out.⁴ Owner’s title insurance and recording fees go in. Misallocating these either shortchanges your deduction or inflates it in a way that surfaces later.

Real estate also requires you to pull out the land. Land doesn’t wear out and can’t be depreciated. If you buy a rental for $300,000 and the tax assessment allocates 20% to land, your depreciable basis for the building is $240,000.⁵ The assessment is the usual split; an independent appraisal works too.

Recovery Periods by Asset Class

The Modified Accelerated Cost Recovery System groups property by expected useful life, and that class fixes the number of years over which you claim the deduction.² Get the class wrong and you either deduct too fast (and have to correct it) or too slow (and lose the time value for years).

5-year property: computers, printers, copiers, cars, light trucks, and some manufacturing equipment.
7-year property: office furniture, desks, filing cabinets, and most machinery not assigned elsewhere.
15-year property: land improvements such as fences, sidewalks, roads, shrubbery, and parking lots, plus qualified improvement property.⁶
27.5-year property: residential rental buildings and their structural components.⁵
39-year property: commercial and nonresidential buildings, including offices, warehouses, and retail spaces.

Interior renovations to a commercial building you own or lease qualify as qualified improvement property and drop into the 15-year class instead of following the building’s 39-year life. The work has to be interior; expanding the footprint, adding an elevator, or touching the structural framework doesn’t qualify. The shorter life also makes the improvement eligible for bonus depreciation and Section 179, which are off the table for most 39-year property.

How Fast You Claim It Each Year

Once the class is set, the method decides the shape of the deductions. Under the General Depreciation System, the default for 3-, 5-, 7-, and 10-year property is 200% declining balance, which front-loads deductions and automatically switches to straight-line when that produces a larger figure.⁷ For 15- and 20-year property, the default is 150% declining balance. You can elect straight-line instead, but the election covers every asset in that class placed in service during the year.

The Alternative Depreciation System uses straight-line over longer recovery periods and becomes mandatory for a handful of situations, including listed property used 50% or less for business and real estate held by a real property trade or business that has elected to fully deduct business interest.⁶ Under that real estate election, residential rental stretches to 30 years and commercial to 40.

First-Year Conventions

MACRS doesn’t give you a full year of depreciation the year you place an asset in service. Personal property uses the half-year convention: every asset is treated as placed in service at the midpoint of the year, so year one and the final year each get half.⁶ Real property uses the mid-month convention. A residential rental building placed in service in February gets 10.5 months of depreciation in year one (half of February plus March through December), and depreciation runs through the middle of the month you sell.⁵

Section 179: How Much You Can Expense Immediately

Section 179 lets you skip the schedule entirely and deduct the full cost of qualifying property in the year you place it in service. For tax years beginning in 2026, the maximum deduction is $2,560,000, and the phase-out starts once total qualifying purchases exceed $4,090,000. Above that threshold, the maximum shrinks dollar-for-dollar.¹ The base amounts jumped for 2025 under the One Big Beautiful Bill Act, with inflation adjustments starting in 2026.⁸

Qualifying property includes tangible personal property such as machinery, equipment, furniture, and off-the-shelf computer software. Since the Tax Cuts and Jobs Act, certain improvements to commercial buildings also qualify: roofs, HVAC, fire protection and alarm systems, and security systems.⁹ Qualified improvement property is eligible. Residential rental property itself is not.

Section 179 has a catch that limits how much you can actually use in a given year: your deduction cannot exceed your taxable income from active trades or businesses. If your business earns $200,000 and you buy $300,000 of equipment, Section 179 is capped at $200,000 that year. The other $100,000 isn’t lost; it carries forward. Bonus depreciation has no such income cap, which is why the two are often used together.

Bonus Depreciation After the OBBB Act

Bonus depreciation under Section 168(k) gives you an additional first-year deduction on top of regular MACRS. The One Big Beautiful Bill Act permanently restored the rate to 100% for qualifying property acquired after January 19, 2025, and wiped out the phase-down that had been shrinking the rate since 2023.² For most qualifying property acquired and placed in service in 2026, the entire cost is deductible in year one through bonus depreciation alone.

The acquisition date is the hinge. Property acquired before January 20, 2025, still follows the old phase-down, meaning just 20% bonus depreciation if placed in service in 2026. Equipment ordered in 2024 but not yet in service gets a much smaller bonus rate than a fresh 2025 or 2026 purchase.

Bonus depreciation has no dollar cap and no taxable income limit. It can create or increase a net operating loss you carry forward. It applies automatically unless you elect out, and the election out covers every asset in a given class placed in service that year, so you can’t cherry-pick. Layering works well: use Section 179 first up to the dollar and income limits, then run 100% bonus on the rest. For assets Section 179 doesn’t reach, bonus depreciation may still apply if the property meets MACRS requirements and was acquired after January 19, 2025.

Vehicle Caps and Listed Property

Passenger automobiles have their own annual ceilings, and they apply no matter which method you’re using. For vehicles placed in service in 2026, Revenue Procedure 2026-15 sets the caps at $20,300 in year one with bonus depreciation ($12,300 without), $19,800 in year two, $11,900 in year three, and $7,160 in each year after.¹⁰ The caps are applied to the business-use portion. An $60,000 car used 80% for business gets 80% of the applicable cap. On an expensive vehicle, the $7,160 tail can run well past the normal five-year recovery period.

Vehicles with a gross vehicle weight rating above 6,000 pounds escape the passenger auto caps under Section 280F.¹¹ SUVs between 6,001 and 14,000 pounds GVWR still hit a separate Section 179 cap, set at $32,000 for 2026.¹ After that $32,000 Section 179 deduction, 100% bonus depreciation can pick up the rest, so most heavy SUVs can still be written off in year one. Full-size pickups and vans over 6,000 pounds that aren’t designed mainly for passengers have no SUV cap and can use the full Section 179 amount.

Business-use percentage matters more than most owners realize. Vehicles and other listed property have to be used more than 50% for business to qualify for accelerated methods and Section 179.¹¹ If business use falls to 50% or lower in any year, you lose the accelerated methods, switch to straight-line under ADS, recalculate every prior year on that basis, and report the difference as income. A contemporaneous mileage log is the only reliable defense.

What You Give Back When You Sell

Every dollar of depreciation reduces your basis, so the gain on a sale is larger than the price appreciation alone. On personal property, all the depreciation you claimed is recaptured as ordinary income up to the amount of your gain. Depreciate a machine by $40,000, sell it for a $30,000 gain, and the whole $30,000 is ordinary income at your regular rate.¹²

Real property works differently because most owners use straight-line, so there’s no “excess” to tax at ordinary rates. Instead, the gain attributable to prior straight-line depreciation is unrecaptured Section 1250 gain, taxed at a maximum federal rate of 25%. Own a rental for 15 years and claim $150,000 in depreciation, and that $150,000 is taxed at up to 25% on sale even if the rest of your gain gets the lower long-term capital gains rate.¹²

One trap catches owners who thought they’d outsmart recapture by not claiming depreciation. The statute reduces basis by the greater of depreciation deducted or depreciation allowable.¹³ Skip the annual deductions and you still get the lower basis (and higher gain) at sale, without ever getting the tax benefit along the way. Claim what you’re entitled to.⁶

1
Internal Revenue Service. Revenue Procedure 2025-32
2
Office of the Law Revision Counsel. 26 USC 168 – Accelerated Cost Recovery System
3
Internal Revenue Service. Topic No. 703, Basis of Assets
4
Internal Revenue Service. Publication 551, Basis of Assets
5
Internal Revenue Service. Publication 527 (2025), Residential Rental Property
6
Internal Revenue Service. Publication 946 (2024), How To Depreciate Property
7
Internal Revenue Service. 2025 Instructions for Form 4562
8
Office of the Law Revision Counsel. 26 USC 179 – Election To Expense Certain Depreciable Business Assets
9
Internal Revenue Service. Depreciation Expense Helps Business Owners Keep More Money
10
Internal Revenue Service. Revenue Procedure 2026-15
11
Office of the Law Revision Counsel. 26 USC 280F – Limitation on Depreciation for Luxury Automobiles
12
Internal Revenue Service. Publication 544 (2025), Sales and Other Dispositions of Assets
13
Office of the Law Revision Counsel. 26 USC 1016 – Adjustments to Basis