How Section 179 Works: Limits, Vehicles, and Bonus Depreciation

Section 179 of the Internal Revenue Code lets a business deduct the full purchase price of qualifying equipment in the year the asset is placed in service, rather than depreciating it over several years. Here is how Section 179 works in practice: for 2026, you can expense up to $2,560,000 of qualifying property, both new and used, as long as the asset is used more than half the time for business. The deduction begins phasing out once total equipment purchases pass $4,090,000, and the One Big Beautiful Bill Act signed in mid-2025 roughly doubled the prior limits.

2026 Deduction Limits and Phase-Out

The One Big Beautiful Bill Act permanently raised the base Section 179 amounts for tax years beginning after December 31, 2024. The statute now sets the deduction cap at $2,500,000 and the investment ceiling at $4,000,000, both adjusted annually for inflation.¹ After indexing, the 2026 figures come out to $2,560,000 for the maximum deduction and $4,090,000 for the phase-out threshold.

Once qualifying equipment placed in service during the year exceeds $4,090,000, the available deduction shrinks dollar-for-dollar. A company that buys $4,200,000 worth of equipment is $110,000 over the threshold, which drops its maximum deduction from $2,560,000 to $2,450,000. Push far enough past the ceiling and the deduction disappears entirely, leaving bonus depreciation and standard MACRS to recover the rest of the cost.

The limits apply per tax return, not per asset. A business buying ten machines at $250,000 each has $2,500,000 in qualifying purchases and can deduct the full amount. The same business buying ten machines at $420,000 each hits $4,200,000 and starts losing its deduction.

What Property Qualifies

Most tangible personal property used in a business qualifies: machinery, manufacturing equipment, office furniture, computers, and off-the-shelf software available to the general public. Equipment does not need to be brand new. Used items qualify as long as they’re new to your business and acquired by purchase, not received as a gift, inherited, or bought from a related party.²

Certain improvements to nonresidential buildings also qualify. New roofs, HVAC systems, fire protection and alarm systems, and security systems count, as long as the improvement is made to the interior of a building already in service.² Enlarging the building, adding elevators or escalators, and changes to the internal structural framework do not qualify.

Placed in Service by Year-End

Buying equipment is not enough. The asset must be placed in service before the end of the tax year, meaning it’s in a condition of readiness and available for its assigned function. A machine delivered in December but still crated in the warehouse can qualify if it’s ready to operate. A machine that needs weeks of installation work stretching into January does not. The distinction matters most at year-end, when businesses are trying to lock in deductions before the calendar turns.

The More-Than-50% Business-Use Rule

The asset must be used for business more than 50% of the time during the year it’s placed in service.³ If a laptop costs $2,000 and you use it 70% for work, you can deduct $1,400. If business use is 50% or less, no Section 179 deduction is available at all for that asset. The threshold trips up business owners who buy dual-purpose equipment like vehicles or cameras without tracking how they actually use them.

Special Rules for Vehicles

Vehicles qualify for Section 179, but the IRS imposes tighter caps depending on weight. Which category your vehicle falls into determines how much you can actually deduct.

Passenger vehicles under 6,000 lbs GVWR face “luxury auto” depreciation caps. For 2026, the maximum first-year deduction (combining Section 179, bonus depreciation, and regular depreciation) is $20,300 if bonus depreciation applies, or $12,300 if it does not.⁴
Heavy SUVs between 6,001 and 14,000 lbs GVWR face a separate Section 179 cap that is inflation-adjusted each year. For 2024, that cap was $30,500, and the 2026 cap is expected to be slightly higher after inflation adjustments. Any remaining cost can still be recovered through bonus depreciation and MACRS.²
Vehicles over 14,000 lbs GVWR have no special cap. Heavy trucks, cargo vans, and buses in this weight class can qualify for the full Section 179 deduction up to the $2,560,000 annual limit.

GVWR is the manufacturer’s maximum loaded weight, printed on a label inside the driver’s door jamb. It includes passengers and cargo, so it’s always higher than the curb weight on a spec sheet. Many full-size pickups and large SUVs clear the 6,000-pound GVWR threshold, but check the actual label rather than assuming.

How Section 179 Stacks with Bonus Depreciation

Section 179 and bonus depreciation are separate deductions, applied in a specific order, and they can be stacked on the same asset. Section 179 comes first, bonus depreciation second, and regular MACRS depreciation third.⁵ Buy a $500,000 machine and elect to expense $300,000 under Section 179, and the remaining $200,000 basis is then eligible for bonus depreciation. Anything left after both gets depreciated over the asset’s normal recovery period.

For 2026, bonus depreciation stands at 100% for qualified property acquired after January 19, 2025, thanks to the One Big Beautiful Bill Act restoring the full first-year allowance. Property acquired before that date and placed in service in 2026 qualifies for only 20% bonus depreciation under the original phase-down schedule. The acquisition date controls, so equipment purchased and placed in service during 2026 generally qualifies for the full 100%.

Most businesses placing equipment in service during 2026 can therefore write off the entire cost in year one, whether through Section 179 alone, bonus depreciation alone, or a combination. The main reason to elect Section 179 rather than rely on bonus depreciation is control. Section 179 is elective and you choose the amount to expense, while bonus depreciation applies automatically unless you opt out. Businesses managing taxable income across multiple years sometimes prefer that flexibility.

Business Income Limitation and Carryforward

Even if you buy $2,560,000 in qualifying equipment, you cannot deduct more than your business’s taxable income for the year. The income limitation prevents Section 179 from creating or increasing a net operating loss.¹ If the business earns $80,000 in taxable income and buys $150,000 in equipment, the Section 179 deduction is capped at $80,000 for the current year. Wages, salaries, and other income from active business operations all count toward the figure.

The unused $70,000 is not lost. Section 179 amounts you cannot use carry forward indefinitely and can be claimed whenever business income is large enough to absorb them.¹ The carryforward is itself subject to the dollar and income limitations in the year you use it, so a big carryforward from an equipment-heavy year may take several years to fully absorb.

For partnerships and S corporations, the income limitation applies at both levels. The entity applies the dollar limit and phase-out, then passes each partner’s or shareholder’s share through on Schedule K-1. Each individual applies the income limitation again on their personal return using only their own active business income.⁶ This double layer of income testing catches some pass-through owners off guard, especially when the entity has plenty of income but the individual partner does not.

Recapture When Business Use Drops

Claim a Section 179 deduction and later drop business use of the asset to 50% or below, and the IRS claws back the tax benefit. The recapture amount is the difference between the Section 179 deduction you took and the straight-line depreciation you would have been entitled to for the years you held the asset. That difference is added back to income as ordinary income in the year business use falls below the threshold.⁷

Recapture is reported on Part IV of Form 4797. It is not optional, and the IRS can spot it when business-use percentages on the current Form 4562 don’t match prior-year claims. Selling the asset triggers a similar analysis, where any Section 179 amount previously deducted is factored into the gain or loss on the disposition. The recapture risk is why careful business-use tracking matters long after the year you first claim the deduction, and why listed property such as vehicles, laptops, and cameras must be documented with dated logs of business use for the full recovery period.²

Claiming the Deduction on Form 4562

Section 179 deductions are claimed on Form 4562, Depreciation and Amortization.⁸ Part I is where you list each asset, describe the property, enter the cost (business-use portion only), and state the amount you’re electing to expense.⁹ The form also calculates the phase-out reduction and applies the business income limitation. Bonus depreciation and MACRS on other assets go in later parts of the same form, and listed property such as vehicles is reported in Part V with the business-use percentage and mileage details.

The completed Form 4562 attaches to the primary return. Sole proprietors file it with Form 1040, typically alongside Schedule C. C corporations attach it to Form 1120. Partnerships and S corporations attach it to Form 1065 or Form 1120-S and pass each owner’s share through on Schedule K-1.¹⁰ Partners and S corporation shareholders report their allocated share on their own Form 4562 by writing “from Schedule K-1” in the description column.

Changing or Revoking the Election

Unlike some tax elections that lock you in permanently, a Section 179 election can be revoked by filing an amended return within the normal amendment window for that tax year.⁵ The amended return must include any resulting adjustments to taxable income and tax liability, such as the regular depreciation you’d be entitled to instead. Once filed, the revocation itself is irrevocable.

State Tax Treatment Often Differs

Federal Section 179 limits do not automatically apply on your state return. A significant number of states set their own Section 179 caps well below the federal amount. Several, including California, New Jersey, and Hawaii, cap the deduction at $25,000. Some states require you to add back the federal Section 179 deduction and allow a smaller state-level deduction or spread the expense over multiple years. Check your state’s specific rules before assuming a large federal deduction produces an equally large state tax benefit.

1
Office of the Law Revision Counsel. 26 USC 179 – Election To Expense Certain Depreciable Business Assets
2
Internal Revenue Service. Publication 946 (2024), How To Depreciate Property
3
Internal Revenue Service. Instructions for Form 4562 (2025) – Part I Election To Expense Certain Property Under Section 179
4
Internal Revenue Service. Revenue Procedure 2026-15
5
Internal Revenue Service. Instructions for Form 4562 (2025)
6
eCFR. 26 CFR 1.179-2 – Limitations on Amount Subject to Section 179 Election
7
Internal Revenue Service. 2025 Instructions for Form 4797 – Sales of Business Property
8
Internal Revenue Service. About Form 4562, Depreciation and Amortization (Including Information on Listed Property)
9
Internal Revenue Service. Form 4562 – Depreciation and Amortization
10
Internal Revenue Service. 2025 Instructions for Form 4562 – Depreciation and Amortization