Section 179 expensing lets a business deduct the full cost of qualifying equipment and software the year it’s placed in service, instead of depreciating it over several years. For the 2026 tax year, the maximum deduction is $2,560,000, and it begins phasing out once total qualifying purchases exceed $4,090,000.1Office of the Law Revision Counsel. 26 USC 179 – Election to Expense Certain Depreciable Business Assets You claim it on Form 4562 with your annual return.
The 2026 Dollar Limits
Two numbers govern the deduction. The first is the annual cap: $2,560,000 in expensing for property placed in service during 2026. The second is the investment phase-out threshold: $4,090,000 in total qualifying property placed in service that year. Both figures adjust for inflation annually.1Office of the Law Revision Counsel. 26 USC 179 – Election to Expense Certain Depreciable Business Assets
The phase-out works dollar-for-dollar. Once total qualifying purchases cross $4,090,000, the $2,560,000 cap drops by one dollar for every dollar above the threshold. Place $4,190,000 in equipment into service and your maximum deduction shrinks by $100,000, to $2,460,000. The deduction zeros out completely at $6,650,000 in purchases. The design targets the break at small and mid-sized businesses; very large capital programs quickly run past the ceiling.
What Property Qualifies
Section 179 covers tangible personal property bought for use in the business: manufacturing equipment, office furniture, tools, machinery. Off-the-shelf computer software qualifies if it’s commercially available rather than custom-built. Property can be new or used, so long as it’s new to your business.
Certain improvements to nonresidential buildings also qualify, including new roofs, HVAC, fire protection and alarm systems, and security systems, as long as the building was already in service before the improvement.2Internal Revenue Service. Publication 946, How To Depreciate Property
Two conditions apply to everything you claim. The property has to be placed in service during the tax year, meaning ready and available for its intended use, not merely ordered or waiting in a warehouse. And it has to be used more than 50% for business. Mixed use scales the deduction: 70% business use means you can deduct 70% of the cost.
What Doesn’t Qualify
Land and land improvements such as paved lots, fences, and swimming pools are out. So is property used predominantly outside the United States, property held by tax-exempt organizations outside their unrelated-business activity, and inventory held for resale.2Internal Revenue Service. Publication 946, How To Depreciate Property Purchases from a spouse, ancestor, lineal descendant, or a controlled-group affiliate are excluded, as is inherited property.1Office of the Law Revision Counsel. 26 USC 179 – Election to Expense Certain Depreciable Business Assets
Most business structures can claim the deduction: C corporations, S corporations, partnerships, and sole proprietorships. The property must be acquired by purchase for use in the active conduct of a trade or business, meaning you or your team meaningfully participate rather than holding a passive interest.1Office of the Law Revision Counsel. 26 USC 179 – Election to Expense Certain Depreciable Business Assets
The Taxable Income Cap
Even inside the dollar limits, Section 179 cannot exceed your total taxable income from the active conduct of any trade or business for the year. If the business earned $400,000 and you want to expense $600,000 in equipment, the deduction stops at $400,000. It cannot create or increase a net operating loss.3Office of the Law Revision Counsel. 26 USC 179 – Election to Expense Certain Depreciable Business Assets – Section 179(b)(3)
The $200,000 you couldn’t use in that example doesn’t disappear. It carries forward to future years, where the same income and investment tests apply.4Office of the Law Revision Counsel. 26 USC 179 – Election to Expense Certain Depreciable Business Assets – Section 179(b)(3)(B) Track the carryover carefully; it’s easy to lose across filings, especially when preparers change.
Business Vehicles
Vehicles are one of the most common Section 179 purchases, and the rules split by weight and type.
Passenger automobiles under 6,000 pounds gross vehicle weight rating (GVWR) face the “luxury auto” depreciation caps. For vehicles placed in service in 2026, the maximum first-year depreciation is $20,300 if you also claim 100% bonus depreciation, or $12,300 without it, regardless of the vehicle’s actual cost.5Internal Revenue Service. Rev. Proc. 2026-15
Heavy SUVs and trucks between 6,000 and 14,000 pounds GVWR qualify for a higher Section 179 deduction, but Congress imposed a separate SUV cap that lands in the $31,000–$32,000 range for 2026 after inflation adjustment. Remaining basis depreciates under normal rules.
Vehicles over 14,000 pounds GVWR and qualified nonpersonal-use vehicles face no special vehicle limitation beyond the general annual cap. Delivery vans with a cargo area at least six feet long that isn’t easily accessible from the passenger compartment, ambulances, and similar work-specific vehicles fall in this group.
The more-than-50%-business-use rule applies to every category. Keep a contemporaneous mileage log with dates, destinations, business purpose, and miles. The IRS scrutinizes vehicle deductions harder than most other Section 179 claims.
Section 179 or Bonus Depreciation
The One Big Beautiful Bill Act, signed July 4, 2025, permanently restored 100% bonus depreciation for qualifying property acquired after January 19, 2025, ending the earlier phase-down to 40%.6Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One Big Beautiful Bill With both options now offering full first-year write-offs, three differences drive the choice.
Flexibility. Section 179 lets you choose asset-by-asset which items to expense and by how much. Bonus depreciation is all-or-nothing within a recovery-period class: take it on every asset in the class or elect out of the entire class.
Losses. Section 179 cannot push a business into a net operating loss; excess deduction carries forward. Bonus depreciation has no income limit. A business with $300,000 in income that places $1 million in qualifying property into service can use bonus depreciation to generate a $700,000 NOL that offsets other income or carries forward. For profitable businesses trying to control timing, the Section 179 income cap actually helps by preventing accidental loss carryforwards.
Size. Bonus depreciation has no annual dollar ceiling. Section 179 tops out at $2,560,000 for 2026. Very large capital programs often use Section 179 first on selected assets, then layer bonus depreciation on the rest.
Recapture Later On
If business use of a Section 179 asset drops to 50% or below before the end of its recovery period, part of the tax benefit comes back. You report the previously deducted Section 179 amount as other income, reduced by the depreciation you would have been entitled to claim under normal rules had you never elected Section 179.7Internal Revenue Service. Instructions for Form 4562
Selling or otherwise disposing of the property triggers recapture too. Gain on the sale, up to the amount previously expensed, is taxed as ordinary income under Section 1245 rather than as capital gain, and you report it on Form 4797. A piece of equipment you expensed $80,000 on three years ago and now sell for $30,000 produces $30,000 of ordinary income, not a loss.
How to Claim It
The election is made on Form 4562, Depreciation and Amortization, filed with the annual return. Part I is where each asset gets listed: description, cost, and the amount you’re electing to expense.7Internal Revenue Service. Instructions for Form 4562
Before filling it out, pull together the purchase invoice for each asset showing vendor, cost, and description. Cost basis usually includes the purchase price plus sales tax, delivery, and installation. Document the exact placed-in-service date. For any mixed-use asset, record the business-use percentage. Listed property, including vehicles, requires contemporaneous logs kept at or near the time of use showing dates, business purpose, and amounts.2Internal Revenue Service. Publication 946, How To Depreciate Property
Sole proprietors attach Form 4562 to Form 1040. Partnerships file it with Form 1065; corporations attach it to Form 1120. The election is made on the original return for the year the property was placed in service, or on an amended return filed within the statute of limitations.7Internal Revenue Service. Instructions for Form 4562 That means you can revisit the decision after year-end numbers firm up, either adding or revoking the election.
Retain invoices, usage logs, and phase-out worksheets for at least three years after filing.8Internal Revenue Service. How Long Should I Keep Records For listed property and any asset with a recovery period longer than three years, keep records for as long as recapture is possible, which can stretch through the full recovery period.
State Taxes Don’t Always Follow
A federal Section 179 deduction doesn’t automatically carry to the state return. Many states conform, but others cap the deduction at lower amounts or don’t allow it at all. In non-conforming states you may have to add back part or all of the federal deduction when computing state taxable income, then depreciate those assets over their normal recovery period for state purposes. The result is a timing difference: full federal benefit now, state benefit spread across years. Check your state’s current conformity before assuming the federal number carries dollar-for-dollar.