Author: Robert K Valentine Jr.
If your business bought equipment, computers, furniture, vehicles, or machinery this year, the tax code gives you two powerful ways to deduct the cost right away instead of spreading it over many years: the Section 179 deduction and bonus depreciation. Both can dramatically lower your tax bill, but they follow different rules, and the One Big Beautiful Bill Act (OBBBA) changed both of them in important ways. Here is what small-business owners and their accountants need to know for 2026.
What Is Section 179?
Section 179 lets you elect to expense the full cost of qualifying equipment and software in the year you place it in service, rather than depreciating it over its MACRS recovery period. For 2026, the limits are generous:
- Maximum deduction: $2,560,000
- Phase-out threshold: begins at $4,090,000 of total purchases, with the deduction fully phased out at $6,650,000
Two things make Section 179 unique. First, it is selective — you choose exactly which assets (and even how much of each asset) to expense. Second, it is limited by your business taxable income: a Section 179 deduction cannot create a loss. Any amount you can’t use this year carries forward.
What Is Bonus Depreciation?
Bonus depreciation (technically the “special depreciation allowance”) had been phasing down — 80% in 2023, 60% in 2024 — until the OBBBA permanently restored 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025. In 2026, that means most new and used equipment with a MACRS recovery period of 20 years or less can be fully expensed in year one.
Unlike Section 179, bonus depreciation has no dollar cap and no income limit — it can create or increase a net operating loss. It also applies automatically by asset class unless you formally elect out, which means the “default” for many businesses in 2026 is full first-year expensing whether they planned for it or not.
The Key Differences at a Glance
- Dollar limits: Section 179 is capped at $2,560,000 and phases out for large purchasers; bonus depreciation is unlimited.
- Income limits: Section 179 cannot create a loss; bonus depreciation can.
- Flexibility: Section 179 is elected asset by asset; bonus depreciation applies to an entire asset class unless you elect out.
- State conformity: many states do not follow federal bonus depreciation rules, and some limit Section 179 as well, so your state depreciation schedules may look very different from your federal ones.
How the Two Work Together
Most businesses that want fine-grained control elect Section 179 first on the specific assets they choose, then let 100% bonus depreciation sweep up the remaining eligible basis. A profitable shop that wants to expense everything can often get the same result with bonus depreciation alone — but a business trying to smooth income across years, stay under a taxable-income limit, or match state rules will care a great deal about which tool is applied to which asset.
Don’t Forget the Books
Whichever route you choose for tax, your financial statements still need GAAP (book) depreciation, which does not allow Section 179 or bonus write-offs. That means every asset you expense for tax purposes still carries a separate book depreciation schedule — and if your state doesn’t conform to federal rules, a third schedule on top of that.
Keeping It All Straight
Tracking MACRS, Section 179 elections, bonus depreciation, book depreciation, and state differences for every asset is exactly the kind of work that outgrows spreadsheets quickly. Depreciation Calculator Pro II calculates tax and GAAP depreciation side by side, stays current with the latest legislation including the OBBBA, and is simple enough to learn in an afternoon. You can try the free 30-day demo with your own asset list and see your 2026 schedules immediately.
This article is general information, not tax advice. Depreciation elections depend on your specific situation — please consult your tax professional before filing.
Simplify Your Fixed Asset Depreciation: Building schedules like this by hand is tedious and easy to get wrong. Depreciation Calculator Pro II automates MACRS, Section 280F luxury auto limits, and bonus depreciation calculations to uncomplicate the computation of fixed asset depreciation.