For tax years beginning in 2026, the maximum Section 179 deduction is $2,560,000. The deduction begins to phase out dollar-for-dollar once total qualifying property placed in service exceeds $4,090,000, and is fully phased out at $6,650,000. These figures are inflation-adjusted annually.
The limit applies to the total cost you elect to expense, not to each asset. A business buying $2,000,000 of equipment can expense all of it; a business buying $5,000,000 has already passed the phase-out threshold and must reduce its deduction accordingly.
- 2026 maximum deduction: $2,560,000
- Phase-out begins: $4,090,000 of total qualifying property
- Fully phased out: $6,650,000
- Bonus depreciation (2026): 100% for qualified property placed in service after Jan 19, 2025
Eligible property includes tangible personal property used in an active trade or business — machinery, equipment, vehicles (over 6,000 lbs), computers, and off-the-shelf software. Certain improvements to nonresidential real property (roofs, HVAC, fire protection, alarms, security systems) also qualify under the qualified real property rules.
Property held for the production of income (rental or investment) does not qualify, nor does property used outside the United States, property used by a tax-exempt entity, or property acquired by gift or inheritance. Used equipment qualifies, but only to the extent of its actual cost — no basis step-up.
The two provisions stack but work differently. Section 179 is elective and must be applied to specific assets you choose; bonus depreciation is automatic (you elect out) and applies to the entire class of qualified property. The right combination depends on your income, future projections, and state conformity — many states do not conform to federal bonus depreciation, and several cap or disallow Section 179.
A common 2026 strategy: apply Section 179 to the first $2,560,000 of equipment to fully offset current-year income, then apply 100% bonus depreciation to the remainder. This maximizes the first-year write-off without leaving Section 179 dollars unused.
Timing matters more than payment. The asset must be placed in service — not merely ordered, paid for, or delivered — before year end to claim the deduction for that tax year. A machine sitting in its crate on December 31 is not yet in service.
Financing an equipment purchase still qualifies for the full deduction in the year placed in service, so you can preserve cash by financing while still capturing the write-off. The deduction follows the placed-in-service date, not the cash-out date.
Section 179 and bonus depreciation are federal provisions. Many states decouple — they require you to add the deduction back into state taxable income or cap the state-level Section 179 amount far below the federal limit. A purchase that saves federal tax may create a state tax surprise if you planned only against the federal return.
Recapture applies if the asset is sold or ceases business use before the end of its normal depreciation life. The previously-expensed amount is recovered as ordinary income, which is relevant if you plan to flip equipment quickly.
