Bonus Depreciation and §179
Instead of deducting equipment over five or seven years, you can deduct the full cost in the year you place it in service. The 2025 law made 100% bonus depreciation permanent for property acquired after January 19, 2025. A $400,000 equipment purchase can mean about $148,000 less federal income tax this year at a 37% bracket. It is a timing benefit, and the cash stays in the business now.
Reviewed by Ebot Mbi, CPA, EA · Last reviewed October 9, 2026
Who it fits
- Businesses buying machinery, equipment, computers, furniture or qualifying vehicles.
- Owners with a high-income year who want to move deductions into it.
- Companies that need cash now for growth or debt service.
- Owners buying heavy vehicles over 6,000 pounds gross vehicle weight used more than 50% for business.
Who it's not for
- Businesses in a low-income year that expect higher rates later. Deducting now at a lower rate can cost more over time.
- Purchases made only for the deduction. You still spend the cash.
- Owners who plan to sell the asset soon, since gain up to the depreciation taken is taxed as ordinary income.
How it works
Two tools reach the same result. Bonus depreciation under §168(k) deducts 100% of the cost of qualifying property, new or used, with no dollar cap and no income limit. It can create a loss.
Section 179 lets you expense up to $2.5 million of qualifying property, phasing out above $4 million of purchases, both indexed for inflation. It is limited to taxable business income, but lets you choose asset by asset.
For small items, the de minimis safe harbor lets you expense purchases of $2,500 or less per item or invoice ($5,000 with an audited financial statement) without depreciating them at all.
Vehicles have their own rules. Passenger cars face annual depreciation caps that are indexed each year. Heavy SUVs, pickups and vans over 6,000 pounds are not subject to those caps, though §179 on SUVs has a separate indexed limit. Business use must exceed 50%.
The deduction is a timing shift. You get no depreciation later, and gain on sale up to the depreciation taken is ordinary income.
Illustrative example
Illustrative: a manufacturing S-corporation acquires and places in service $400,000 of new equipment in March 2026. The owner is in the 37% bracket.
- Cost of equipment: $400,000.
- Bonus depreciation at 100%: $400,000 deducted in 2026.
- Without bonus, first-year 7-year MACRS (half-year convention) would be 14.29%: $400,000 x 14.29% = $57,160.
- Extra deduction in 2026: $400,000 - $57,160 = $342,840.
- Federal tax at 37% on the full $400,000: $148,000. On the extra $342,840: $126,851.
About $126,851 more federal tax stays in the business in 2026 than under regular depreciation, with less depreciation available in later years.
The rules
| Rule | Citation |
|---|---|
| 100% bonus depreciation for qualified property acquired after January 19, 2025. | IRC §168(k) |
| Section 179 expensing up to the indexed dollar limit, reduced above the indexed investment threshold, and limited to business taxable income. | IRC §179(b) |
| Listed property, including vehicles, must be used more than 50% for business, or depreciation is limited and recaptured. | IRC §280F(b) |
| Small items under the de minimis threshold can be expensed by election. | Treas. Reg. §1.263(a)-1(f) |
| Gain on sale of depreciated equipment is ordinary income to the extent of depreciation taken. | IRC §1245 |
Watch-outs
- The asset must be placed in service, not just ordered or paid for, by year-end.
- If vehicle business use drops to 50% or below in a later year, part of the deduction is recaptured as income.
- A mileage log is the proof of business use. Without it, the vehicle deduction is exposed.
- Many states do not follow federal bonus depreciation. Texas has no personal income tax, but out-of-state operations may need separate schedules.
What we do
We model bonus, §179 and regular depreciation side by side so you choose the year and amount that keeps the most cash over the life of the asset. We build the depreciation schedules, make the elections on the return, and keep the business-use records for vehicles.
Questions
Can I take bonus depreciation on used equipment?
Yes, if you did not use it before and did not buy it from a related party. Used property acquired after January 19, 2025 qualifies for 100%.
Should I always take 100%?
No. You can elect out by asset class. If you expect higher income later, spreading the deduction can save more. We run both.
Does financing the purchase change the deduction?
No. The deduction is based on cost, whether you pay cash or finance. Loan payments themselves are not the deduction; the depreciation and interest are.