Section 179 lets you elect to deduct the cost of qualifying equipment, vehicles and certain improvements in the year you place them in service, up to a dollar cap and your business income. Bonus depreciation is a percentage-based first-year allowance with no dollar cap and no income limit, and it is now 100% for qualifying property. For most owners with a profitable business, either one removes the cost in year one. The choice comes down to control, losses, state tax and what you plan to do with the asset later.
TL;DR
- Section 179 is an election you make asset by asset. It is capped at $2,560,000 for 2026 and cannot create a loss.
- Bonus depreciation is 100% for qualifying property acquired and placed in service after January 19, 2025. It has no dollar cap and can create a net operating loss.
- If you use both on one asset, Section 179 comes first and bonus applies to the remaining basis.
- Many states do not follow federal bonus depreciation, so a state add-back can change which method works better for you.
- The best choice depends on your income, your entity structure, your state and your plans for the asset. Run the numbers before the asset is placed in service.
Table of Contents
- What each deduction does
- Side-by-side comparison
- Which property qualifies
- How the two work together
- When a loss helps and when it does not
- S corporations and owners with multiple businesses
- State tax: the part many owners miss
- A practical way to choose
- Plan the purchase before you make it
- FAQ
- Sources
What each deduction does
Section 179: the controlled election
Section 179 is an elective expense deduction. You choose which assets to expense, and how much of each one. Qualifying property includes tangible personal property, certain qualified real property such as some qualified improvement property, and off-the-shelf computer software bought for use in an active trade or business, according to the IRS instructions for Form 4562.
Two limits apply. For taxable years beginning in 2026, the maximum deduction is $2,560,000, and it phases out dollar for dollar once qualifying property placed in service in the year exceeds $4,090,000, per Revenue Procedure 2025-32. The deduction is also limited to the taxable income from your active trades or businesses for the year, so it cannot push you into a loss (Form 4562 instructions).
Bonus depreciation: the automatic allowance
Bonus depreciation, the special depreciation allowance, is a percentage of the asset's basis. Under the One Big Beautiful Bill Act, the IRS says a 100% allowance applies to certain qualified property acquired and placed in service after January 19, 2025 (IRS Publication 946). There is no dollar cap, and no taxable income requirement, so it can create or increase a net operating loss, as Vedder's analysis of the 2025 law explains.
For a deeper look at the 2026 rules, see our guide to bonus depreciation in 2026.
Side-by-side comparison
| Feature | Section 179 | Bonus depreciation |
|---|---|---|
| Type | Elective expense deduction | Percentage allowance (100% for qualifying property acquired after January 19, 2025) |
| 2026 dollar limit | $2,560,000, phasing out above $4,090,000 of property placed in service | None |
| Income limit | Cannot exceed taxable income from active business | None |
| Can create a loss | No | Yes |
| Election level | Property by property | Applies to all qualified property in a MACRS class unless you elect out |
| Order of use | Applied first | Applied to the remaining basis |
| Business use | More than 50% required | Subject to business-use rules for listed property |
The election-level difference matters more than it looks. Vedder notes that Section 179 gives smaller and mid-sized businesses flexibility through its asset-by-asset election, while bonus depreciation works across an entire asset class. If you want to deduct a $60,000 truck but spread the cost of $40,000 of furniture, Section 179 gives you that dial and bonus alone does not.
Which property qualifies
Both deductions are for business property. To claim Section 179, the property must be used more than 50% for business in the year you place it in service (Form 4562 instructions). Property used only for personal purposes cannot be depreciated, and when an asset has mixed business and personal use, depreciation is limited to the business share, per IRS Topic 704.
Listed property, such as vehicles, deserves extra attention. If business use falls to 50% or less in a later year, you may face recapture of part of what you deducted (Form 4562 instructions). Bonus depreciation on listed property carries the same business-use discipline, according to Vedder. Keep a mileage log or usage record from the day you buy.
For vehicles specifically, weight rules matter. Our article on Section 179 vehicle rules and the 6,000 lb GVWR threshold walks through what heavier trucks and vans can and cannot deduct.
A few other categories come up often:
- Building improvements. Some interior improvements may qualify. See qualified improvement property for how they are treated.
- Medical and clinic equipment. Practice owners can read what is and is not deductible in our medical equipment deductions guide.
- Rental property components. Cost segregation can move parts of a building into shorter-lived classes that qualify for bonus. See cost segregation for rental owners and the rules for short-term rentals.
How the two work together
You are not forced to pick one. When both apply to the same asset, the Section 179 deduction reduces the asset's basis first, and bonus depreciation applies to what is left. Regular MACRS depreciation then covers any remainder.
Since bonus is at 100%, the practical question is usually which one you want to carry the deduction. Here are two examples, both hypothetical.
Example 1: A profitable single-owner business. A landscaping company has $400,000 of taxable income before depreciation and buys $150,000 of qualifying equipment. Either method deducts the full $150,000 in year one. Section 179 gives you the option to deduct less on specific assets. Bonus gives you the full amount automatically unless you elect out of it for that class.
Example 2: A business with limited income. A company has $80,000 of taxable income before depreciation and buys $200,000 of equipment. Section 179 can only reach $80,000 of that, and the disallowed amount carries forward to later years, per the Form 4562 instructions. Bonus depreciation can deduct the full $200,000 and create a loss of $120,000. Whether you want that loss depends on the rest of your tax picture, which is where planning comes in.
When a loss helps and when it does not
Because bonus depreciation can create a loss, it is the stronger tool for capital-intensive operations and for businesses in a growth year. Vedder points out that it allows large immediate deductions regardless of current profitability.
A loss is not always a win. A business owner who expects higher income next year may prefer to spread deductions so they land in a higher bracket. Others need taxable income to use the qualified business income deduction, or to avoid wasting lower brackets. Losses can also face limits at the owner level, depending on basis and at-risk rules. This is a reason to model the full return, not only the asset purchase.
If you are also watching the QBI deduction, our article on specified service trade rules explains how income thresholds interact with your planning.
S corporations and owners with multiple businesses
Owners of S corporations and partnerships should know that Section 179 limits are applied at the owner level. The entity reports each shareholder's share of the deduction on the Schedule K-1, and the limits are tested on the shareholder's return, as TaxSlayer's guidance on S corporation entries describes. The income limit looks at active business income, so income from several businesses can matter together.
That creates practical planning points for multi-entity owners:
- Which entity owns the asset. Placing equipment in an operating company, a leasing entity or a real estate entity changes who gets the deduction and how it flows to your return.
- Where the income is. A loss from bonus in one entity may offset income elsewhere, subject to basis, at-risk and passive loss rules.
- Reasonable compensation and payroll. A large deduction at the entity level does not change what the owner must pay themselves as an S corporation employee.
- Timing. Whichever method you use, the asset must be placed in service by year end, not just purchased.
These structure questions are where a one-size answer breaks down, and they are the core of what we do with multi-entity clients.
State tax: the part many owners miss
Federal bonus depreciation is not accepted everywhere. State conformity varies, and California and Delaware are among the states that decouple, according to this state conformity summary. In a decoupling state, you generally add the federal bonus deduction back to state taxable income and recover the cost through regular state depreciation over time. Massachusetts, for example, disallows federal bonus depreciation and requires a state add-back, per state-by-state guidance. By contrast, Mississippi follows the federal 100% rate in 2026.
States can also change course. West Virginia passed legislation in March 2026 to conform to permanent federal provisions including 100% bonus depreciation, according to the Governor's Office. Many states paused broad conformity in 2025 while they sorted out their budgets, according to a February 2026 legislative presentation.
The federal benefit stays intact when a state disallows bonus. What changes is the state timing. Section 179 is often treated differently at the state level, sometimes with lower caps, so in a decoupling state it can be the cleaner way to get a year-one state deduction. Check your state's rules before choosing, and if you operate in more than one state, check each one.
A practical way to choose
Use these questions in order:
- Does the asset qualify? Confirm business use above 50% and that it will be in service by year end.
- Do you have enough active business income? If not, Section 179 will be capped and bonus is the way to deduct more now.
- Do you want a loss this year? If your income will be higher later, a smaller deduction now may serve you better.
- Does your state follow federal bonus? If not, weigh a Section 179 deduction for state purposes.
- Will you sell the asset soon? Sales trigger depreciation recapture, so the faster write-off may become income again.
- Do you want to deduct some assets and not others? Section 179 offers that choice by asset. Bonus applies to the entire class unless you elect out.
There is also an election to take a reduced 40% allowance (60% for certain long-production-period property and aircraft) instead of 100% for the first tax year ending after January 19, 2025, per Publication 946. It is a niche choice, but it shows that bonus is not strictly all-or-nothing.
Our perspective
Most owners ask which deduction is bigger. We start somewhere else: what do you want your tax return to look like over the next three to five years?
A deduction taken in the wrong year, in the wrong entity or in the wrong state can be worth much less than it looks. We build the depreciation decision into a year-round plan, so the equipment purchase, entity structure, owner pay and estimated payments all point the same way.
That is why our work is proactive rather than a once-a-year conversation. We want to help you decide before you buy, and implement the plan with you, so the strategy holds up if questions come later.
Strategy That Pays You Back.
Melissa
Plan the purchase before you make it
If you own an S corporation, several entities or rental property, the right depreciation choice depends on your whole structure. The Tax Refinery offers year-round advisory for owners who want this handled before the purchase, not after. Our Monthly Tax Advisory plan is $11,997 per year, and our Quarterly Tax Strategy Sessions are $9,497 per year.
If you want to start with entity planning, the S-Corp Tax Strategy Accelerator is $997. For return preparation, see our published fee schedule, where Form 1120-S and Form 1065 returns are $1,800 each.
FAQ
Should I take bonus or Section 179?
If you have enough active business income and want control over individual assets, Section 179 is often the cleaner tool. If you need a deduction larger than your income, want a loss, or are buying well above the Section 179 cap, bonus depreciation is the better fit. Many owners use both on different assets in the same year.
What states do not allow bonus depreciation?
The list changes. California and Delaware limit or block it, and Massachusetts requires an add-back, according to the sources cited above. Other states have conformed recently or are considering it. Check your state's current guidance before you buy.
Can you take bonus depreciation on listed property?
Yes, if the property qualifies and you meet the business-use requirements. Vehicles and similar assets prone to personal use need documented business use above 50%. If your business use drops later, previously claimed deductions may be recaptured.
Who qualifies for Section 179?
Any taxpayer buying qualifying property for active use in a trade or business can elect it, including S corporation shareholders and partners through their entity. The property must be used more than 50% for business, and the deduction cannot exceed your taxable income from active businesses (IRS). The 2026 cap is $2,560,000.
Sources
- IRS Publication 946
- Instructions for Form 4562 (2025)
- Revenue Procedure 2025-32
- IRS Topic No. 704, Depreciation
- Vedder: 100% bonus depreciation returns
- TaxSlayer Pro: S corporation QBID entries
- US state conformity to federal bonus depreciation
- Bonus depreciation by state
- West Virginia Governor's Office: tax conformity
- Vermont Ways and Means conformity presentation