Section 179 deduction for business equipment: How it works
The Section 179 deduction combined with bonus depreciation can mean a powerful tax break—enabling commercial businesses to write off the full cost of qualified equipment, or most of it, in a single year.
Key takeaways
- Under Section 179, businesses can deduct the cost of qualified business property placed in service during the year, within generous limits.
- Businesses can also claim first-year bonus depreciation on the same property if it qualifies.
- This combination of deductions could result in a write-off of virtually the entire cost of the equipment in just 1 year—even if all or part of that cost is financed.
What is Section 179?
Under Section 179 of the Internal Revenue Code, a business may elect to expense—in other words, immediately deduct—the cost of any eligible business property placed in service during the year, within generous limits.
A business can sweeten the pot by claiming a deduction for first-year bonus depreciation on the same qualifying property. This approach may deliver a one-two tax punch that could result in the ability to write-off virtually the entire cost of the property in just 1 year—even if all or part of that cost is financed.
For example, if your industrial enterprise buys qualifying equipment for $1 million and finances $750,000 using an equipment loan, your business may still be able to deduct the full $1 million, subject to some restrictions.
How does Section 179 work?
Any type of business entity—whether a C corporation, S corporation, partnership, limited liability company or sole proprietorship—is eligible to claim the Section 179 deduction for the cost of qualified business property placed in service during the year, subject to an annual limit.
Under this definition, eligible business property includes most tangible assets like equipment, machinery, office furniture and off-the-shelf computer software, but it doesn't include intangible assets like patents and copyrights. The physical property acquired can be either new or used.
For example, if your C corporation acquires a $5,000 machine and places the machine in service in 2026, you can generally deduct $5,000 on your 2026 tax return.
Note that qualified equipment is considered placed in service when it's available for a specific use in your business. In other words, you can claim the deduction for a machine that's installed on a manufacturing plant floor or for a house that's ready and available to rent.
Section 179 limits
The Section 179 deduction limit has increased to $2,560,000 on qualified purchases up to $4,090,000. A phaseout on the deduction begins to reduce only when the total equipment purchases exceed this amount. In addition, 100% bonus depreciation is available for qualifying assets placed in service in 2026.
These changes are designed to improve cash flow and incentivize reinvestment, offering substantial benefits—especially for small and mid-sized businesses.
Other Section 179 restrictions
The maximum annual limit isn't the only caveat businesses face when trying to make use of Section 179. Two other key tax law limits could affect your buying decisions.
- The Section 179 deduction you claim on your return can't exceed the net taxable income from all your business activities. For example, if your business income for the year is $500,000, your Section 179 deduction is limited to $500,000, even though the maximum allowed for the year is much higher. Any unused deduction may generally be carried forward for future years.
- If your total cost of qualified equipment placed in service during the year exceeds the annual threshold, the maximum Section 179 deduction is reduced on a dollar-for-dollar basis. This threshold is adjusted annually along with the maximum Section 179 deduction amount. For 2026, the threshold is $4,090,000.
Here's an example of a deduction on a dollar-for-dollar basis: If the cost of your qualified property exceeds the $4,090,000 threshold by $500,000, the maximum deduction is reduced to $2,060,000.
Another consideration is that Section 179 deductions may be subject to recapture if business use of qualifying property falls to 50% or less during the property's recovery period.
The impact of bonus depreciation
In many instances, Section 179 will provide an immediate tax deduction for the entire cost of qualified equipment placed in service during the year. However, if either of the two limits come into play or the cost exceeds the annual maximum, your business can also benefit from first-year bonus depreciation. This may be especially helpful for large commercial businesses with costly equipment needs.
Unlike the Section 179 deduction, the bonus depreciation was scheduled to be phased out by 2027. Due to the One Big Beautiful Bill Act, bonus depreciation has been restored to 100% for qualifying equipment placed in service after January 19, 2025.
Qualified property includes business property with a cost recovery period of 20 years or less, depreciable software not amortized over 15 years, qualified leasehold improvements and water utility property. Note that the same property may qualify for both Section 179 and first-year bonus depreciation.
The tax breaks are applied in this order: Section 179, bonus depreciation and the Modified Accelerated Cost Recovery System, or MACRS.
A sample scenario on calculating Section 179
Let's say your commercial enterprise spends more than $4,090,000 on qualifying 7-year equipment in 2026. The equipment is also eligible for bonus depreciation.1
Your total equipment purchases in 2026 equal $4.5 million.
Your depreciation deductions:
- Section 179 deduction: $2,150,000
- 100% bonus depreciation: $2,350,000
- Regular first-year depreciation: $0
- Total first-year deduction: $4.5 million
Your tax savings would be $945,000.
Your net cost of equipment after first-year tax savings would be $3,555,000.
1 These calculations are for illustrative purposes only. Readers should consult with their tax advisors concerning their specific tax situations.
Depreciation assumptions: The Section 179 deduction is calculated as $2,150,000—calculated as the 2026 annual limit of $2,560,000 less $410,000, which is a dollar-for-dollar reduction of the amount of equipment purchased above the $4,090,000 threshold. Bonus depreciation for 2026 is calculated as 100% of the remaining $2,350,000 ($4.5 million less $2,150,000). Tax savings assume a 21% federal corporate income tax rate and sufficient taxable income to realize the full deduction.
All amounts are rounded to the nearest dollar.
Section 179 rules for vehicles
One restriction to consider when acquiring commercial vehicles: Section 179 deductions for some business vehicles may be limited by the luxury car rule, which states that automobiles being claimed must be used at least 50% of the time for business purposes.
Although businesses may combine Section 179 with bonus depreciation for vehicles, there are some constraints. In 2026, the maximum combined deduction for a vehicle used 100% of the time for business is $20,300. Plus, a business can claim MACRS on the remainder.
Taking action now
Section 179 provides a unique opportunity for cost recovery of high-priced equipment. With astute planning and professional guidance, your firm can maximize the tax benefits and avoid the potential pitfalls.
To learn more about financing the acquisition of business equipment, speak to one of our bankers today.
