One of the most common questions we hear from small business owners is whether they should use Section 179 or bonus depreciation to write off a major purchase, and whether anything has changed for 2026. Both are still available, but the gap between them has widened significantly, and choosing the wrong one based on outdated assumptions can cost you more than you'd expect.
These two provisions are structurally different. Section 179 is an elective expense deduction with an annual dollar cap and an income limitation — it cannot create a loss. Bonus depreciation is a percentage-based first-year deduction with no annual dollar cap and no income limitation, so it can create or increase a net operating loss that carries forward. Same goal, different mechanics, and those mechanics matter depending on where your business stands financially.
For 2025, the maximum Section 179 deduction is $2,500,000, with a phase-out beginning when total qualifying purchases exceed $4,000,000. Most small businesses are nowhere near that ceiling, so Section 179 effectively lets you expense the full cost of qualifying equipment in the year you place it in service. Bonus depreciation has been on a scheduled phase-down since the Tax Cuts and Jobs Act of 2017 and is set to be fully phased out for property placed in service after December 31, 2026. At its current reduced rate, only a fraction of an asset's cost is immediately deductible, with the rest depreciated over the standard recovery period. Section 179, for a business with sufficient income, still gets you the full deduction in year one.
Choosing Between Section 179 and Bonus Depreciation on Equipment
Consider a general contractor named Marcus who purchases $80,000 in new equipment in 2026. His business has roughly $95,000 in taxable income for the year, and he wants to reduce that as much as possible before filing.
If Marcus applies Section 179, he can deduct the full $80,000 in the current year, bringing his taxable income down to $15,000. If he relies solely on the current reduced bonus depreciation rate, only a portion of that $80,000 is immediately deductible. Since his income is sufficient to absorb the full Section 179 deduction, that election produces a significantly better current-year result. However, if Marcus was already operating at a loss, Section 179 would produce no usable deduction, and bonus depreciation could deepen the loss into a carry-forward. The right choice depends on his income picture, not just the cost of the asset.
Vehicles are where things get more complicated. The IRS applies separate luxury auto limits that cap first-year deductions regardless of which method you use. Heavier vehicles — SUVs and trucks with a gross vehicle weight rating above 6,000 pounds — are treated differently. An SUV over that threshold can qualify for Section 179, though a separate sub-limit applies. A heavy pickup truck used more than 50 percent for business typically qualifies for the full Section 179 amount with no equivalent sub-limit, which is why business owners in construction and field services pay close attention to vehicle weight ratings.
A common mistake is assuming bonus depreciation is still the more aggressive tool. When it sat at 100 percent after 2017, it was. At its current reduced rate, Section 179 delivers a larger immediate deduction for most businesses with adequate income. Bonus depreciation still fills a specific role: you can apply Section 179 first, then apply bonus depreciation to any remaining eligible basis on the same asset in the same year — a useful combination when Section 179 is limited by income and basis remains.
Watch the business-use requirement. Both deductions require more than 50 percent business use. If that percentage drops below 50 in a future year, the IRS recaptures a portion of what you already deducted, adding it back as taxable income. Assets you expect to sell, convert to personal use, or repurpose within a few years deserve a closer look before you maximize the first-year write-off.
Depreciation Recapture When Business Use Drops Below 50 Percent
If a taxpayer claims Section 179 or bonus depreciation on an asset and the business-use percentage later falls below 50 percent, IRS recapture rules under Section 1245 require that a portion of the previously claimed deduction be reported as ordinary income in the year that change occurs.
The recapture amount is calculated based on the difference between what was deducted upfront versus what would have been allowable under standard MACRS depreciation. For a business vehicle converted to personal use within a few years of purchase, this can mean a meaningful and unexpected tax bill. Assets with uncertain long-term business use may not be ideal candidates for maximum first-year expensing, even when the current-year deduction looks attractive.
State tax treatment adds another layer. Not every state conforms to federal Section 179 limits or bonus depreciation rules. Some states decouple entirely or apply significantly lower caps, meaning a purchase that is fully deductible on your federal return could be only partially deductible at the state level. That gap affects your actual combined tax bill and is worth confirming before you finalize your approach.
With bonus depreciation scheduled to phase out entirely after 2026 under current law, this may be one of the last years either provision applies in its current form. If you made a significant asset purchase in 2026 or are weighing one before year-end, review your current-year income position, the specific asset type, and your state's conformity rules before assuming one method automatically works better. The numbers on paper can look similar; the tax result often is not.