Section 179 vs Bonus Depreciation in 2026: Which to Use First

Both let you expense equipment in year one, but they have different caps, different loss rules, and different elections. Here is how to choose, and the order that usually wins.

What Section 179 does

Section 179 is an election that lets you expense qualifying tangible property in the year you place it in service, instead of depreciating it over its MACRS life. For 2026 the limit is $2,560,000, and the deduction phases out dollar for dollar once your total qualifying property placed in service exceeds $4,090,000 (IRS Revenue Procedure 2025-32). Buy $4,500,000 of equipment and your Section 179 limit shrinks by $410,000, the excess over the threshold.

The critical limit is income. Section 179 cannot exceed your business taxable income for the year, and it cannot create a net loss. Unused amounts carry forward to future years, but the carryforward is cold comfort if you needed the deduction now. This is the rule that most often decides between the two provisions.

What bonus depreciation does

Bonus depreciation is not an election to expense specific assets; it is an additional first-year deduction that applies automatically to each class of qualifying property unless you elect out of it class by class. The One Big Beautiful Bill Act restored it to 100 percent permanently for qualifying property acquired after January 19, 2025, so in 2026 most new and used equipment with a recovery period of 20 years or less can be fully expensed in year one.

Two differences matter most. Bonus depreciation has no dollar cap, so a $10 million equipment purchase gets the same first-year treatment as a $50,000 one. And bonus depreciation can create or increase a net operating loss, which can then be carried forward. For a growing business investing ahead of revenue, that loss-creation feature is often decisive.

The order that usually wins

Most planners apply Section 179 first, then bonus depreciation to the remaining basis. The reason is control: Section 179 lets you pick exactly which assets to expense and how much, which matters when you want to preserve some deductions for future higher-income years. Bonus depreciation then sweeps up everything left in the class automatically.

Consider a contractor with $300,000 of business income who buys $400,000 of equipment in 2026. Electing $300,000 of Section 179 uses the deduction exactly up to the income limit with no waste. The remaining $100,000 takes 100 percent bonus depreciation. Total first-year write-off: $400,000, with no carryforward left dangling.

Now flip it: a startup with $50,000 of income buys the same $400,000 of equipment. Section 179 can only absorb $50,000 this year. The remaining $350,000 takes bonus depreciation and creates a $350,000 loss to carry forward. Leading with bonus on the whole amount would have done the same thing, but the 179-first ordering leaves the loss character clean and preserves the election flexibility.

When Section 179 is the better tool

Section 179 wins when you want precision. You can expense the copier but depreciate the delivery van normally, or expense exactly enough to zero out this year's income and carry the rest forward deliberately. It also covers some assets bonus does not: qualified real property such as roofs, HVAC, fire protection, and security systems on nonresidential buildings can take Section 179 but not bonus depreciation.

Section 179 also has a state-tax advantage worth checking. Many states decouple from bonus depreciation, forcing an addback on the state return, while conforming fully to Section 179. If your state is one of them, the federal benefit of bonus comes with a state tax cost that Section 179 avoids.

When bonus depreciation is the better tool

Bonus wins on scale and simplicity. No election paperwork per asset, no income limit, no phaseout threshold, and it works on used property bought from an unrelated party, not just new equipment. For businesses buying more than $4,090,000 of property, where Section 179 phases out entirely, bonus depreciation is the only first-year game left.

The automatic nature of bonus is also its trap. Because it applies to the whole class unless you elect out, you cannot bonus-depreciate one 5-year asset and MACRS-depreciate another 5-year asset in the same year. The election out is by class and by year, so plan before you file.

Vehicles: the special case

Passenger vehicles face luxury-auto caps regardless of which provision you use. For 2026 the first-year limit is $20,300 with bonus depreciation ($12,300 without), so a $70,000 sedan gets neither full Section 179 nor full bonus treatment. Heavy SUVs between 6,001 and 14,000 pounds escape the passenger-auto limits but face a $32,000 Section 179 cap for 2026; the balance can take 100 percent bonus depreciation. Pickups and cargo vans over 6,000 pounds that meet the design test face no SUV cap at all.

Sources: IRS Publication 946; IRS Revenue Procedure 2025-32; IRS Notice 2026-11. Data current as of October 2026. Not tax advice.

Frequently asked questions

What is the Section 179 limit for 2026?

The 2026 Section 179 expensing limit is $2,560,000, phasing out dollar for dollar when qualifying property placed in service exceeds $4,090,000 (IRS Revenue Procedure 2025-32).

Can Section 179 create a business loss?

No. Section 179 is limited to business taxable income; unused amounts carry forward. Bonus depreciation can create or increase a loss, which is a key difference.

Is 100% bonus depreciation permanent now?

Yes. The One Big Beautiful Bill Act restored 100% bonus depreciation permanently for qualifying property acquired after January 19, 2025, ending the old phase-down schedule.

Should I take Section 179 or bonus depreciation first?

Most planners elect Section 179 first for precision (choosing assets and amounts), then apply bonus depreciation to the remaining basis. Bonus applies automatically by asset class unless you elect out.

Does Section 179 work on used equipment?

Yes, as long as the property is acquired by purchase from an unrelated party and placed in service in the tax year. Bonus depreciation also covers qualifying used property.