When a business buys equipment, furniture, a vehicle or a building, the cost usually cannot be deducted all at once. Depreciation spreads the deduction over the years the asset is expected to last. Two tools let many businesses speed that up: the Section 179 deduction and bonus depreciation. Recent law changes make both more generous, and this guide explains how they work for 2025 returns and 2026 purchases.
How regular depreciation works
The tax system (MACRS) puts each asset in a class that sets how many years you recover its cost. Common classes include:
| Class | Typical property |
|---|---|
| 5 years | Cars, light trucks, computers, copiers |
| 7 years | Office furniture and fixtures, and many types of business equipment |
| 15 years | Qualified improvement property (certain interior improvements to nonresidential buildings), land improvements such as sidewalks and fences |
| 27.5 years | Residential rental buildings |
| 39 years | Nonresidential buildings |
A half-year convention usually applies in the first year. If more than 40 percent of the year's depreciable basis is placed in service in the last three months, the mid-quarter convention can reduce the first-year deduction. Businesses sometimes miss this when they buy a lot of equipment in December.
Section 179 expensing
Section 179 lets you choose to deduct the cost of qualifying property in the year you place it in service, instead of depreciating it.
| 2025 | 2026 | |
|---|---|---|
| Maximum deduction | $2,500,000 | $2,560,000 |
| Reduction begins when purchases exceed | $4,000,000 | $4,090,000 |
| Heavy SUV limit | $31,300 | $32,000 |
The limit shrinks dollar for dollar once your qualifying purchases pass the threshold. For 2025 it is eliminated at $6,500,000. The deduction cannot exceed your taxable income from actively conducting a business, and any excess carries forward. Section 179 property includes machinery, equipment, off-the-shelf software and, if you elect, qualified improvement property and certain roof, HVAC, fire protection, alarm and security system improvements to nonresidential buildings. Land and land improvements generally do not qualify.
If business use of the property falls to 50 percent or less during its recovery period, part of the deduction is recaptured as income.
Bonus depreciation
Bonus depreciation, officially the special depreciation allowance, deducts a percentage of an asset's cost in the first year. It applies automatically unless you elect out by class of property.
- 100 percent for qualified property acquired after January 19, 2025 and placed in service after that date. IRS Notice 2026-11 provides interim guidance. Qualified property includes MACRS property with a recovery period of 20 years or less, certain computer software and water utility property, whether new or certain used property.
- 40 percent for property acquired before January 20, 2025 and placed in service in 2025 (60 percent for certain long-production-period property and aircraft).
- Transition election. For the first tax year ending after January 19, 2025, you may elect the lower 40 percent rate (60 percent for those special categories) instead of 100 percent.
- Qualified production property. A separate 100 percent allowance applies to certain nonresidential real property used in manufacturing and similar production. Construction must begin after January 19, 2025 and before 2029, and the property must be placed in service after July 4, 2025 and before 2031.
Unlike Section 179, bonus depreciation is not limited to your business income, so it can create a loss. Many states do not follow the federal bonus rules, so your state return may need adjustments.
Choosing between them
| Question | Section 179 | Bonus depreciation |
|---|---|---|
| Can you pick which assets? | Yes | By class of property |
| Limited by business income? | Yes | No |
| Dollar cap? | Yes, with phase-out | No |
| Can create a loss? | No | Yes |
In practice, many businesses use Section 179 for specific items and let bonus cover the rest, but the right mix depends on income, state rules and future plans.
Other rules to watch
- Vehicles and listed property. Cars, SUVs and similar property have extra limits and recordkeeping. See vehicle and mileage deductions.
- De minimis safe harbor. Items up to $2,500 per invoice or item ($5,000 with an applicable financial statement) can often be deducted without depreciating.
- Buildings. To speed up deductions on a building, see cost segregation.
- Timing. Property must be placed in service, ready and available for use, by year-end to count that year.
How we can help
We help business owners decide what to deduct now and what to depreciate, prepare Form 4562, track asset schedules across years, and model how a large purchase affects your tax before you buy. Learn about our business tax preparation and tax planning services, or contact us.
Frequently asked questions
Is 100 percent bonus depreciation permanent?
Yes. Public Law 119-21 made 100 percent bonus depreciation permanent for qualifying property acquired and placed in service after January 19, 2025. Property acquired before January 20, 2025 follows the earlier phase-down rules.
Can I use Section 179 on a used asset?
Yes, generally. Section 179 property can be new or used if it is purchased for use in your business, subject to the usual rules.
What if my business has a loss?
Section 179 cannot exceed your taxable business income for the year, but the unused amount carries forward. Bonus depreciation can create or increase a loss.
Do I have to take bonus depreciation?
No. You can elect out for a class of property, or elect the lower transition rate for the first eligible year.
Does my state allow it?
Not always. States set their own rules for bonus depreciation and Section 179, so check your state's guidance or ask us.
Official sources
- IRS: Publication 946, How To Depreciate Property
- IRS: Instructions for Form 4562
- IRS: Guidance on additional first year depreciation under the One, Big, Beautiful Bill (Notice 2026-11)
- IRS: Rev. Proc. 2025-32 (2026 inflation adjustments), in Internal Revenue Bulletin 2025-45
This page is a plain-language summary. The official source controls if there is any difference.
General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.