Section 179 & Bonus Depreciation in 2026: The OBBBA Changed Everything

TL;DR: The One Big Beautiful Bill Act permanently restored 100% bonus depreciation for equipment placed in service after January 19, 2025. Section 179 for 2026 caps at $2,560,000. For most small businesses buying under $2.5M in equipment, both tools produce the same result: a full year-one deduction. The practical differences come down to whether you need to create an NOL, and whether you’re dealing with a loan versus a lease.

What Changed in 2025: The OBBBA

From 2023 through early 2025, bonus depreciation was declining on a fixed schedule mandated by the 2017 Tax Cuts and Jobs Act (TCJA): 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, then zero. Equipment buyers were watching a clock.

That clock stopped on July 4, 2025, when the One Big Beautiful Bill Act (OBBBA) was signed into law. Section 70301 of the OBBBA permanently restored 100% bonus depreciation for qualifying property acquired and placed in service after January 19, 2025. The phase-down schedule no longer applies to property placed in service on or after that date.

The IRS issued Notice 2026-11 on February 6, 2026, providing interim guidance on implementing the OBBBA changes. The key transitional rule: property placed in service before January 19, 2025 still follows the old schedule (40% for most 2025 property placed in service Jan 1–Jan 18). Property placed in service on January 19 or after: 100%.

The practical effect for most small businesses buying equipment today: the phase-down discussion is over. You can deduct 100% in year one.

Section 179 in 2026: Current Limits

Section 179 has always let businesses front-load depreciation — what changed in 2025–2026 is that the annual limit is now substantially higher after the OBBBA’s adjustments:

Source: IRS Publication 946 (2025), IRS Form 4562 Instructions (2025). 2025–2026 limits reflect OBBBA adjustments.

For most small businesses — those buying under $2M in equipment per year — the Section 179 limit is not a real constraint. The phase-out only matters if you’re placing more than $4.09M in equipment in service in a single year (a threshold most SMBs don’t approach).

What qualifies for Section 179:

• Tangible personal property used in your business (machinery, equipment, vehicles, computers, office furniture)
• Off-the-shelf software
• Qualified improvement property — improvements to nonresidential real property: HVAC, roofing, fire protection systems, security systems
• Commercial vehicles (subject to specific caps for passenger vehicles and SUVs — see below)

What does NOT qualify:

• Buildings and structural components (walls, floors, permanent fixtures)
• Land
• Inventory held for sale
• Property used 50% or less for business
• Intangible assets (patents, trademarks, goodwill)

Vehicle rules. SUVs with GVWR over 6,000 lbs placed in service in 2026 are capped at $30,500 for Section 179 (the rest depreciates normally). Pickup trucks, heavy-duty vans, and commercial vehicles with a separate cargo area and GVWR over 6,000 lbs are not subject to the SUV cap.

Section 179 vs. Bonus Depreciation: Which Do You Take?

Both methods produce the same result when you’re buying under the Section 179 cap and your business has sufficient income. The differences emerge in specific situations:

Take Section 179 first when: your purchase is under the cap, you have sufficient business income to absorb the deduction, and you want the explicit election on the record.

Take bonus depreciation when: your equipment purchases exceed $2.5M in one year, your business income is lower than the deduction (you want the NOL to carry forward), or you’re dealing with assets that have a complex mixed-use history that makes a 179 election complicated.

The most common small-business answer: Section 179 and bonus depreciation aren’t mutually exclusive. For most purchases, they produce the same year-one deduction. Many CPAs default to Section 179 for amounts under the cap (because the election is explicit and tracked) and use bonus depreciation for the excess.

Worked Examples: After-Tax Equipment Cost in 2026

These examples use a 24% federal income tax bracket — common for profitable S-corps and partnerships with pass-through income in the $100K–$400K range. State taxes vary.

$100,000 Equipment Purchase (Restaurant oven, commercial HVAC, CNC lathe)

Year-one difference vs MACRS: $19,200 more in tax savings. Over the full 5-year MACRS schedule you’d eventually get the same total deduction — but $24,000 now is worth more than $4,800 × 5 years spread out.

If financing: a $100,000 equipment loan at 9% over 60 months has monthly payments of $2,076. The $24,000 year-one tax savings offsets roughly 11.5 monthly payments — materially changing the real cash burden in year one.

$250,000 Equipment Purchase (Excavator, large CNC machine, food-production line)

Year-one difference: $48,000 more in tax savings. This is the range where the deduction starts materially changing equipment-buying decisions — the $60,000 tax savings effectively brings a $250,000 excavator down to $190,000 in net cost in year one.

If financing: at 8% over 72 months, the monthly payment is $4,380. The year-one tax savings of $60,000 is equivalent to 13.7 monthly payments — more than a full year of the financing cost returned in taxes.

$500,000 Equipment Purchase (Manufacturing press, fleet vehicles, large HVAC system)

At this scale, the $96,000 year-one difference in tax savings is itself a meaningful capital event. If this purchase is financed — say $500,000 at 8% over 84 months ($7,793/month) — the $120,000 year-one tax savings covers more than 15 monthly payments.

Important caveat at $500K: Confirm you have at least $500,000 in business taxable income before the equipment deduction. Section 179 cannot create an NOL. If your taxable income is $350,000 before this purchase, you can deduct $350,000 under Section 179 (using the full income) and carry forward the remaining $150,000 to a future year — or apply the remaining $150,000 as bonus depreciation (which CAN create or deepen an NOL, giving you a carryforward with no cap).

Equipment Loan vs. Lease: Which Gets You the Deduction?

The deduction tracks ownership, not monthly payment structure.

Equipment loan: You own the equipment from day one. Both Section 179 and bonus depreciation apply immediately when the equipment is placed in service. No ambiguity.

Capital lease ($1 buyout): The lender technically owns the equipment during the term, but you’ll own it for $1 at the end — the IRS treats this as a purchase for tax purposes. Section 179 and bonus depreciation apply.

Operating lease (FMV buyout): You’re a renter from the IRS’s perspective. No Section 179, no bonus depreciation. You deduct the lease payments as ordinary business expenses.

The distinction matters in practice because equipment dealers and brokers sometimes quote “leases” without clarifying the structure. Always ask: “What do I owe to own this equipment outright at the end of the lease?” If the answer is $1, you have a capital lease and get the full deduction. If the answer is 10–20% of the original cost (or fair market value), you have an operating lease and need to change how you’re modeling the tax benefit.

Timing: When to Place Equipment in Service

For Section 179 and bonus depreciation, the deduction applies in the tax year the equipment is placed in service — the year it’s operational, not just the year you ordered it or took delivery.

Practical implications:

• December purchases. If you buy equipment in late December and it’s running before December 31, it qualifies for a full year-one deduction on that tax year’s return — even if you only operated it for a week.
• Ordered but not delivered. Equipment ordered in November 2026 that doesn’t arrive until January 2027 counts in the 2027 tax year, not 2026. Delivery and operational readiness both matter.
• Partial-year credit. Unlike regular depreciation (where a mid-year convention reduces the first-year amount), Section 179 gives you the full deduction regardless of when during the year the equipment is placed in service. Buy it in December, deduct it in full.
• High-income years. If you’re having an unusually good revenue year, placing high-cost equipment in service before December 31 compresses your taxable income when the marginal savings are highest.

The $2.5M Phase-Out: When Section 179 Fades

If your total equipment placed in service in 2026 exceeds $4,090,000, your Section 179 deduction starts phasing out dollar-for-dollar. Above roughly $6,650,000 in total equipment, Section 179 is fully eliminated for that year.

At those scale levels, bonus depreciation (no dollar cap, still 100%) picks up all the slack. A business placing $6M in equipment in service in 2026 takes:

• $0 Section 179 (fully phased out at $6M)
• $6,000,000 bonus depreciation (100%, no cap)
• Result: same full year-one deduction, just from a different box on Form 4562

For the vast majority of small businesses, the phase-out is an academic concern. It primarily affects large construction companies, manufacturers, or agricultural operations buying major capital equipment cohorts in a single year.

Sources & Last Verified

• IRS Publication 946 (2025): How to Depreciate Property — Section 179 limits and bonus depreciation rules
• IRS Form 4562 Instructions (2025) — annual limits and phase-out thresholds
• IRS Notice 2026-11 (February 6, 2026) — interim guidance on OBBBA bonus depreciation changes
• One Big Beautiful Bill Act, §70301 — permanent 100% bonus depreciation, effective January 19, 2025

Last verified: June 2026. Tax law changes frequently — confirm current limits and eligibility with a CPA or enrolled agent before making capital expenditure decisions.