Section 179 vs. Bonus Depreciation: How to Write Off Business Equipment

When a small business buys a truck, a machine, computers, or furniture, the default tax rule is that the cost is not deducted all at once. It is depreciated — deducted in pieces over the asset's useful life, typically five or seven years for equipment. Two provisions override that default and let you deduct the entire cost in the first year: Section 179 expensing and bonus depreciation.

Since the 2025 federal tax law made 100% bonus depreciation permanent, many owners assume the two are now the same thing. They are not. They have different limits, different treatment of losses, different eligible property, and different state tax consequences. This guide explains each one and how to decide.

What Section 179 is

Section 179 is an election. You choose, asset by asset, how much of the cost of qualifying property to deduct immediately, up to an annual dollar cap — $2,560,000 for 2026. You can expense one machine fully, a second one partially, and depreciate a third normally. The election is made on Form 4562 with your return.

Section 179 has two limits that matter. First, the phase-out: once total qualifying purchases for the year exceed $4,090,000, the cap shrinks dollar for dollar. That affects few small businesses. Second, and far more common, the business income limit: the Section 179 deduction cannot exceed your taxable income from active trades or businesses for the year. It cannot create or increase a loss. Any amount disallowed by that limit carries forward to future years rather than disappearing.

What bonus depreciation is

Bonus depreciation is automatic. Unless you elect out, it applies to all qualifying property in a given asset class — every 5-year asset, every 7-year asset, and so on. For property acquired after January 19, 2025, the rate is 100%, and the 2025 legislation removed the phase-down that had been reducing it each year since 2023.

Bonus depreciation has no dollar cap and no business income limit. It can create a net operating loss, which can then be carried forward to offset income in future years. The tradeoff is less control: you cannot pick individual assets. If you want to depreciate one 7-year asset normally, you must elect out of bonus for the entire 7-year class for that year.

The short version: Section 179 is selective and capped by your business income. Bonus depreciation is all-or-nothing by asset class, has no cap, and can create a loss. Most small businesses with a profitable year can use either; the differences matter at the edges.

Property that qualifies for one but not the other

• Both cover new and used tangible equipment, machinery, vehicles, computers, furniture, and off-the-shelf software with a recovery period of 20 years or less — used property qualifies as long as you did not use it before
• Both cover qualified improvement property: interior, non-structural improvements to a nonresidential building made after the building was placed in service
• Only Section 179 covers roofs, HVAC systems, fire protection and alarm systems, and security systems added to nonresidential buildings — these are otherwise 39-year property and not eligible for bonus
• Neither covers land, residential rental buildings, or the building structure of a commercial property

The roof and HVAC provision is the most overlooked. A business that owns its building and replaces a $90,000 HVAC system can expense it under Section 179 in the first year instead of depreciating it over 39 years.

Vehicles: the special rules

Vehicles are where most small business questions land, and the rules depend on weight. Passenger cars and light trucks under 6,000 pounds gross vehicle weight rating are subject to annual "luxury auto" depreciation caps that limit the first-year write-off regardless of which method you use. Heavy SUVs between 6,001 and 14,000 pounds GVWR avoid those caps but have a separate Section 179 limit of $32,000 for 2026 — though bonus depreciation can cover the remainder of the cost. Pickups with a cargo bed of at least six feet and cargo vans without rear seating generally avoid the SUV limit entirely.

For both methods, a vehicle must be used more than 50% for business to qualify, and the deduction is limited to the business-use percentage. A $70,000 truck used 80% for business produces a maximum first-year deduction of $56,000.

The recapture traps

An immediate write-off is a timing benefit, not a permanent one. Three situations bring it back:

• Selling the asset: depreciation you deducted is recaptured as ordinary income when you sell equipment for more than its remaining tax basis. Expense a $60,000 truck in year one, sell it for $35,000 in year three, and the full $35,000 is taxable ordinary income
• Business use drops: if business use of Section 179 property or a listed-property vehicle falls to 50% or below in a later year, part of the deduction is recaptured as income in that year
• Converting to personal use: taking a business vehicle for personal use counts as a disposition and triggers the same result

State taxes can change the answer

Many states do not follow federal bonus depreciation, and several cap Section 179 far below the federal limit. In those states, an asset fully expensed on the federal return is still depreciated over several years on the state return, and the business tracks two sets of depreciation schedules. Where a state conforms to Section 179 but not to bonus, electing Section 179 for the same asset can produce a larger state deduction in the first year. Businesses operating in more than one state should check each state's conformity before choosing.

How to decide

• Profitable year, equipment well under the cap: either method works federally; choose Section 179 if your state conforms to it but not to bonus
• Low-income or loss year: bonus depreciation, because Section 179 cannot exceed business income and the excess only carries forward
• You want to expense some assets in a class but not others: Section 179, because bonus is all-or-nothing by class
• Roof, HVAC, or security system on a commercial building you own: Section 179, because bonus does not reach that property
• Income expected to rise sharply in the next few years: consider regular depreciation, since deductions are worth more in higher-bracket years

The last point is the one owners resist. Taking the full deduction now is not always the best outcome. For an S-corporation owner, a large first-year write-off can also reduce the qualified business income deduction or leave too little basis to deduct losses. At Stone Valley Accounting, we model the purchase across three to five years — including the expected sale of the asset — before recommending a method, because the answer that minimizes this year's tax is not always the one that minimizes total tax.

Timing rule: property must be placed in service — delivered, installed, and ready for use — by the last day of the tax year. Equipment ordered or paid for in December but delivered in January is a next-year deduction.