Section 179 or Bonus Depreciation: Choosing the Write-Off
Two ways to deduct equipment in the year you buy it, how they differ, how they stack, and why the choice matters more in a loss year or across states.
Reviewed by the Fairlight Accounting cross-border tax team — U.S. & Canadian Tax Desks
Section 179 and bonus depreciation both let a business deduct the full cost of qualifying equipment in the year it is placed in service. Section 179 is elected asset by asset, capped at an annual dollar limit, and cannot create a loss. Bonus depreciation applies to whole classes of property, has no dollar cap, and can create a loss.
On this page
How do they compare?
| Feature | Section 179 | Bonus depreciation |
|---|---|---|
| Rate | 100 percent of cost, up to the annual limit | 100 percent for property acquired and placed in service after January 19, 2025 (permanent under the 2025 law, P.L. 119-21 §70301) |
| Annual dollar limit | Yes — $2,560,000 for 2026 ($2,500,000 for 2025), reduced dollar-for-dollar once purchases exceed $4,090,000 ($4,000,000 for 2025) | None |
| Income limit | Deduction cannot exceed business taxable income; excess carries forward | None — can create a net operating loss |
| Election | Asset by asset, any amount up to cost | All assets in a class, unless you elect out of the class |
| Qualifying property | Tangible personal property, off-the-shelf software, qualified improvement property, roofs, HVAC, fire and security systems on nonresidential buildings | Tangible property with a recovery period of 20 years or less, qualified improvement property, certain plants and film costs |
| Used property | Yes | Yes, if not previously used by you |
| Vehicles | SUV cap applies ($32,000 for 2026; $31,300 for 2025); passenger auto caps apply | Passenger auto caps apply |
| State conformity | Many states follow, some with lower limits | Many states decouple and require add-back |
In what order are they applied?
Section 179 first, then bonus depreciation on the remaining basis, then regular depreciation on what is left. Because Section 179 is limited and bonus is not, a business that buys more than the Section 179 limit still writes off the balance under bonus.
When does the choice matter?
- A loss year. Section 179 above business taxable income is disallowed for the year and carries forward; bonus depreciation creates or deepens a loss that can be carried forward as a net operating loss.
- Picking assets. Section 179 lets you expense some assets and depreciate others to land taxable income where you want it; bonus is all or nothing by class.
- Building systems. A new roof, or HVAC equipment outside the building's interior (such as rooftop units), on a commercial building is 39-year nonresidential real property: it qualifies for Section 179 but not for bonus. Improvements to the interior of a commercial building (qualified improvement property, which can include interior HVAC components) qualify for both.
- States. A state that disallows bonus but allows Section 179 makes 179 the better choice for state tax.
- Pass-through owners. The Section 179 limit applies at both the entity and owner level, and the deduction is limited by the owner's business income.
What are the traps?
Taking a large first-year deduction and then selling the asset or letting business use fall to 50 percent or below triggers recapture. Expensing everything in a low-income year wastes deductions that would have been worth more later. And neither write-off increases the total deduction over the asset's life compared with regular depreciation; it only changes timing, and a later sale recaptures the deduction as ordinary income.
Frequently asked questions
Can I elect out of bonus depreciation for one asset?
No. The election out is by asset class (for example, all 5-year property). Section 179 is where asset-level choice lives.
Do I need to buy new equipment?
No. Used equipment qualifies for both, as long as it is new to your business and not bought from a related party.
Does financing affect the deduction?
No. The full cost is deductible when placed in service, even if financed.
What about a home office or rental property?
Residential rental buildings (27.5-year property) and a home office (part of a building, 39-year property) qualify for neither. Appliances, carpet, and furniture in a rental are 5-year property and qualify for bonus; Section 179 for them requires that the rental be a trade or business and, for an individual landlord, that the noncorporate lessor tests be met.
Official sources
The IRS explains: “The allowance is an additional deduction you can take after any section 179 deduction and before you figure regular depreciation under MACRS for the year you place the property in service.” — Internal Revenue Service, Publication 946 (2025), How To Depreciate Property, https://www.irs.gov/publications/p946
The IRS explains: “Make the election under section 179 to expense certain property.” — Internal Revenue Service, About Form 4562, Depreciation and Amortization (Including Information on Listed Property), https://www.irs.gov/forms-pubs/about-form-4562
Next step
Fairlight Accounting handles U.S. domestic, cross-border (U.S.–Canada), and international tax returns, plus bookkeeping, payroll, and CFO advisory. Our U.S. Tax Desk sets the Section 179 and bonus elections to land taxable income where it belongs. See pricing or book a free fit call.
Cross-border taxes, handled in one place
U.S. and Canadian filings prepared together by our U.S. and Canadian Tax Desks.
Book a free fit call