---
title: "Section 179 vs bonus depreciation in 2026 | Ledgerbrook"
source: https://ledgerbrook.com/blog/section-179-vs-bonus-depreciation/
description: "Section 179 vs bonus depreciation for 2026: limits, income caps, losses and state rules from the IRS, then the books side."
---

[Blogs](/blog/)

# Section 179 vs bonus depreciation in 2026

![](/_astro/omkar-moraye.BHiWb4KG_xH3b5.webp)

[Omkar Moraye](/about/) · October 27, 2026

[](https://www.linkedin.com/sharing/share-offsite/?url=https%3A%2F%2Fledgerbrook.com%2Fblog%2Fsection-179-vs-bonus-depreciation%2F%3Futm_source%3Dlinkedin%26utm_medium%3Dsocial%26utm_campaign%3Dshare)[](https://x.com/intent/post?url=https%3A%2F%2Fledgerbrook.com%2Fblog%2Fsection-179-vs-bonus-depreciation%2F%3Futm_source%3Dx%26utm_medium%3Dsocial%26utm_campaign%3Dshare&text=Section%20179%20vs%20bonus%20depreciation%20in%202026)[](https://www.facebook.com/sharer/sharer.php?u=https%3A%2F%2Fledgerbrook.com%2Fblog%2Fsection-179-vs-bonus-depreciation%2F%3Futm_source%3Dfacebook%26utm_medium%3Dsocial%26utm_campaign%3Dshare)[](mailto:?subject=Section%20179%20vs%20bonus%20depreciation%20in%202026&body=Section%20179%20vs%20bonus%20depreciation%20in%202026%0A%0Ahttps%3A%2F%2Fledgerbrook.com%2Fblog%2Fsection-179-vs-bonus-depreciation%2F%3Futm_source%3Demail%26utm_medium%3Dsocial%26utm_campaign%3Dshare)

## What is the difference between Section 179 and bonus depreciation?

Both let a business deduct most or all of an asset's cost in the year it is placed in service instead of over its recovery period. Section 179 is elected per asset, is capped at $2,560,000 for 2026 and cannot create a loss. Bonus depreciation is 100%, automatic unless you opt out, and can create a loss.

Section 179 vs bonus depreciation is a choice the preparer makes on the return, usually in February, about assets the business bought months earlier. Both can deduct the full cost of a $12,000 machine in the year it goes into use. They differ in how they are claimed, what limits them, whether they can produce a loss, and whether your state follows them, and those differences decide which one the preparer uses for each asset.

The rules changed in 2025. Public Law 119-21 raised the Section 179 limit and made 100% bonus depreciation permanent for property acquired after January 19, 2025, so articles written before mid-2025 describe a 40% bonus that is no longer the default. Every figure below is read from the IRS, with the document named. Ledgerbrook keeps books and does not file returns; which deduction to take is your preparer’s call. The bookkeeping job comes first, and it is the same for both: the asset goes on the balance sheet at cost.

## Section 179 vs bonus depreciation at a glance

| | Section 179 | Bonus depreciation |
| --- | --- | --- |
| How it applies | Elected, asset by asset, on Form 4562 | Automatic for qualified property unless you elect out, by class of property |
| First-year amount | Any part of the cost, up to the limit | 100% for property acquired after Jan 19, 2025 |
| Dollar limit, 2026 | $2,560,000 | None |
| Phase-out, 2026 | Reduced dollar for dollar above $4,090,000 of Section 179 property | None |
| SUV limit, 2026 | $32,000 for SUVs over 6,000 lb | No separate SUV limit |
| Taxable income limit | Cannot exceed taxable income from active business; excess carries forward | None |
| Can it create a loss | No | Yes |
| Used property | Yes, if bought from an unrelated party | Yes, if the business never used it before and bought it from an unrelated party |
| Partnerships and S corps | Limit applies at the entity and again for each owner | Taken at the entity level |
| State tax | Many states set lower limits | Many states do not follow it |

Sources: 2026 dollar figures from [Rev. Proc. 2025-32](https://www.irs.gov/pub/irs-drop/rp-25-32.pdf), §4.24; bonus depreciation from [Notice 2026-11](https://www.irs.gov/pub/irs-drop/n-26-11.pdf); the rest from §§168(k) and 179 and [IRS Publication 946](https://www.irs.gov/publications/p946) (2025). For tax years beginning in 2025 the Section 179 figures were $2,500,000, $4,000,000 and $31,300 ([Instructions for Form 4562](https://www.irs.gov/instructions/i4562), 2025).

## What is Section 179?

Section 179 lets a business elect to deduct the cost of qualifying property in the year it is placed in service, instead of depreciating it. Qualifying property is mostly tangible personal property used in an active business: machinery, equipment, computers, furniture, off-the-shelf software and vehicles. It also covers certain improvements to nonresidential buildings, which Publication 946 lists as qualified improvement property, roofs, heating, ventilation and air-conditioning property, fire protection and alarm systems, and security systems.

The limits, for tax years beginning in 2026:

- **Dollar limit.** $2,560,000 in total for the year.
- **Phase-out.** The limit drops by every dollar of Section 179 property placed in service above $4,090,000, and reaches zero at $6,650,000.
- **Business income limit.** The deduction cannot exceed taxable income “from the active conduct of any trade or business during the year.” Any amount disallowed “can be carried to the next year” ([Publication 946](https://www.irs.gov/publications/p946); §179(b)(3)).
- **Pass-throughs.** “The section 179 deduction limits apply both to the partnership and to each partner,” and the same for an S corporation and each shareholder (Publication 946).

Property that does not qualify includes land and land improvements, buildings and their structural components (other than the improvements listed above), and property used mainly outside the United States. Listed property, which includes most vehicles, qualifies only when business use is more than 50%.

## What is bonus depreciation?

Bonus depreciation, the “special depreciation allowance” in the IRS’s wording, is an extra first-year deduction under §168(k). Public Law 119-21 replaced the scheduled phase-down with “a permanent 100 percent additional first year depreciation deduction” for qualified property acquired and placed in service after January 19, 2025, so the 100% rate has no end date ([Notice 2026-11](https://www.irs.gov/pub/irs-drop/n-26-11.pdf)).

Four details matter in practice:

- **Acquired means contracted.** Property bought under a written binding contract is treated as acquired on the later of the date the contract was signed, the date it became enforceable, and the end of any cancellation period or contingency (Notice 2026-11, §3.03, applying Treas. Reg. §1.168(k)-2(b)(5) with the 2025 date). A machine ordered under a binding contract in December 2024 and delivered in March 2025 was acquired before January 20, 2025.
- **Property acquired before January 20, 2025.** It keeps the old schedule: 40% if placed in service in 2025 and 20% in 2026 (60% and 40% for certain long-production property), under the phase-down Notice 2026-11 describes. A business can also elect 40% instead of 100% for property placed in service in its first tax year ending after January 19, 2025.
- **Electing out.** The election is made “for all property in such class” for the year: all 5-year property, or all 7-year property, not one asset (Publication 946).
- **Used property.** It qualifies if the business never used it before and did not buy it from a related party (§168(k)(2)(E)(ii)).

There is no dollar limit and no taxable income limit, so bonus depreciation can produce a net operating loss.

## Which one does the preparer use?

To compare the first-year figure under each on one asset, and see the MACRS schedule for what is left, use the [MACRS depreciation calculator](/tools/macrs-depreciation-calculator/). For every asset at once, laid out by Form 4562 line, use the [depreciation schedule template](/templates/depreciation-schedule-template/).

With 100% bonus depreciation available, the first-year deduction for most assets is the same either way. The choice turns on the differences:

| Situation | Usually points to | Why |
| --- | --- | --- |
| Business has a loss or thin profit this year | Bonus depreciation | Section 179 is capped at business income; bonus is not |
| Owner wants a deduction on some assets in a class but not others | Section 179 | It is elected asset by asset; bonus applies to a whole class |
| Asset acquired before January 20, 2025 | Section 179 for the rest | Bonus on that property is 40% in 2025 and 20% in 2026 |
| State does not follow bonus depreciation | Section 179, up to the state’s limit | The state deduction differs either way |
| Business expects much higher income next year | Neither, or less of either | Regular depreciation keeps deductions for later years |

That last row is the one owners skip. A deduction taken in full this year is not available next year, and if the business moves into a higher bracket, regular depreciation over the recovery period may save more in total. That is a projection the preparer makes, and it depends on numbers only the books hold.

### Can you use both Section 179 and bonus depreciation?

Yes, on different assets or on the same one. Section 179 is applied first, and bonus depreciation then applies to any remaining basis. A business might elect Section 179 on a few assets to stay within its business income and let bonus depreciation cover the rest.

### When not to use Section 179?

When the business has little or no taxable income, because the deduction is limited to that income and the rest only carries forward. When a state caps it far below the federal limit, the state return will show a different number anyway. And when the asset will not stay in business use: if business use of a Section 179 asset falls to 50% or less in any year of its recovery period, part of the deduction is recaptured and reported as income (Publication 946; §179(d)(10)).

Equipment and vehicles booked to expenses instead of fixed assets?

That is a cleanup, not a one-off fix: $99 per month of backlog (20% off 6+ months), one fixed price agreed before any work starts. [Send the file for a free 48-hour review](/contact/?from=blog%2Fsection-179-vs-bonus-depreciation).

## State tax treatment

States set their own depreciation rules, and many do not follow the federal ones. California is the common example: for 2025 it allowed a maximum Section 179 deduction of $25,000, reduced above $200,000 of Section 179 property, and lists bonus depreciation (§168(k)) among the federal provisions it does not follow ([FTB 3885A instructions](https://www.ftb.ca.gov/forms/2025/2025-3885a-instructions.html), 2025, read October 27, 2026). A California business that takes bonus depreciation on a $12,000 machine federally depreciates it on the state return over several years, unless it elects California’s own $25,000 Section 179 for it.

For the books, that means two or three sets of tax depreciation (federal, each state) beside the book figures. The preparer’s software keeps them; the books keep the asset at cost.

## How Section 179 and bonus depreciation show in the books

Neither deduction is a bookkeeping entry. Both are tax treatments of an asset that the books have already recorded. (Small purchases are the exception: items of $2,500 or less can be expensed in the books under [the de minimis safe harbor](/blog/de-minimis-safe-harbor/).) The order is always the same:

1. **Record the asset at cost.** Debit a fixed asset account for the full purchase price, including delivery and installation, and credit the bank or the loan.
2. **Depreciate it in the books** on the business’s book method, usually straight-line over its useful life.
3. **The preparer computes tax depreciation** on Form 4562: Section 179, bonus, or regular MACRS.
4. **The return reconciles the two.** Corporations and partnerships report the book-to-tax difference on Schedule M-1 (Form 1120, 1120-S or 1065). A sole proprietor’s Schedule C has no M-1, and many sole proprietors keep book depreciation equal to tax depreciation for simplicity, which is the preparer’s call.

The $12,000 machine from the [depreciation journal entry](/blog/journal-entry-for-depreciation/) post, bought on January 2, 2026 with a 5-year life, looks like this.

**The purchase:**

| Date | Account | Account type | Debit | Credit |
| --- | --- | --- | --- | --- |
| Jan 2 | Machinery & Equipment:Original Cost | Fixed Assets | 12,000.00 | |
| Jan 2 | Operating Checking | Bank | | 12,000.00 |

**Book depreciation, each month:**

| Date | Account | Account type | Debit | Credit |
| --- | --- | --- | --- | --- |
| Jan 31 | Depreciation Expense | Other Expense | 200.00 | |
| Jan 31 | Machinery & Equipment:Accumulated Depreciation | Fixed Assets | | 200.00 |

At December 31, 2026 the books show $2,400 of depreciation and a net book value of $9,600. The federal return may deduct the full $12,000 for 2026. The $9,600 difference is not an error in the books; it is the book-to-tax difference, and it reverses over the next four years as the books keep depreciating an asset that has no tax basis left.

### Is there a Section 179 journal entry?

Not a separate one. Some small businesses post the tax figure to the books instead of book depreciation, so the books match the return: one entry debiting `Depreciation Expense` and crediting `Machinery & Equipment:Accumulated Depreciation` for the full $12,000, posted after the return is prepared. That is a choice, not a requirement, and it leaves the books showing a $12,000 expense in a single year for a machine that will work for five. Whichever you choose, apply it to every asset, and never credit `Original Cost` itself: the cost stays on the balance sheet until the asset is sold or scrapped.

### What happens when the asset is sold?

A gain on the sale of equipment or a vehicle that was expensed under Section 179 or bonus depreciation is generally ordinary income to the extent of the depreciation taken (§1245 recapture), reported on Form 4797. The books need the original cost and the accumulated depreciation to produce the gain; the entry is in [the journal entry for disposal of an asset](/blog/journal-entry-for-disposal-of-asset/).

## Placed in service by December 31

Both deductions are for the year the asset is placed in service, which Publication 946 defines as the date it is “ready and available for a specific use.” A paid invoice is not enough. Equipment ordered in December and installed in January is a next-year asset. A vehicle bought on December 30 and used for business on December 30 is a this-year asset. Keep the delivery receipt or installation sign-off with the invoice, because the in-service date is what the preparer reports.

The year-end decision itself, whether to buy at all, is in [year-end tax planning](/blog/year-end-tax-planning/). Vehicles have their own caps, set by weight and body type, in [Section 179 for vehicles](/blog/section-179-vehicles/).

## Common questions about Section 179 and bonus depreciation

### Is bonus better than 179?

Neither is better in general. For a profitable business buying ordinary equipment, the 2026 first-year deduction is the same. Bonus depreciation wins when income is low, because it is not limited by income. Section 179 wins when the owner wants to choose asset by asset or the state follows Section 179 but not bonus.

### What qualifies for 100% bonus depreciation in 2026?

Qualified property acquired after January 19, 2025: generally property with a MACRS recovery period of 20 years or less, which covers equipment, machinery, vehicles, computers and furniture, and qualified improvement property inside a nonresidential building. Buildings themselves do not qualify for §168(k); a separate provision added in 2025, §168(n), allows 100% for certain new manufacturing buildings, which is a question for the preparer. Used property qualifies under the conditions above.

### What are the downsides of bonus depreciation?

Deductions taken now are not available later, the election out is all-or-nothing for a class of property, many states do not follow it, and a later sale of the asset produces ordinary income through recapture. None of these is a reason to avoid it, but each is a reason to decide with a projection rather than by default.

### What assets are not eligible for 179?

Land and land improvements, buildings and their structural components (except the listed nonresidential improvements), property used mainly outside the United States, and listed property used 50% or less for business. Property bought from a related party does not qualify either.

## When the assets are not on the books

The preparer can only choose between Section 179 and bonus depreciation for assets that are on the balance sheet. A file where the truck went to auto expense, the laptops to office supplies and the new compressor to repairs shows a lower profit and no fixed assets, and the preparer has to find each purchase in the bank feed before the return can be done. A cleanup moves each one to a fixed asset account at cost, with its in-service date, and rebuilds the depreciation.

$99per month of backlog20% off 6+ months

> **When to hand this off:** if purchases over $2,500 were expensed in a month the books have already reconciled, the fix touches closed periods and the depreciation that follows them. A [free file review](/contact/?from=blog%2Fsection-179-vs-bonus-depreciation) lists the purchases to move and quotes the cleanup as one fixed price. What a cleanup covers is on the [QuickBooks cleanup](/quickbooks-cleanup/) page.

Ledgerbrook

Behind on your QuickBooks books?

Cleanup or catch-up

$99 per month of backlog, 20% off 6+ months

Turnaround

5 business days for a typical year

Monthly close

From $149 a file a month

[Get a free file review](/contact/?from=blog%2Fsection-179-vs-bonus-depreciation)

Free, no card, no obligation. A written answer within about 48 hours.

[See every price](/pricing/)

[![](/_astro/omkar-moraye.BHiWb4KG_2p9N2A.webp)Omkar MorayeQuickBooks Certified ProAdvisor](/about/)

- [![Intuit QuickBooks Certification Level 1](/_astro/level-1.BokmyvzE_Z2cyGo6.webp)](https://www.credly.com/badges/7ceaf1c4-83da-4a1b-b19f-7e15cb5c0ac7/public_url "Intuit QuickBooks Certification Level 1. Verify on Credly.")
- [![Intuit QuickBooks Certification Level 2](/_astro/level-2.D-GWLUNI_Z1Sh5RD.webp)](https://www.credly.com/badges/02426568-00bb-46e1-a939-9063497c54d6/public_url "Intuit QuickBooks Certification Level 2. Verify on Credly.")
- [![Intuit Bookkeeping Certification](/_astro/bookkeeping.C82JE0Dn_Z1YzPBj.webp)](https://www.credly.com/badges/30b70ae2-e369-4a8b-9fee-d6db3a47b70c/public_url "Intuit Bookkeeping Certification. Verify on Credly.")
- [![QuickBooks Online Payroll Certification](/_astro/payroll.r5Yo2XnL_VxspM.webp)](https://www.credly.com/badges/2fc8fb7d-90d1-43ba-961b-aff161fe8491/public_url "QuickBooks Online Payroll Certification. Verify on Credly.")

Issued by Intuit, verified by Credly.

Published October 27, 2026

Share this post[](https://www.linkedin.com/sharing/share-offsite/?url=https%3A%2F%2Fledgerbrook.com%2Fblog%2Fsection-179-vs-bonus-depreciation%2F%3Futm_source%3Dlinkedin%26utm_medium%3Dsocial%26utm_campaign%3Dshare)[](https://x.com/intent/post?url=https%3A%2F%2Fledgerbrook.com%2Fblog%2Fsection-179-vs-bonus-depreciation%2F%3Futm_source%3Dx%26utm_medium%3Dsocial%26utm_campaign%3Dshare&text=Section%20179%20vs%20bonus%20depreciation%20in%202026)[](https://www.facebook.com/sharer/sharer.php?u=https%3A%2F%2Fledgerbrook.com%2Fblog%2Fsection-179-vs-bonus-depreciation%2F%3Futm_source%3Dfacebook%26utm_medium%3Dsocial%26utm_campaign%3Dshare)[](mailto:?subject=Section%20179%20vs%20bonus%20depreciation%20in%202026&body=Section%20179%20vs%20bonus%20depreciation%20in%202026%0A%0Ahttps%3A%2F%2Fledgerbrook.com%2Fblog%2Fsection-179-vs-bonus-depreciation%2F%3Futm_source%3Demail%26utm_medium%3Dsocial%26utm_campaign%3Dshare)

See Ledgerbrook first on Google

Pick us as a preferred source and our posts show up more often in your Top Stories and AI Overviews.

[Add on Google](https://www.google.com/preferences/source?q=ledgerbrook.com)

Continue Reading[All blogs →](/blog/)

[

 Previous BlogOctober 27, 2026

### Section 179 vehicles: the 6,000 lb rule

Section 179 vehicles for 2026: the weight classes, the $32,000 SUV limit, car caps and the 50% business-use test.

Read previous post →

](/blog/section-179-vehicles/)[

Next Blog October 27, 2026

### Small business tax deductions and records

Small business tax deductions: the IRS test each must pass, its 2026 limit, and the record that proves it, by entity type.

Read next post →

](/blog/small-business-tax-deductions/)