Both got more generous under the One Big Beautiful Bill Act (OBBBA) signed in July 2025. Section 179's deduction limit jumped to $2.5 million in 2025 ($2.56 million in 2026), and 100% bonus depreciation is back permanently after a planned phase-down had reduced it to 40% in 2025.
For most small businesses, these two provisions are some of the most valuable tools available. This guide walks through how each works, which to use when, and the practical mechanics for claiming them.
This is educational content, not tax advice — talk to a CPA before claiming either on your return.
The basic idea: expensing vs. depreciating
Normally, when a business buys equipment, the IRS doesn't let you deduct the whole cost in the year you bought it. Instead, you depreciate it — spread the deduction across the useful life of the asset (usually 5–7 years for most business equipment).
The reason: equipment is supposed to generate income over multiple years, so the deduction matching the income should also span multiple years.
Section 179 and bonus depreciation are exceptions. They let you skip the depreciation schedule and deduct the full cost in year one, accelerating the tax benefit.
What is Section 179?
Section 179 of the Internal Revenue Code lets a business deduct the full purchase price of qualifying equipment and software in the year placed in service, up to a dollar limit, instead of depreciating it over time.
2025 limits (under OBBBA):
- Maximum deduction: $2.5 million
- Phase-out threshold: $4 million (deduction reduces dollar-for-dollar above this)
- Fully phased out at: $6.5 million in qualifying purchases
2026 limits (inflation-adjusted):
- Maximum deduction: $2.56 million
- Phase-out threshold: $4.09 million
- Fully phased out at: $6.65 million
For most small businesses, these limits aren't binding. The deduction can cover essentially any equipment purchase a typical small business would make.
What qualifies for Section 179
- Equipment and machinery
- Office furniture
- Computers and peripherals
- Off-the-shelf software (not custom-developed)
- Most business vehicles (with weight and use restrictions)
- Qualified improvement property (interior improvements to nonresidential buildings)
- Certain HVAC, roofs, fire protection, and security systems on nonresidential buildings
Section 179 limitations
- Taxable income limit. Section 179 deductions can't create a loss. If your business has $40,000 of taxable income and you try to claim $60,000 in Section 179, you can only deduct $40,000 — the rest carries forward.
- Used predominantly for business. Mixed-use assets (like a vehicle used 70% for business, 30% personal) can only be Section 179'd at the business-use percentage.
- Property must be placed in service during the year. Buying equipment in December and receiving it in January means the deduction goes on next year's return.
- Heavy vehicle limit. For SUVs over 6,000 pounds gross vehicle weight, the 2026 Section 179 maximum is $32,000.
What is bonus depreciation?
Bonus depreciation is a separate provision that lets you deduct an additional percentage of qualifying property in the year placed in service. Under OBBBA, bonus depreciation is back to 100% for property acquired and placed in service after January 19, 2025.
The difference from Section 179:
- No dollar limit. You can claim 100% bonus depreciation on essentially unlimited amounts of qualifying property.
- Can create a tax loss. Unlike Section 179, bonus depreciation can drive your business into a net operating loss.
- Less flexible. Bonus depreciation applies to entire classes of property, not asset-by-asset. (You can elect out of bonus depreciation entirely or elect a 40% rate for specific tax years.)
What qualifies for bonus depreciation
Most tangible business property with a useful life of 20 years or less:
- Equipment and machinery
- Vehicles (subject to certain limits)
- Furniture
- Computer software (off-the-shelf)
- Qualified improvement property
- New AND used property (used must be new to you)
Key changes under OBBBA
Before OBBBA, bonus depreciation was phasing down — it was 40% for property placed in service in 2025 under prior law, and would have hit 0% by 2027. OBBBA reversed that and made 100% permanent for property acquired and placed in service after January 19, 2025. This is one of the most significant tax law changes for businesses in recent years.
Section 179 vs. bonus depreciation: which to use?
Most small business owners can use both — and often do, layered. The IRS rules require you to apply deductions in a specific order:
- Section 179 first — claim what you can, up to the dollar limit and your taxable income.
- Bonus depreciation second — applied to the remaining basis after Section 179.
- Regular depreciation last — for anything left over (which under current 100% bonus rules is usually nothing).
So which one matters more depends on your situation:
Use Section 179 when:
- You want to control which specific assets get expensed
- You want to limit the deduction (to avoid creating a loss you can't use)
- The asset doesn't qualify for bonus (like certain real property improvements)
- Your state doesn't conform to bonus depreciation but does to Section 179
Use bonus depreciation when:
- The asset class is fully eligible
- You want to take a loss (offsetting other income)
- You have more equipment purchases than the Section 179 limit
- You don't need to be selective about which assets to expense
For most small businesses making routine equipment purchases under a few hundred thousand dollars, the choice often doesn't change the bottom line — you end up with the same deduction. But the mechanics matter for tax planning across multiple years.
State-level considerations
This is where it gets tricky. Not all states conform to federal Section 179 and bonus depreciation rules.
- States that fully conform (Florida, Texas, Tennessee, and most others) — federal rules apply at the state level too. The OBBBA-enhanced provisions flow through.
- States that decouple (California, New Jersey, Pennsylvania, and a handful of others) — have their own rules. May allow lower Section 179 limits or no bonus depreciation at all. Your federal and state depreciation could differ significantly.
For Florida-based businesses, this is less of an issue because Florida has no state income tax. But if you operate in multiple states or move, the conformity question matters.
Practical examples
Example 1: Small construction business buys $80,000 in equipment
- All $80,000 qualifies for both Section 179 and bonus depreciation
- Business has $120,000 in taxable income before the deduction
- The business can claim Section 179 on the full $80,000, dropping taxable income to $40,000
- At a 22% federal bracket: ~$17,600 in tax savings in year one
Example 2: Solo consultant buys a $35,000 vehicle (over 6,000 lbs GVWR)
- $32,000 of the $35,000 can be claimed via Section 179 (heavy SUV cap)
- Remaining $3,000 can use 100% bonus depreciation
- Total first-year deduction: $35,000
Example 3: Real estate investor improves a commercial building
- $200,000 in qualified improvement property (interior improvements)
- All $200,000 eligible for Section 179
- Subject to taxable income limit — if the investor has $150,000 in taxable rental income, Section 179 is limited to $150,000, with $50,000 carrying forward
- Or: $200,000 could go to bonus depreciation (no income limit), potentially creating a tax loss
What it means for your bookkeeping
For Section 179 and bonus depreciation to work, your books need to:
- Track the asset as a fixed asset (not as an expense)
- Record the purchase date and placed-in-service date
- Maintain depreciation schedules for each asset
- Properly elect Section 179 vs. bonus on Form 4562 with your tax return
This is where bookkeeping and tax filing intersect. The bookkeeper tracks the asset; the CPA elects the deduction. Both have to work together.
Common mistakes
- Expensing equipment immediately in the books without setting it up as a fixed asset
- Claiming Section 179 on personal-use vehicles without applying the business-use percentage
- Forgetting placed-in-service date — buying in December but not actually using until January moves the deduction to next year
- Claiming Section 179 above taxable income without realizing the limit will cap it
- Missing state-level conformity issues when filing across multiple states
- Not coordinating with your CPA on which provision to use
Frequently asked questions
Yes — many businesses do, applied in a specific order (Section 179 first, then bonus on the remainder). For most small business equipment purchases under the Section 179 limit, you'd typically use Section 179 alone or 100% bonus depreciation. Both produce the same first-year deduction.
$2.56 million in maximum deduction, with phase-out starting at $4.09 million in total qualifying purchases and fully phasing out at $6.65 million. The limits are inflation-adjusted annually starting in 2026.
Yes — used property qualifies for bonus depreciation under OBBBA, as long as it's new to you (you didn't previously use it personally). Subject to vehicle weight and business-use rules.
No. You can elect out of bonus depreciation entirely, or elect 40% instead of 100% for property placed in service in 2025 (a transition rule). The election applies to all property of a given class for the year, not asset-by-asset. Talk to your CPA — sometimes spreading the deduction makes more sense than taking it all in year one.
Where to start
Section 179 and 100% bonus depreciation are some of the most valuable tax tools available — and most under-used. The right deduction strategy depends on your projected income, your state, and your timing. That's a CPA conversation specific to your business.
What we can do as bookkeepers: make sure your books track fixed assets correctly so the deductions are claimable when your CPA goes to file. SoFlo360 helps small business owners with the bookkeeping foundation needed to take advantage of these provisions. Spanish-friendly support is available for owners who'd rather handle financial conversations in Spanish.
Book a free consultation or learn more about our bookkeeping services.
This post is educational content, not tax advice. For your specific situation, consult a qualified CPA.