Buy a $60,000 piece of equipment and the ordinary tax treatment spreads the deduction over its useful life — five years, seven years, a schedule set by asset class. Bonus depreciation lets you deduct the whole thing in the year you place it in service. Same total deduction, radically different timing, and timing is worth real money when the alternative is waiting seven years for the back half.
It is a genuinely useful provision and one of the more commonly misused, mostly because the phrase "write it off" gets treated as though it means the purchase was free.
What changed in 2026
- Full first-year expensing came back. After a scheduled step-down through the low forties, 100% bonus depreciation was restored for qualifying property, reversing the planned phase-out.
- Placed-in-service dates matter more than purchase dates. With the rules having moved recently, when an asset was actually put to use — not when it was ordered or paid for — determines the treatment.
- Section 179 limits continued rising with inflation, keeping it relevant for smaller purchases despite bonus depreciation being uncapped.
- State conformity remained patchy. Several states decouple from federal bonus depreciation entirely, so a full federal write-off can coexist with a normal state depreciation schedule.
Verify current-year percentages, limits, and your state's treatment before planning around any of this.
Section 179 versus bonus depreciation
They are frequently discussed as one thing and behave differently in ways that matter.
|
Section 179 |
Bonus depreciation |
| Annual dollar cap |
Yes, indexed |
No cap |
| Phases out on large purchases |
Yes |
No |
| Limited by business income |
Yes — cannot create a loss |
No — can create a loss |
| Election granularity |
Per asset, partial amounts allowed |
Generally all-or-nothing per asset class |
| Typical fit |
Smaller businesses, selective assets |
Large purchases, capital-intensive years |
| State conformity |
More widely followed |
Frequently decoupled |
The income limitation is the practical dividing line. Section 179 cannot push you into a loss — deduct up to your business income and carry the rest forward. Bonus depreciation has no such restriction, so it can create or deepen a net operating loss. Whether that is good depends entirely on whether you can use the loss.
Where both apply, the usual order is Section 179 first on selected assets, then bonus depreciation on the remainder, then regular depreciation on anything left. Which assets you steer into which bucket is a real optimisation, particularly with state decoupling in the picture.
The timing question nobody asks first
Accelerating a deduction is not automatically the right move, and this is where the reflex to always take the write-off costs people money.
Deductions are worth your marginal rate. Take a $60,000 deduction in a year you are in a low bracket and it saves you less than spreading it across years when you expect to be in a higher one. A business expecting substantial growth may genuinely be better off with ordinary depreciation — a counter-intuitive conclusion that fits a lot of early-stage companies.
The competing consideration is that money now beats money later. A deduction realised today has time value that a deduction in year six does not, and if cash is tight the immediate reduction may matter more than optimising the rate.
The honest summary: take bonus depreciation when your current rate is at or above your expected future rate, or when cash flow makes the timing decisive. Think harder when you expect income to rise materially.
Recapture, and the part that surprises people
Sell the asset before it would have been fully depreciated and the arithmetic reverses. Gain up to the amount of depreciation you claimed is recaptured — taxed as ordinary income rather than at capital gains rates.
Concretely: deduct $60,000 fully, sell for $25,000 two years later, and that $25,000 is ordinary income. You took a deduction against ordinary income and you pay it back at ordinary rates. That is internally consistent and reliably unwelcome, particularly for businesses that turn over vehicles or equipment on a short cycle.
The trap is a business that expenses aggressively every year and sells regularly. Each sale generates ordinary income that offsets part of the new deduction, and the perceived benefit is smaller than the year-one numbers suggested. Anyone on a short replacement cycle should model several years rather than one. Cost basis explained covers how depreciation adjusts basis, which is the mechanism underneath.
Common mistakes
- Buying to get the deduction. A write-off returns your marginal rate on the cost. The other portion is simply spent.
- Ignoring state decoupling. A full federal deduction plus a normal state schedule means two sets of books and a different state bill than expected.
- Forgetting recapture on early disposal. Especially painful on vehicles.
- Confusing purchase date with placed-in-service date. Equipment sitting in a crate on 31 December was not placed in service.
- Using it in a loss year without a plan for the loss. Bonus depreciation can create a loss you have no immediate use for.
- Assuming everything qualifies. Property type, new-versus-used status, and business-use percentage all constrain eligibility, and mixed-use assets carry their own rules.
FAQ
Does this apply to a vehicle?
Passenger vehicles have their own limits that cap what you can deduct regardless of bonus depreciation. Heavier vehicles above a weight threshold are treated differently. Business-use percentage matters throughout, and dropping below a threshold in a later year can trigger recapture on its own.
Can I use it as a sole proprietor?
Yes, if you have qualifying business property. The rules follow the property and its use, not the entity type — though the income limitation on Section 179 interacts differently depending on structure.
What about software and improvements?
Off-the-shelf software generally qualifies. Building improvements depend on the specific category, and the rules here have been amended repeatedly. This is an area where checking current guidance genuinely matters.
Does it help if my business had no profit?
Bonus depreciation can create a loss, which may be carried to other years subject to current limitation rules. Section 179 cannot. If you are near break-even, that difference decides which tool to reach for.
Where to go next
For how depreciation affects your basis when you eventually sell, read cost basis explained. If you are self-employed and managing the cash-flow side of a large purchase year, quarterly estimated taxes, and for retirement plans that also shift taxable income, solo 401(k) explained.
This is general information, not tax advice. Percentages, limits, and state conformity change; confirm current rules with the IRS or a qualified preparer before acting.