What each one is
Section 179 is an election. On Form 4562, Part I, you choose to treat the cost of qualifying property placed in service during the year as an expense rather than depreciating it. Publication 946 lists what qualifies: tangible personal property, which it defines as any tangible property that is not real property, off-the-shelf computer software, and certain qualified real property such as qualified improvement property. The property must be acquired by purchase for business use and used more than 50 percent for business in the year it is placed in service.
Bonus depreciation is the IRS's special depreciation allowance: an additional first-year deduction, a percentage of the depreciable basis, for qualified property, which is generally tangible property depreciated under MACRS with a recovery period of 20 years or less, plus certain software, water utility property and certain productions. It is not elected. In Publication 946's words, unless you elect out, you must take the special depreciation allowance for qualified property.
The two are applied in a fixed order. Publication 946 describes the special allowance as an additional deduction you can take after any section 179 deduction and before you figure regular depreciation. So: section 179 first, bonus second, MACRS on whatever basis is left. The MACRS depreciation calculator starts from that remaining basis.
The limits for 2025 and 2026
| Figure | Tax years beginning in 2025 | Tax years beginning in 2026 |
|---|---|---|
| Section 179 maximum deduction | $2,500,000 | $2,560,000 |
| Phase-out begins when section 179 property placed in service exceeds | $4,000,000 | $4,090,000 |
| Deduction reaches zero at | $6,500,000 | $6,650,000 |
| Section 179 cap for a sport utility vehicle | $31,300 | $32,000 |
| Special depreciation allowance, property acquired after January 19, 2025 | 100% | 100% |
| Special depreciation allowance, property acquired earlier and placed in service in 2025 | 40% (60% for long-production-period property and certain aircraft) | not applicable |
The 2025 figures are from Publication 946 and the Form 4562 instructions; the 2026 figures from Rev. Proc. 2025-32, section 4.24. The IRS notes that the section 179 amounts are indexed for inflation for tax years beginning after 2025, and describes the 100 percent allowance, reinstated by Public Law 119-21, as permanent. The dollar limit applies per taxpayer, not per business.
How the section 179 phase-out works
The reduction is dollar for dollar above the threshold, so the deduction disappears entirely once purchases reach $6,650,000. For most small businesses the threshold is never in sight and the limit is simply $2,560,000; the table shows where it starts to bite.
| Section 179 property placed in service in 2026 | Maximum section 179 deduction |
|---|---|
| $1,000,000 | $2,560,000 |
| $2,560,000 | $2,560,000 |
| $4,090,000 | $2,560,000 |
| $4,500,000 | $2,150,000 |
| $5,000,000 | $1,650,000 |
| $6,000,000 | $650,000 |
| $6,650,000 | $0 |
| $7,000,000 | $0 |
The business income limit
Section 179 has a second ceiling. After the dollar limit, the total you can deduct is limited to your taxable income from the active conduct of your trades or businesses for the year. A deduction that would push the business into a loss is cut back to the income, and any cost you cannot deduct because of this limit is carried to the next year. Publication 946 states no corresponding income limit for the special depreciation allowance, which is the practical reason a business with a thin year may prefer bonus depreciation, and a business that wants to deduct exactly as much as it has income may prefer section 179, which can be elected for part of an asset's cost.
One machine, three ways
Take $150,000 of 5-year MACRS property, placed in service in 2026 and acquired after January 19, 2025, under the half-year convention. The regular MACRS percentages for 5-year property are 20, 32, 19.2, 11.52, 11.52 and 5.76 percent. The table shows the deduction in each year under regular depreciation, under the 100 percent special allowance, and under a section 179 election for $50,000 with the special allowance on the rest, which is what happens by default if you elect section 179 for part of the cost and do not elect out of bonus. The last row elects section 179 for $50,000 and elects out of the special allowance, so the remaining $100,000 is depreciated normally.
| Path | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 | Total |
|---|---|---|---|---|---|---|---|
| Regular MACRS only (elected out of bonus, no section 179) | $30,000 | $48,000 | $28,800 | $17,280 | $17,280 | $8,640 | $150,000 |
| 100% special depreciation allowance | $150,000 | $0 | $0 | $0 | $0 | $0 | $150,000 |
| Section 179 on $50,000, bonus on the rest | $150,000 | $0 | $0 | $0 | $0 | $0 | $150,000 |
| Section 179 on $50,000, elected out of bonus | $70,000 | $32,000 | $19,200 | $11,520 | $11,520 | $5,760 | $150,000 |
Every path deducts the same $150,000 in the end; what changes is timing. Front-loading a deduction is worth the tax saved in year one minus the tax that would have been saved in later years, which depends on your marginal rates in each of those years. The depreciation calculator shows the book side of the same asset, and the payback period calculator puts the first-year tax saving next to the purchase price when deciding whether to buy before year end.
Side by side
| Section 179 | Special depreciation allowance (bonus) | |
|---|---|---|
| How it applies | you elect it, asset by asset and amount by amount, on Form 4562 Part I | automatic for all qualified property in a class unless you elect out by statement |
| Dollar limit 2026 | $2,560,000, phased out above $4,090,000 | none |
| Business income limit | yes, with carryover | none stated in Publication 946 |
| Rate | up to 100% of the elected cost | 100% for property acquired after January 19, 2025 |
| Business use | more than 50% in the year placed in service | qualified property rules; listed property has its own tests |
| Typical qualifying property | tangible personal property, off-the-shelf software, qualified real property | MACRS property with a recovery period of 20 years or less, certain software and productions |
| Sport utility vehicles | capped at $32,000 | no SUV cap of its own; passenger automobile limits still apply |
| Order | first | second, then regular MACRS |
What the choice usually turns on
- How much you want to deduct this year. Section 179 lets you pick the amount; bonus is all or nothing per class.
- Whether the business has the income. Section 179 stops at business income and carries the rest forward; the special allowance has no such limit in the publication.
- How much you bought. Above $4,090,000 of purchases in 2026, section 179 shrinks; bonus does not.
- Vehicles. The SUV cap applies to section 179; the separate passenger automobile limits in chapter 5 of Publication 946 apply to both.
- Later years. Whatever is expensed now is not available as depreciation later, and the asset's basis for a future sale is reduced accordingly.
This guide describes the federal rules as the IRS publishes them for 2025 and 2026. State returns have their own rules, listed property and real property have extra conditions, and the right split for a particular business is a question for its tax adviser.
Frequently asked questions
What is the section 179 limit for 2026?
For tax years beginning in 2026, Rev. Proc. 2025-32 sets the maximum section 179 deduction at $2,560,000, reduced dollar for dollar once the section 179 property placed in service in the year costs more than $4,090,000, and caps the cost of a sport utility vehicle that can be expensed at $32,000. For 2025 the figures were $2,500,000, $4,000,000 and $31,300. The IRS says all amounts are indexed for inflation for tax years beginning after 2025.
What is bonus depreciation in 2026?
Bonus depreciation is the IRS's special depreciation allowance. Public Law 119-21 reinstated a 100 percent allowance for qualified property acquired and placed in service after January 19, 2025, and the IRS describes it as permanent. Property placed in service in 2025 but acquired before January 20, 2025 is limited to 40 percent (60 percent for long-production-period property and certain aircraft). Unless you elect out, you must take the allowance.
What is the difference between section 179 and bonus depreciation?
Section 179 is an election you make asset by asset on Form 4562, Part I, with a dollar limit, a phase-out above a spending threshold, a business income limit and a more-than-50-percent business use requirement. Bonus depreciation applies automatically to all qualified property in a class unless you elect out, has no dollar limit and, in Publication 946, no business income limit. Section 179 is taken first, the special allowance second, regular MACRS on what is left.
Can section 179 create a loss?
No. Publication 946 limits the section 179 deduction, after the dollar limit, to your taxable income from the active conduct of your trades or businesses, and any cost you cannot deduct because of that limit is carried to the next year. The publication states no corresponding income limit for the special depreciation allowance.
Do I have to take 100 percent bonus depreciation?
By default, yes: Publication 946 says that unless you elect out you must take the special depreciation allowance for qualified property. You can elect out for any class of property placed in service during the year by attaching a statement to a timely filed return, including extensions, that identifies the class and says you are not claiming the allowance for it. For property acquired after January 19, 2025 you may also elect a 40 percent allowance instead of 100 percent in the first tax year ending after that date.
Sources
- IRS Publication 946 (2025), How To Depreciate Property: What's New (the $2,500,000 limit, the $4,000,000 threshold, the $31,300 SUV limit, the 100 percent allowance after January 19, 2025), chapter 2 Electing the Section 179 Deduction (qualifying property, more than 50 percent business use, the dollar limit per taxpayer, the business income limit and carryover, Form 4562 Part I) and chapter 3 Claiming the Special Depreciation Allowance (qualified property, mandatory unless you elect out, taken after section 179)
- IRS Instructions for Form 4562 (2025): Part I section 179, Part II line 14 special depreciation allowance, the 40 and 60 percent limits for property acquired before January 20, 2025, and how to elect out by statement
- IRS Rev. Proc. 2025-32, section 4.24 (PDF): the 2026 section 179 limit of $2,560,000, the $4,090,000 phase-out threshold and the $32,000 SUV limit
- IRS newsroom: Working Families Tax Cuts, businesses (permanent 100 percent additional first-year depreciation for property acquired after January 19, 2025; section 179 amounts indexed for inflation after 2025; Notice 2026-11)