Bonus Depreciation and Section 179 in 2026: What Changed and What Businesses Should Elect Before Year-End
The One Big Beautiful Bill Act, signed into law in July 2025, permanently restored 100% bonus depreciation and increased the Section 179 limits, reversing a phase-down schedule that had been reducing both provisions for several years. Here's what actually changed, how the two rules interact, and what needs to happen before December 31 to use them for this year.
Bonus Depreciation Is Back to 100%, Permanently
Before this law, bonus depreciation was on a scheduled phase-down: 80% in 2023, 60% in 2024, 40% in 2025, and headed toward 0% by 2027. The new law restored 100% first-year bonus depreciation for eligible property acquired and placed in service after January 19, 2025, with no scheduled sunset going forward. There's no annual dollar cap on bonus depreciation, and unlike Section 179, it can create a net operating loss for the business.
Section 179 Limits Increased and Are Now Inflation-Indexed
The Section 179 expensing cap increased from $1.25 million to $2.5 million, with the phase-out threshold rising from roughly $3.13 million to $4 million, both now adjusted annually for inflation starting in 2026. For 2026, the inflation-adjusted figures are approximately $2.56 million and $4.09 million. Unlike bonus depreciation, Section 179 is limited to the business's taxable income for the year and can't be used to create a loss, and the deduction phases out dollar-for-dollar once total qualifying purchases exceed the threshold.
How the Two Rules Typically Work Together
In general, businesses claim 100% bonus depreciation to the extent allowed, and use Section 179 more selectively — for property types bonus depreciation doesn't reach, or as a control mechanism to manage exactly which assets get expensed. Section 179 remains useful for certain nonresidential real property improvements, such as roofs, HVAC systems, and security systems, that don't qualify for bonus depreciation the same way. A new category, Qualified Production Property, also allows 100% expensing for certain manufacturing-related real property under the new law.
"Placed in Service" Is the Deadline That Matters
Both provisions require the property to be placed in service by December 31 — not merely ordered, paid for, or delivered. Equipment sitting in a warehouse uninstalled generally doesn't qualify yet. This is exactly why equipment decisions belong on the October planning calendar rather than the December one: anything requiring installation, setup, or a longer lead time needs enough runway to actually be operational before the year closes.
State Conformity Is a Separate Question
Not every state automatically follows the federal bonus depreciation and Section 179 rules. Some states decouple entirely or apply their own limits, which means the same equipment purchase can produce a federal deduction and a meaningfully different state tax result. This is worth confirming before assuming a purchase produces the same benefit at both levels.
This information is educational and describes the general operation of bonus depreciation and Section 179 under current federal law, including 2026 inflation-adjusted figures. It does not determine the appropriate election or amount for a specific business, and does not address state-specific conformity rules. If you're considering an equipment purchase before year-end, our tax planning team can help model which combination of bonus depreciation and Section 179 actually makes sense for your numbers.
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