Section 179 and 100% Bonus Depreciation in 2026: The $2.56M Limit and Year-End Moves for High Earners

Disclaimer: This article is for educational purposes only and is not tax, legal, or financial advice. Depreciation rules depend on your facts, your entity type, and your state. Consult a qualified CPA before making a purchase for its tax effect. Figures reflect IRS guidance and statute text as of October 2026.

For tax years beginning in 2026, Section 179 lets a business expense up to $2,560,000 of equipment, vehicles, and software, with the limit phasing out once purchases exceed $4,090,000. On top of that, 100% bonus depreciation is permanent for property acquired and placed in service after January 19, 2025, so most business assets you put into service by December 31, 2026 can be deducted in full this year.

That combination makes Q4 the busiest depreciation season in years. It also makes it easy to get wrong: the heavy SUV rule has a $32,000 cap that bonus depreciation quietly gets around, the placed-in-service deadline is stricter than most people assume, and California taxes you as if none of this happened. This guide covers the 2026 numbers, the rules that decide which tool applies, and two worked examples for high earners.

Key Facts: Section 179 and bonus depreciation in 2026

• Section 179 limit: $2,560,000, reduced dollar for dollar above $4,090,000 of Section 179 property placed in service (2025: $2,500,000 and $4,000,000)
• Heavy SUV cap under Section 179: $32,000 for 2026 (2025: $31,300)
• Bonus depreciation: 100%, permanent, for qualified property acquired and placed in service after January 19, 2025
• Pre-January 20, 2025 binding contracts stay on the old schedule: 20% bonus if placed in service in 2026
• Cars at 6,000 lbs or less: first-year depreciation capped at $20,300 with bonus ($12,300 without)
• Section 179 cannot exceed your active business income (W-2 wages count); bonus can create a loss, subject to the 2026 excess business loss threshold of $256,000 ($512,000 joint)
• The asset must be placed in service by December 31, not just ordered or paid for

What Changed: OBBBA Made 100% Bonus Permanent and Doubled Section 179

The One Big Beautiful Bill Act (Public Law 119-21, signed July 4, 2025, which the IRS now also calls the Working Families Tax Cuts) made two changes that matter to anyone buying business assets.

Bonus depreciation. Under the 2017 TCJA, bonus depreciation was 100% through 2022 and then dropped 20 points a year: 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and zero after. Section 70301 of OBBBA replaced that schedule with a permanent 100% deduction for qualified property acquired and placed in service after January 19, 2025. IRS Notice 2026-11 is the interim guidance, and it applies the existing bonus depreciation regulations with January 19, 2025 substituted for the old September 27, 2017 date, plus a few other modifications.

The acquisition date matters, not only the placed-in-service date. Property is not treated as acquired after the date you signed a written binding contract for it. A truck ordered under a binding contract in December 2024 and delivered in March 2026 gets only 20% bonus, per IRS Rev. Proc. 2026-15.

OBBBA also allowed a one-time election to take 40% instead of 100% for property placed in service in the first tax year ending after January 19, 2025. For calendar-year taxpayers that was the 2025 return. For 2026, the tool to reduce bonus is the long-standing election out, made by asset class.

Section 179. Section 70306 of OBBBA raised the expensing limit to $2,500,000 and the phase-out threshold to $4,000,000 for tax years beginning in 2025, both indexed afterward. The SUV cap was not increased by OBBBA beyond its normal inflation adjustment.

The 2025 excess business loss row is shown for context only; the 2026 figure, $256,000 single and $512,000 joint, is the one that applies to 2026 losses.

Section 179 vs Bonus Depreciation: The Rules That Decide Which One You Use

When both apply, the order is fixed: Section 179 first, then bonus on whatever basis remains, then regular MACRS depreciation on anything left (Pub 946). In 2026, with bonus at 100%, regular MACRS only matters if you elect out of bonus or the property does not qualify.

Two points in that table trip up high earners.

The income limit is looser than you have heard. Section 179 cannot exceed taxable income from the active conduct of a trade or business. But the Form 4562 instructions say individuals include “all wages, salaries, tips, and other compensation” earned as an employee, and on a joint return you combine both spouses. A W-2 earner with a small side business usually has plenty of Section 179 room. Where the limit does bite is inside an S corporation or partnership with thin profits, because the limit applies at the entity level before anything flows to you.

Bonus depreciation can create a loss; Section 179 cannot. A bonus-driven business loss can offset wages and other income, but for 2026 the excess business loss rule disallows net business losses above $256,000 (single) or $512,000 (joint), and wages do not count as business income for that test. The disallowed amount becomes a net operating loss carryforward.

The Vehicle Rules: 6,000 Pounds, $32,000, and the Bonus Workaround

Vehicles are where Section 179 headlines mislead the most. Three buckets:

1. Passenger automobiles, 6,000 lbs or less (gross vehicle weight for trucks and vans; unloaded gross vehicle weight for cars, per IRC 280F(d)(5)). Depreciation, including Section 179 and bonus, is capped. For 2026 placements the caps are $20,300 in year one with bonus ($12,300 without), $19,800 in year two, $11,900 in year three, and $7,160 a year after that, each multiplied by your business-use percentage.
2. Heavy SUVs, over 6,000 and up to 14,000 lbs GVWR. Not subject to the 280F caps. Section 179 expensing is limited to $32,000 for 2026, but bonus depreciation has no such cap.
3. Excepted heavy vehicles. The SUV cap does not apply to vehicles seating more than 9 behind the driver, pickups with a cargo bed at least 6 feet long that is not readily accessible from the passenger compartment, or certain cargo vans with no seating behind the driver (IRC 179(b)(5)(B)).

Passenger automobiles and most other vehicles used for transportation are listed property. You need more than 50% qualified business use in the year you place the vehicle in service to claim Section 179 or bonus at all, and if business use later falls to 50% or less, the excess depreciation is recaptured as ordinary income that year.

First-year write-off on a $90,000 vehicle used 80% for business

2026 placement, $72,000 business-use basis

Placed in Service by December 31: What Counts

Depreciation starts when property is placed in service, which Pub 946 defines as “ready and available for a specific use.” IRS’s own example: a machine delivered last year but not installed and operational until this year is placed in service this year.

• Paying a deposit or the full price in December does not count.
• A vehicle titled, delivered, and driven for business on December 30 counts.
• Software follows the same rule: it is in service when it is ready and available for use.
• Rental property counts when it is ready and available for rent, even before the first guest.

Watch the mid-quarter convention. If more than 40% of the depreciable basis you place in service during the year lands in October through December, regular MACRS uses the mid-quarter convention for everything placed in service that year except residential and nonresidential real property, and fourth-quarter 5-year property gets only 5% in year one. Bonus depreciation does not reduce the basis used for this test, but Section 179 does. This only matters for property you are not fully expensing, but it is a reason to run the numbers before electing out of bonus on a December purchase.

Worked Example 1: Consultant LLC Buying Equipment and a Heavy SUV in December 2026

Assumptions (illustrative):

• Married filing jointly, standard deduction ($32,200 for 2026). Spouse earns $560,000 in W-2 wages.
• You run a single-member consulting LLC taxed as a sole proprietorship. 2026 net profit before these purchases: $180,000. You have no W-2 wages of your own.
• In December 2026 you buy and place in service $70,000 of computer and production equipment (5-year property) and a $90,000 SUV rated at 7,000 lbs GVWR, used 80% for business. The SUV’s business-use basis is $90,000 × 80% = $72,000.
• Both were ordered after January 19, 2025, so 100% bonus applies. No other property is placed in service in 2026.
• Consulting is a specified service business, and taxable income in every scenario stays above $553,500, the 2026 point where a specified service business’s QBI deduction is fully phased out for joint filers (Rev. Proc. 2025-32). So depreciation does not change any QBI deduction here.

First-year deduction under three approaches:

Because bonus is 100%, Section 179 adds nothing here: the $32,000 SUV cap just shifts $32,000 from the bonus column to the 179 column. The Section 179 business income limit does not bind either: $180,000 of profit plus $560,000 of spouse wages on a joint return is far above the $102,000 of Section 179 claimed. The regular MACRS route recovers the other $134,900 over 2027 to 2031. Same total, later.

The full first-year effect, including self-employment tax. Depreciation on Schedule C also cuts self-employment tax, which partly offsets the income-tax savings through a smaller deduction for half of SE tax. Here is the comparison of regular MACRS vs 100% bonus:

Both taxable incomes sit inside the 2026 joint 35% bracket ($512,450 to $768,700). Net earnings stay under the $184,500 Social Security wage base in both cases, so the full 12.4% applies. The spouse’s $560,000 of wages exceeds the $250,000 joint threshold for Additional Medicare Tax, which reduces the SE threshold to zero, so every dollar of SE income bears the 0.9%.

2026 federal savings from bonus vs regular MACRS:

• Income tax: the extra $134,900 of depreciation saves $47,215 at 35%, but the half-SE-tax deduction shrinks by $9,530, costing $3,336. Net: $47,215 - $3,336 = $43,879 (taxable income falls by about $125,370, times 35%).
• SE tax: $24,430 - $5,369 = $19,061.
• Additional Medicare Tax: $1,437 - $316 = $1,121.
• Total first-year federal savings: $64,061.

Two caveats. First, the SE savings are not free: the Social Security Administration uses Schedule SE to compute benefits, so lower SE earnings mean lower earnings on your record for that year. Second, Solo 401(k) contributions for the self-employed are based on net earnings from self-employment, so a big deduction also shrinks your contribution room. Model both before December.

Worked Example 2: Short-Term Rental With a Cost Segregation Study

Assumptions (illustrative):

• Single filer, $600,000 of W-2 wages (taxable income $583,900 after the $16,100 standard deduction, in the 35% bracket that runs from $256,225 to $640,600).
• You buy a vacation home for $1,000,000 in early 2026 (contract signed after January 19, 2025) and it is ready and available for rent in March 2026. Land is $200,000; the building is $800,000.
• A cost segregation study reclassifies 25% of the building ($200,000) into 5-, 7-, and 15-year property (furniture, appliances, certain finishes, land improvements). Studies vary; this is an assumption, not a benchmark.
• Average guest stay is 7 days or less, and you materially participate (for example, more than 100 hours and not less than any other individual, including cleaners). That makes the activity non-passive. See the short-term rental tax strategy guide for those tests.
• March 2026 to December 2026 rents: $70,000. Operating expenses (interest, cleaning, fees, insurance, property tax, utilities): $55,000.

Because IRC 168(e)(2) excludes from the “dwelling unit” definition a unit in a hotel, motel, or other establishment where more than half the units are used on a transient basis, many CPAs treat a short-stay rental as nonresidential real property and depreciate the structure over 39 years. Others use 27.5 years; confirm the treatment with your CPA. The bonus math on the reclassified assets is the same either way.

Taxable income falls from $583,900 to $386,702, still in the 35% bracket, so the whole loss is valued at 35%. The excess business loss rule does not bite: the rental’s deductions ($55,000 + $212,198 = $267,198) are less than its income plus the 2026 threshold ($70,000 + $256,000 = $326,000).

Section 179 plays no role here. It generally does not apply to property used for rental unless renting is your trade or business, and it could not create this loss anyway. Bonus depreciation does the work. Try your own numbers in the STR tax calculator.

When Accelerating the Deduction Makes Sense (and When It Does Not)

Expensing an asset does not create a deduction you would not otherwise get. It moves the deduction into 2026. Whether that is a good trade depends on rates.

It makes sense when:

• You are in the 35% or 37% bracket now and do not expect a higher one when the asset is sold.
• You were going to buy the asset anyway. A $90,000 SUV that saves $25,000 of tax still costs $65,000 before financing.
• You can actually use the loss. If bonus creates a loss above the $256,000/$512,000 excess business loss threshold, the overflow becomes a carryforward instead of a 2026 deduction.
• You plan to hold long term. Recapture under Section 1245 does not apply to transfers at death.

It may not when:

• 2026 is a low-income year. Electing out of bonus for a class pushes deductions into future years when your bracket may be higher.
• You expect to sell soon. On a sale, gain on Section 1245 property (equipment, vehicles, furniture, and the personal-property part of a cost segregation study) is ordinary income up to all depreciation taken, including Section 179 and bonus. For the real estate itself, straight-line building depreciation comes back as unrecaptured Section 1250 gain at up to 25%, while bonus taken on 15-year land improvements can produce ordinary-income recapture under Section 1250. You deducted at 35%; you may pay back at 35% or more.
• You have a non-service business that gets the QBI deduction. Depreciation lowers qualified business income, which can lower your 20% QBI deduction, so each dollar of depreciation may cut taxable income by less than a dollar.
• The business use is shaky. If a vehicle’s business use falls to 50% or less in any later year of its recovery period, you add the excess depreciation back to income that year.

Qualified production property is OBBBA’s other new 100% deduction, under new IRC Section 168(n). It covers the portion of a new nonresidential building used for manufacturing, production, or refining, with construction beginning after January 19, 2025 and before January 1, 2029, placed in service before January 1, 2031. Offices, lodging, research, and administrative space are excluded, so it does not help a short-term rental or a consulting firm. It requires an election (IRS Notice 2026-16) and carries a 10-year recapture rule.

State Conformity: California Is the Big Exception

Federal depreciation does not flow automatically to your state return. California does not conform to bonus depreciation under IRC 168(k), caps Section 179 at $25,000 with a $200,000 phase-out threshold, and does not conform to the new 168(n) election (FTB 3885A instructions). A California consultant who deducts $142,000 federally in Example 1 gets a much smaller state deduction in 2026 and recovers the rest over later years on a separate state schedule. Other states may also decouple from bonus depreciation or use a lower Section 179 limit, so check your state’s depreciation adjustment form before you count state savings.

Common Mistakes

1. Counting an order as a deduction. Paid in December, delivered in January means a 2027 deduction. Get delivery, installation, and the title before December 31.
2. Assuming every 2026 purchase gets 100%. A written binding contract signed before January 20, 2025 locks in the old phase-down: 20% for 2026 placements.
3. Thinking the $32,000 SUV cap is the ceiling. It caps Section 179 only. Bonus can cover the full business-use basis of a heavy SUV acquired after January 19, 2025.
4. Assuming a heavy pickup or van gets the same treatment as an SUV. Some pickups and vans are excepted from the $32,000 cap entirely, and vehicles at 6,000 lbs or less are capped at $20,300 in year one. Check the GVWR on the door-jamb sticker, not the curb weight.
5. Claiming 100% business use on a family vehicle. You need mileage logs. Business use of 50% or less means no Section 179, no bonus, straight-line ADS depreciation, and recapture of prior excess depreciation.
6. Forgetting SE tax works both ways. Lower Schedule C profit cuts SE tax, but also cuts Social Security credit and Solo 401(k) room.
7. Ignoring the state return. California, and other non-conforming states, add most of it back.
8. Electing out of bonus by accident. The election out applies to an entire class (for example, all 5-year property) for the year, and it cannot be revoked without IRS consent.

Before December 31

1. List every asset you plan to place in service this year, its cost, business-use percentage, contract date, and expected delivery date.
2. Confirm delivery dates in writing. If a vehicle or machine might slip into January, decide now whether that changes the purchase.
3. Check the GVWR of any vehicle you are counting on for a large write-off.
4. Have your CPA model three versions: full bonus, partial Section 179 with bonus elected out for a class, and regular MACRS. Look at your bracket this year vs next, the QBI effect, SE tax, and your state.
5. Recalculate your fourth-quarter estimate. A large deduction may let you lower the January payment. See the estimated tax payments guide.
6. Start a mileage log now for any vehicle placed in service in 2026.
7. If you are buying a rental, line up the cost segregation study and a material participation time log before closing, not after.

Frequently Asked Questions

What is the Section 179 limit for 2026?

For tax years beginning in 2026, you can expense up to $2,560,000 of Section 179 property. The limit shrinks dollar for dollar once the cost of Section 179 property you place in service during the year exceeds $4,090,000, so it disappears entirely at $6,650,000. For 2025 the figures were $2,500,000 and $4,000,000. Source: IRS Rev. Proc. 2025-32.

Is 100% bonus depreciation permanent now?

Yes, for qualified property acquired and placed in service after January 19, 2025. The One Big Beautiful Bill Act (Public Law 119-21) replaced the old phase-down with a permanent 100% rate. Property acquired under a written binding contract signed before January 20, 2025 stays on the old schedule: 40% if placed in service in 2025 and 20% if placed in service in 2026.

How much can I write off for a heavy SUV in 2026?

Section 179 expensing for an SUV rated above 6,000 pounds and up to 14,000 pounds gross vehicle weight is capped at $32,000 for 2026. That cap applies only to Section 179. If the SUV was acquired after January 19, 2025 and is used more than 50% for business, 100% bonus depreciation can cover the entire business-use share of its cost. A car at 6,000 pounds or less is limited to $20,300 of first-year depreciation with bonus, before the business-use reduction.

Can Section 179 create a business loss?

No. Section 179 is limited to your taxable income from the active conduct of a trade or business, and any excess carries forward. For individuals that income includes W-2 wages, and on a joint return both spouses’ amounts are combined. Bonus depreciation has no income limit and can create a loss, but a 2026 loss above $256,000 ($512,000 joint) of net business losses becomes a carryforward under the excess business loss rule.

Do I have to place property in service by December 31 to deduct it in 2026?

Yes. Both Section 179 and bonus depreciation are claimed for the year property is placed in service, meaning ready and available for its specific use. Ordering or paying in December is not enough. Equipment delivered on January 4, 2027 is a 2027 deduction even if you paid for it in 2026.

Does California allow bonus depreciation or the $2.56 million Section 179 limit?

No. California does not conform to federal bonus depreciation under IRC Section 168(k), and its Section 179 limit is $25,000, reduced when Section 179 property placed in service exceeds $200,000. California residents keep a separate state depreciation schedule on form FTB 3885A, so a $142,000 federal write-off can be a much smaller California deduction.

What happens to the deduction when I sell the equipment or vehicle?

Gain on Section 1245 property such as equipment, vehicles, and furniture is taxed as ordinary income up to the depreciation you claimed, including Section 179 and bonus amounts. If you expensed the $72,000 business share of an SUV and later sell it, the business portion of any gain, up to the $72,000 you deducted, comes back at ordinary rates. Recapture also applies if a listed property’s business use drops to 50% or less.

Should I use Section 179 or bonus depreciation in 2026?

For most assets acquired after January 19, 2025, 100% bonus depreciation does the job automatically and has no income limit or SUV cap. Section 179 still wins in four cases: roofs, HVAC, fire protection, and security systems on nonresidential buildings (not bonus-eligible); property acquired under a pre-January 20, 2025 contract (bonus is only 20% in 2026); when you want to expense a precise dollar amount rather than a whole asset class; and in states that allow Section 179 but not bonus.

Bottom Line

For 2026, the federal question is rarely “can I deduct it this year?” With a $2,560,000 Section 179 limit and permanent 100% bonus depreciation for property acquired after January 19, 2025, almost any business asset placed in service by December 31 can be written off in full. The real questions are timing and fit: whether the asset is truly in service by year-end, whether a pre-2025 contract limits you to 20%, whether a heavy vehicle clears 6,000 lbs GVWR and more than 50% business use, whether your state follows along, and whether deducting at 35% now beats deducting later given recapture when you sell. In the consultant example, 100% bonus on the same $160,000 of purchases saves $64,061 more in 2026 federal tax than regular MACRS, whose first-year deduction is only $7,100. Make the decision with a CPA before December, not in April.

Sources:

• Public Law 119-21 (One Big Beautiful Bill Act), H.R. 1, Congress.gov: Sections 70301 (bonus depreciation), 70306 (Section 179), 70307 (qualified production property)
• IRS Rev. Proc. 2025-32: 2026 inflation adjustments: sections 2.10, 3.02, 4.24 (Section 179), 4.26 (QBI), 4.31 (excess business loss), 4.01 (brackets), 4.14 (standard deduction)
• IRS Rev. Proc. 2024-40: 2025 inflation adjustments: 2025 SUV cap of $31,300
• IRS Notice 2026-11: Interim guidance on additional first year depreciation under Section 168(k)
• IRS Rev. Proc. 2026-15: 2026 depreciation limits for passenger automobiles
• IRS Publication 946 (2025), How To Depreciate Property
• IRS Instructions for Form 4562 (2025)
• IRS Publication 544, Sales and Other Dispositions of Assets
• IRS Topic No. 409, Capital Gains and Losses
• IRS Topic No. 554, Self-Employment Tax
• IRS Topic No. 751, Social Security and Medicare Withholding Rates
• IRS Instructions for Form 8959, Additional Medicare Tax
• IRS: Understanding the Working Families Tax Cuts, Business Tax Provisions
• IRC Section 179, IRC Section 168, IRC Section 280F, IRC Section 461, IRC Section 1245, IRC Section 199A
• Treas. Reg. 1.469-1T and Treas. Reg. 1.469-5T: 7-day average stay and material participation tests
• California FTB: 2025 Instructions for Form FTB 3885A

Related reading:

• The Short-Term Rental Tax Strategy: Offsetting W-2 Income
• STR Tax Calculator
• OBBBA Tax Changes for High Earners
• Business Travel Deductions and Credit Card Rewards
• Estimated Tax Payments for High Earners
• Best Business Credit Cards for High Earners