Depreciation normally spreads the cost of a business asset over its useful life — five years for most equipment, seven for certain others. Section 179 of the Internal Revenue Code flips that default: it lets you elect to deduct the full purchase price of qualifying equipment in the tax year the asset is placed in service. For many small-business owners, this one election can meaningfully reduce taxable income in the year of purchase.
Indicative figures only — consult a tax professional for guidance specific to your situation. The numbers below reflect general 2026 rules and may change.
What qualifies under Section 179?
Tangible personal property used more than 50% for business qualifies. This covers a wide range of equipment: machinery and production tools, construction equipment, commercial vehicles (subject to weight limits for SUVs), restaurant and food-service equipment, medical and dental equipment, computers and off-the-shelf software, and farm equipment, among others. Improvements to non-residential real property — HVAC, roofing, security systems — also qualify under the qualified improvement property rules.
What does not qualify: real property (land and buildings themselves), assets used less than 50% for business, property acquired from a related party, and property inherited or received as a gift.
Deduction limits and the income cap
The deduction limit adjusts for inflation each year. In recent years it has been in the $1.05–1.16 million range. There is a phase-out: once total equipment purchases in a given year exceed a spending cap (generally around $2.5–2.9 million), the deduction is reduced dollar-for-dollar. This means Section 179 is primarily designed for small and mid-sized businesses, not large capital spenders.
Crucially, the deduction cannot exceed your taxable income from active business operations. You cannot use Section 179 to generate a net operating loss. Any deduction that is limited by the income cap can be carried forward to future years.
Bonus depreciation: how it interacts
Bonus depreciation allows an additional first-year write-off on qualifying new (and, since 2017, used) property after the Section 179 deduction is applied. The bonus depreciation percentage has been phasing down from 100% and the current-year rate may differ — check IRS guidance or your tax advisor for the figure that applies to your tax year. Unlike Section 179, bonus depreciation is not capped by income, so it can create or deepen a net operating loss that is then carried to other years.
Does financing the equipment still let you take the deduction?
Yes — and this is one of the most important planning points. If you finance equipment, you can generally still take the full Section 179 deduction in the year the equipment is placed in service, even though you haven't paid the full purchase price in cash. This creates a scenario where the deduction (and the tax savings) arrive up front, while the loan payments are spread over the term. If your marginal tax rate is meaningful, the tax savings in year one can be substantial relative to the down payment required.
How to claim it
- File IRS Form 4562 (Depreciation and Amortization) with your business return.
- List each asset separately with its cost and the elected deduction amount.
- Keep purchase records, invoices, and evidence of the in-service date in your files.
- If your state has its own tax code, check whether your state conforms to the federal Section 179 limits — several states impose lower caps.
Planning considerations
Section 179 is an election, not automatic. You choose whether to take it, and in what amount, up to the limit. If you expect higher income in a future year, it may make sense to carry forward or save the deduction for a year when it provides more value. Work with your CPA or tax advisor to model the year-by-year impact before deciding. The interaction with bonus depreciation, alternative minimum tax, and state taxes can make the optimal strategy non-obvious.