Section 179 vs Bonus Depreciation: 2026 Equipment Expensing & Phase-Down Rules
Immediate dollar-for-dollar capital deduction cap versus MACRS phase-down percentages
Section 179 allows profitable businesses to deduct 100% of eligible equipment acquisition costs up to $1.22 million (2026 limit) capped at net taxable business income. Bonus Depreciation allows businesses to deduct a percentage of eligible tangible property (phased down to 40% in 2026 under TCJA rules) without dollar expenditure caps, and can create a Net Operating Loss (NOL).
Technical Tradeoff & Benchmark Matrix
| Tax Code Parameter | Section 179 Expensing | Bonus Depreciation (2026) |
|---|---|---|
| Deduction Limit (2026) | $1,220,000 maximum annual deduction | No dollar ceiling (deducts 40% of eligible basis in 2026) |
| Equipment Spend Phase-Out | Begins at $3,050,000; fully phased out at $4,270,000 | No spending threshold phase-out |
| Taxable Income Limit | Cannot exceed net active business income (no NOL creation) | Can exceed business income and generate Net Operating Losses |
| Eligible Property Types | Tangible personal property, software, HVAC, roofs, fire systems | MACRS property with recovery period <= 20 years, qualified improvements |
| State Tax Conformity | Broadly adopted by states (though many cap deduction at $25k-$100k) | Frequently decoupled by high-tax states (CA, NY, NJ) |
| Carryforward Rules | Disallowed deduction carryforward indefinitely | Unused loss carried forward as standard NOL |
Frequently Asked Questions & Technical Analysis
Q: Can a business claim both Section 179 and Bonus Depreciation on the same asset?
Yes. A business first applies Section 179 up to the allowable cap. Any remaining depreciable basis is then eligible for 2026 Bonus Depreciation (40%), with the remainder depreciated over normal MACRS schedules.
Q: What is the Bonus Depreciation phase-down schedule under the TCJA?
100% (through 2022), 80% (2023), 60% (2024), 40% (2025-2026), 20% (2026 partial), and 0% starting 2027 unless extended by Congressional legislation.