Section 179 and bonus depreciation both allow businesses to expense used equipment in the year it is placed in service, but the optimal choice depends on taxable income, timing, and entity structure. For 2026, Section 179 permits a maximum deduction of $2,560,000, with a phase-out beginning at $4,090,000 in total qualifying property placed in service. Meanwhile, bonus depreciation is permanently restored to 100% under the One Big Beautiful Bill Act (OBBBA), as confirmed by IRS Notice 2026-11, issued January 14, 2026.
Section 179 lets a business expense qualifying equipment in the year it’s placed in service. In a Section 179 deduction vs bonus depreciation comparison, Section 179 often wins when you want granular control over how much accelerated depreciation you take this year versus later.
For many buyers, the biggest question is whether Section 179 used equipment qualifies the same way new equipment does. In general, used equipment can qualify for Section 179 if it’s eligible property, and used more than 50% for business.
Section 179 is especially useful when taxable income limits matter, because Section 179 expensing is generally limited by business income. If your goal is optimizing capital expense tax benefits without creating an unusable loss, this income limitation can make Section 179 more predictable than the bonus depreciation rules. Any amount disallowed due to the income limitation carries forward indefinitely to future years, so the deduction is deferred rather than lost.
The Section 179 expense limit and phase-out threshold ($2,560,000 and $4,090,000, respectively, for 2026) are now permanent parts of the tax code that are adjusted annually for inflation. The full phase-out is reached at $6,650,000 in total equipment purchases, meaning mid-size businesses with significant capital investment programs need to watch their annual spending totals carefully.
Entity structure can also affect real-world outcomes in a comparison decision between 179 deductions and bonus depreciation. For pass-through entities, the deduction’s benefit depends on owner-level income, basis, and at-risk considerations, so planning is often more than a simple “which deduction is bigger” question.
Bonus depreciation allows a business to deduct a percentage of qualifying property in the year it is placed in service. IRS Notice 2026-11, issued January 14, 2026, confirms that the One Big Beautiful Bill Act (OBBBA) permanently restored 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025, with no phase-down or expiration date. Full expensing applies to most tangible business assets with a Modified Accelerated Cost Recovery System (MACRS) life of 20 years or less, including equipment, computers, vehicles, furniture, and commercial improvements such as roofs, lighting, and HVAC systems.
The Tax Cuts and Jobs Act (TCJA) expanded bonus depreciation to cover used equipment, not just new property, and that treatment continues under the OBBBA. To qualify, the asset must be acquired and placed in service after January 19, 2025, and the property must be the taxpayer’s first use of that asset. Property acquired under a written binding contract before January 20, 2025, remains subject to the old phase-down schedule rather than the restored 100% rate.
A transitional election worth knowing about: Under the OBBBA, taxpayers may elect to deduct 40% (or 60% for property with longer production periods or certain aircraft) instead of the full 100% additional first-year depreciation deduction, for qualified property placed in service during the first tax year ending after January 19, 2025. This election works well for smoothing income or preserving losses and is filed using Form 4562. This is particularly relevant for fiscal-year taxpayers whose first eligible year straddles the January 19, 2025, effective date. Taxpayers may also elect out of bonus depreciation entirely for any class of property, which can be especially valuable for businesses operating in states that decouple from federal bonus depreciation and would otherwise face a state-level addback on the full deduction.
Notice 2026-11 largely adopts the previous bonus depreciation regime. It indicates that Treasury and the IRS intend to issue proposed regulations that track the existing framework for eligibility, timing, and elections, providing a familiar structure for practitioners.
Bonus depreciation can also interact with state tax rules differently from Section 179. Some states decouple from federal bonus depreciation provisions entirely, creating addbacks that reduce the true value of your deduction. A decision that appears optimal at the federal level may be less favorable after state-level adjustments, which is why state conformity is a key factor to model before you sign the purchase agreement.
The right choice starts with one question: Does your business have enough taxable income this year to maximize the deduction?
Consider a construction company acquiring $2.4 million in used heavy equipment. If the business is profitable and the owner wants to control how much taxable income to offset this year, Section 179 lets the CFO elect a specific deduction amount by asset, leaving the rest to carry forward or depreciate normally. Bonus depreciation, by contrast, is generally an all-or-nothing election by class of property, not item-by-item, which means it does not offer the same asset-level precision.
Flip the scenario: the same company is having a down year, expects significantly higher income over the next two to three years, and wants to front-load the write-off now to preserve cash through a lean period. Bonus depreciation becomes the stronger tool, even if it pushes the business into a net operating loss, because that loss can be carried forward to offset future income. The transitional election to take 40% or 60% instead of the full 100% can also be valuable here for taxpayers who want to front-load but not completely obliterate current-year taxable income.
The financing structure doesn’t change this calculus directly, but it’s worth flagging for advisors: a deduction reduces taxable income, not loan obligations. Larger deductions from bonus depreciation can diminish the ability to use other deductions, losses, or credits and create unexpected downstream impacts that should be modeled carefully and that can be addressed through various elections to manage taxable income.
If a large bonus depreciation deduction creates a loss the business cannot effectively use, given its entity structure, owner basis, or at-risk limitations, the numerically larger deduction is not actually the better result. That’s the kind of gap that shows up after the purchase agreement is signed, not before.
Stacking both deductions: Section 179 must be applied before bonus depreciation. The IRS requires Section 179 to be elected first, followed by bonus depreciation on any remaining eligible basis, with standard MACRS depreciation applying to whatever basis is not covered by either method. Many businesses benefit from using both strategically in the same year rather than choosing one exclusively.
For Section 179 used equipment, key qualifiers typically include that the asset is tangible personal property used more than 50% for business and placed in service during the year. Vehicles and certain listed property can trigger extra substantiation and limits, so documentation is part of preserving the write-off.
For bonus depreciation rules on used equipment, the concept is often “new to you” rather than “brand new,” meaning the property generally can’t have been used by you before. If you buy from a related party or structure the transaction incorrectly, you can accidentally disqualify the deduction, which is why transaction planning is part of tax planning.
“Placed in service” is a common pitfall for both accelerated depreciation methods, because it requires the equipment to be ready and available for use, not just paid for. If the equipment arrives late, needs installation, or isn’t operational until next year, your depreciation plan can fail on timing alone.
Entity type can change which deduction is most valuable in a Section 179 vs. bonus depreciation analysis, because the benefit depends on who pays the tax. S corporations, partnerships, LLCs, and sole proprietorships can experience different limitations and allocation effects, especially when multiple owners are involved.
Purchase year, placed-in-service date, and projected income across tax years can outweigh the choice of depreciation method entirely. Getting the timing wrong can cost you the deduction or land it in the wrong year.
If you’re considering entity restructuring or forming a new entity before a major equipment purchase, planning should happen early. Allegis Law’s business formation services can help you align entity structure with your depreciation strategy before you buy.
For more complex ownership arrangements, the tax result can shift materially depending on whether income is taxed at the entity or owner level, an issue explored in depth in entity vs. member-level taxation.
For the full eligibility rules governing both methods, IRS Publication 946 is the baseline reference, though it has not yet been updated to fully reflect OBBBA changes. Practitioners should cross-reference Notice 2026-11 for all post-OBBBA bonus depreciation rules.
For CFOs and advisors working through a major equipment purchase, the federal analysis is only part of the picture. Allegis Law combines tax planning and business legal counsel so that structure, timing, and depreciation strategy are resolved together from the start rather than reconciled after the fact.
Talk with Allegis Law at (801) 938-4035 to schedule a consultation.
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