Bonus Depreciation vs. Section 179: Which Tax Deduction Saves You More?

Quick Takeaways

• Section 179 limit: $1.160 million in 2026 — straight dollar cap on what you can deduct
• Bonus depreciation: Unlimited — deduct 100% of qualifying property cost
• Section 179 has income limits — deduction phases out if total equipment purchases exceed $4.6 million
• Bonus depreciation has no income limit — deduct regardless of business income
• Best strategy: Stack both — claim Section 179 up to the $1.160M cap, then claim bonus depreciation on remaining equipment and real property improvements
• The answer: Use bonus depreciation for large purchases ($1M+); Section 179 for smaller equipment purchases under the cap

What Is Section 179?

Section 179 is a tax deduction that allows you to immediately expense the cost of certain business property in the year purchased, rather than depreciating it over time.

2026 Limits

Limit	Amount
Annual Deduction Cap	$1,160,000
Phase-out Threshold	$4,600,000
Property Types	Tangible personal property only

How phase-out works: For every $1 of equipment purchased over $4.6M, your $1.160M Section 179 cap is reduced by $1.

What Is Bonus Depreciation?

Bonus depreciation is a tax deduction allowing you to write off 100% of the cost of qualifying property in the year it's placed in service.

As of January 2025, the One Big Beautiful Bill Act permanently restored 100% bonus depreciation for:

• Tangible personal property (equipment, vehicles, machinery, fixtures)
• Qualified Improvement Property (QIP) (interior improvements to commercial buildings)
• Qualified real property improvements (HVAC, roofing, electrical, plumbing)

Head-to-Head Comparison

Factor	Section 179	Bonus Depreciation
2026 Deduction Cap	$1,160,000	None (100% of cost)
Phase-out Threshold	$4.6 million	None
Asset Types	Personal property only	Personal property + QIP + improvements
New vs. Used	Both allowed	Generally new property
Useful For	Equipment under $1.16M	Large purchases; real property

Real-World Scenarios: When to Use Each

Scenario 1: $500k Equipment Purchase

Using Section 179: Claim full $500k deduction. Tax savings: $125,000

Using Bonus Depreciation: Claim full $500k deduction. Tax savings: $125,000

Winner: Tie. Both give the same result. Section 179 is simpler.

Scenario 2: $2M Equipment + Building Improvements

Approach	Deduction	Tax Savings (at 25%)
Section 179 only	$400k	$100,000
Bonus depreciation only	$700k	$175,000
Both stacked (OPTIMAL)	$700k	$175,000

Winner: Bonus depreciation. It captures $300k of interior improvements that Section 179 cannot.

Scenario 3: $5M Equipment Purchase

Using Section 179:

• Phase-out: $5M – $4.6M = $400k over threshold
• Available deduction: $1.160M – $400k = $760k
• Tax savings: $190,000

Using Bonus Depreciation:

• Claim 100% on full $5M
• Year 1 deduction: $5,000,000
• Tax savings: $1,250,000

Winner: Bonus depreciation by a landslide. $1.06M more in Year 1 tax savings.

When to Use Section 179

Use Section 179 when:

• Total purchases are under $1.16M
• You want simplicity (fewer audit risks)
• You have limited taxable income (allows carryforward)
• You're buying used property (bonus depreciation generally requires new)

When to Use Bonus Depreciation

Use bonus depreciation when:

• Purchases exceed $1.16M (no cap on bonus depreciation)
• You're purchasing real property improvements (Section 179 doesn't cover these)
• You want maximum Year 1 deduction
• You have high taxable income

The Optimal Strategy: Stack Both

Step 1: Categorize Purchases

Equipment/Personal Property: HVAC, electrical, machinery, vehicles, furniture

Real Property Improvements: Interior improvements, roofing, flooring, walls (QIP)

Step 2: Claim Section 179 on Equipment (Up to Cap)

Claim up to $1.160M of Section 179 on tangible personal property.

Step 3: Claim Bonus Depreciation on Remaining Equipment + All Real Property Improvements

Anything exceeding the Section 179 cap, plus all real property improvements, claim via bonus depreciation.

Example: $2M Building Purchase

Asset	Cost	Section 179	Bonus Depreciation	Total Deduction
Equipment	$400k	$400k	$0	$400k
Interior Improvements	$300k	Not eligible	$300k	$300k
Building Structure	$1.3M	Not eligible	Not eligible	$0
Total	$2M	$400k	$300k	$700k

Year 1 Tax Savings (at 25%): $175,000

The Bottom Line

For small equipment purchases (<$1.16M): Use Section 179. It's simpler and audit-safe.

For large purchases (>$1.16M) or real property improvements: Use bonus depreciation. It captures more assets and has no cap.

For maximum tax efficiency: Stack both. Claim Section 179 up to the cap, then claim bonus depreciation on remaining equipment and all real property improvements.