Bonus Depreciation and Section 179: What’s the Difference For 2026?

Bonus depreciation and the section 179 tax deduction can be easily confused, partly because people sometimes use both in the same calendar year. This post explains some of the key differences.

 

 

Bonus depreciation is a tax incentive that allows businesses to immediately deduct all or a portion of the adjusted basis of qualifying property rather than depreciating that cost over the asset’s recovery period. State tax treatment may differ. Bonus depreciation is an additional first-year deduction taken for the tax year in which qualified property is placed in service.

 

Read on to learn more about bonus depreciation and how it compares to the section 179 tax deduction. To jump directly to the latest information about section 179, read our post for the 2026 tax year.

 

Why Use Bonus Depreciation?

The purpose of bonus depreciation is to encourage companies to make capital purchases to grow their businesses by lowering their taxable income and, thus, their tax liability. It’s important to remember that to be depreciable, property must have a “determinable useful life,” meaning it must wear out and lose value over time. It must also last more than one year, so if it is put into use and disposed of in the same year, it is not considered depreciable. Ask your tax professional for more specifics.

 

 

Bonus Depreciation In 2026

For qualifying property acquired and placed in service after January 19, 2025, the bonus depreciation rate is 100%. The One Big Beautiful Bill Act (OBBBA), signed into law July 4, 2025, made the 100% additional first-year depreciation deduction permanent for qualifying property acquired after January 19, 2025. Click here for related IRS guidance.

 

Special transition rules may apply to property acquired before January 20, 2025. Qualifying property acquired before that date and placed in service in 2026 generally qualifies for a 20% bonus depreciation deduction rather than 100%.

 

Useful Side Note: A Quick History Of Bonus Depreciation

Traditionally, when a business purchases equipment, the cost has been spread out over the useful life of that asset. This is known as depreciation. It can work in a business’s favor because if depreciation is not applied, it could negatively affect a business’s financial statement by showing smaller profits or larger losses for the year it purchased the equipment.

 

When the Tax Cuts and Jobs Act was passed in 2017, it made significant changes to the way bonus depreciation affects businesses. The most major change was that it doubled the bonus depreciation deduction for qualified equipment from 50% to 100%. The Act also extended the bonus to cover used equipment as long as the taxpayer did not use the asset prior to purchasing or financing it.

 

What’s The Difference Between Bonus Depreciation & Section 179?

In another blog post, we discussed the basics of the tax deduction in section 179 of the Internal Revenue Code (IRC). In short, for the 2026 tax year, businesses can deduct up to $2,560,000 of qualified equipment right away. The deduction begins to phase out dollar for dollar when the total cost of section 179 property placed in service during the tax year exceeds $4,090,000. For this reason, bonus depreciation—covered in section 168(k) of the IRC—is useful to businesses spending more than the section 179 spending cap on new capital equipment.

 

Bonus depreciation is often confused with section 179 because they serve similar purposes. Section 179 is limited to a taxpayer’s business income. Passive income, such as assets used in rental property, is not eligible for the deduction. Both new and used equipment qualify for the section 179 deduction (as long as the used equipment is “new to you”), while bonus depreciation began to apply to used equipment and new assets after the 2017 tax law.

 

 

How Section 179 & Bonus Depreciation Are Used Together

When both tax incentives apply, the section 179 deduction is generally calculated first. Bonus depreciation is then applied to the property's remaining depreciable basis, followed by regular depreciation as applicable. For tax years beginning in 2026, the maximum section 179 deduction is $2,560,000, and the deduction begins to phase out when the cost of section 179 property placed in service exceeds $4,090,000. A business does not have to exceed that threshold before bonus depreciation can apply.

 

Unlike section 179, which is subject to a business-income limitation, bonus depreciation can create or increase a tax loss. If a business is unprofitable, it has no profit to tax, so under certain circumstances it may be able to carry the net operating loss forward to offset income in the future.

 

Click here to read our post about the section 179 deduction.

 

DISCLAIMER: Currency does not provide tax, legal or accounting advice. The foregoing has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. Limits and information mentioned is subject to change.

 

This is an updated version of an earlier post.
Original post: October 17, 2025
Updated: October 7, 2026