Section 179 Deduction 2026: Deduct Up to $2,560,000 on Business Equipment

Section 179 of the IRS tax code allows businesses to deduct the full cost of qualifying equipment and software in the year it is purchased, rather than spreading the deduction across five, seven, or fifteen years through standard depreciation. In 2026 the maximum deduction is $2,560,000, per IRS Rev. Proc. 2025-32. For a small business owner buying $30,000 of equipment, Section 179 can save thousands of dollars in taxes immediately rather than over the life of the asset.

2026 Section 179 Limits at a Glance

Section 179 vs. Standard Depreciation: The Difference in Real Money

Without Section 179, a $50,000 piece of equipment would be depreciated over its useful life (typically 5 or 7 years for most business property under MACRS). With Section 179, you deduct it all in year one.

Worked Example: $50,000 CNC Machine

Section 179 puts $9,600 more cash in your pocket in year one — money you can reinvest immediately. (With 100% bonus depreciation now permanent, you’d reach this same full first-year deduction even without electing Section 179 — see below.)

What Qualifies for Section 179

Eligible property:

What does NOT qualify:

• Land or the cost of buildings themselves
• Inventory held for sale (raw materials, merchandise)
• Assets used predominantly for personal purposes
• Air conditioning and heating units for regular home use
• Assets not placed in service during the tax year

Vehicle Limits Under Section 179

Vehicle deductions are capped based on the vehicle’s Gross Vehicle Weight Rating (GVWR):

The 50% business use rule: Any vehicle claimed under Section 179 must be used more than 50% for business purposes. If business use drops below 50% in a later year, you may be required to recapture (pay back) a portion of the deduction.

Best candidates for full vehicle deduction: Box trucks, cargo vans with no rear windows, vehicles with a manufacturer’s GVWR over 6,000 lbs used exclusively for business.

Section 179 + Bonus Depreciation: How They Stack

The OBBBA (signed July 2025) made 100% bonus depreciation permanent for qualifying property acquired after January 19, 2025 — reversing the prior phase-down schedule that had been reducing the bonus rate toward zero by 2027. You can combine Section 179 and bonus depreciation on the same purchase, though with bonus depreciation at 100%, the practical benefit of also electing Section 179 mostly comes down to the income limitation (see below) and state tax conformity, since many states don’t fully conform to federal bonus depreciation rules.

Example: $100,000 Equipment Purchase

If Section 179 is limited by your income cap, 100% bonus depreciation now picks up the entire remainder — unlike the 2024-2025 phase-down years when only a partial bonus rate applied:

The Income Limitation

Section 179 cannot exceed your taxable income from active business activities. You cannot use it to create a loss. Unused deductions carry forward indefinitely to future years. Bonus depreciation has no such income cap — this is now the main practical reason to rely on bonus depreciation rather than (or in addition to) Section 179 when a business wants to fully expense an asset even in a loss year.

Qualified Improvement Property (QIP)

Qualified Improvement Property — improvements to the interior of non-residential commercial buildings — is 15-year property and qualifies for both Section 179 and 100% bonus depreciation (now permanent under OBBBA). This means a restaurant that renovates its kitchen, an office that installs new flooring, or a retail store that upgrades its interior can deduct those costs in year one rather than over 39 years.

How to Claim Section 179

1. Complete IRS Form 4562 (Depreciation and Amortization). Part I covers Section 179 elections.
2. Make the election on your return by the due date (including extensions). You can generally make or revoke a Section 179 election on an amended return.
3. List each qualifying asset with its description, date placed in service, cost, and the amount elected under Section 179.
4. Claim on your business return: Schedule C (sole proprietors), Form 1065 (partnerships), Form 1120-S (S corporations), or Form 1120 (C corporations).

Section 179 for Software and Tech

Off-the-shelf software purchased (not licensed or subscribed to) qualifies for Section 179. This includes:

• Purchased desktop software (accounting, design, CAD)
• Point-of-sale systems
• Enterprise software with a one-time purchase license

Does NOT qualify: SaaS subscriptions, cloud-based software you access but do not own.

Related Articles

• Business Tax Deductions 2026: The Complete List
• Bonus Depreciation 2026: 100% Permanent Under OBBBA
• Schedule C Deductions: What Self-Employed People Can Write Off
• Self-Employment Tax Guide 2026
• LLC vs S-Corp vs C-Corp: Tax Comparison
• QBI Deduction: The 20% Pass-Through Deduction Explained

Written by WealthVieu

WealthVieu researches and writes data-driven personal finance guides using primary sources including the IRS, Bureau of Labor Statistics, Federal Reserve, and Census Bureau.