1. What Bonus Depreciation Covers

Bonus depreciation allows immediate expensing of qualifying property with a recovery period of 20 years or less. That includes most equipment, machinery, and the short-life components identified in a cost segregation study.
The rate is 100% for property acquired on or after January 20, 2025 and placed in service in 2026. Property acquired before January 20, 2025, including property under a binding contract signed before that date, remains on the prior phase-down schedule at 20% for 2026. A taxpayer can also elect out under Section 168(k)(7), which is occasionally the right call for planning reasons.
There is no annual dollar cap on bonus depreciation, which is the key structural difference from Section 179.

2. What Section 179 Covers

Section 179 allows a business to expense the cost of qualifying equipment and certain property up to $2,560,000 for 2026.
That maximum deduction is reduced dollar for dollar once total qualifying Section 179 property placed in service during the year exceeds $4,090,000, and it is fully phased out at $6,650,000 of qualifying property cost. Note that the phase-out is measured against the total cost of property placed in service, not against taxable income and not against the amount actually elected.
A separate limitation then applies: the Section 179 deduction cannot exceed the taxable income of the business for the year. Unlike bonus depreciation, Section 179 cannot create or increase a loss.

3. How the Two Work Together

Many business owners apply Section 179 first, up to its annual limit, then apply bonus depreciation to remaining qualifying costs. Because bonus depreciation has no income limitation, it can be used to create or increase a business loss, while Section 179 cannot.

4. Worked Example

A business purchases $200,000 in qualifying equipment during 2026 and places all of it in service the same year.
Total qualifying property is well below the $4,090,000 phase-out threshold, so the full $2,560,000 Section 179 limit is available and easily covers the purchase. Assuming the business has at least $200,000 of taxable income, the entire $200,000 can be expensed under Section 179 in year one.
If taxable income were lower, Section 179 would be capped at that income figure, and bonus depreciation could pick up the remainder without any income limitation. At a 35% marginal rate, deducting the full $200,000 in year one is worth roughly $70,000 in current-year tax savings, compared to a few thousand dollars a year spread across a five to seven year schedule.

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5. Bonus Depreciation vs. Section 179: A Comparison

6. Vehicle-Specific Rules

Vehicles are subject to special limitations depending on weight class — heavier vehicles (typically over 6,000 lbs gross vehicle weight) qualify for much larger first-year deductions than passenger cars, which are subject to IRS luxury auto depreciation caps. This distinction is a common area where business owners either overpay for the wrong vehicle type or miss a deduction they were entitled to.

7. Checklist

• Identify all qualifying equipment, vehicle, and property purchases for the year
• Confirm vehicle weight class if a vehicle purchase is involved
• Calculate Section 179 eligibility against the annual limit and phase-out threshold
• Apply bonus depreciation to remaining qualifying costs
• Confirm the purchase was placed in service (not just purchased) by year-end
• Check state conformity, since not every state follows federal bonus depreciation rules

8. Most Common Mistakes

Buying equipment but not placing it in service by year-end. The deduction is tied to when the asset is placed in service, not just purchased.

Buying a passenger vehicle expecting the same deduction as a heavy vehicle. Luxury auto depreciation caps significantly limit passenger car deductions.

Assuming state tax follows federal treatment automatically. Several states decouple from federal bonus depreciation rules.

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9. FAQ

Can I use both bonus depreciation and Section 179 in the same year? Yes — most business owners apply Section 179 first, then bonus depreciation to the remainder.

Does Illinois conform to federal bonus depreciation? This should be confirmed for the current tax year, as state conformity can change with legislation — we verify this for clients each year as part of planning.

What vehicles qualify for the heavy vehicle deduction? Generally trucks, SUVs, and vans with a gross vehicle weight rating over 6,000 lbs — this should be confirmed against the specific vehicle's manufacturer rating.

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