For tax years beginning in 2026, Section 179 lets a business deduct up to $2,560,000 of qualifying equipment and software in the year it's placed in service, instead of depreciating it over several years. The limit starts to shrink once you place more than $4,090,000 of property in service during the year. Those figures come from IRS Revenue Procedure 2025-32.
Most small businesses never get near those limits. The rules that matter more are the business income limit, the 50% business-use test, the vehicle caps, and, if you're in New Jersey, a state limit of just $25,000. This guide covers each one and how Section 179 fits with 100% bonus depreciation.
Key Takeaways
- The 2026 Section 179 limit is $2,560,000. It drops dollar for dollar once qualifying purchases pass $4,090,000. The cap for heavy SUVs is $32,000.
- The deduction can't exceed your taxable business income. Any amount above that carries forward to later years.
- 100% bonus depreciation applies to qualifying property acquired after January 19, 2025, and has no business income limit.
- The asset must be placed in service, meaning ready and available for use, by the end of your tax year. Ordering it isn't enough.
- New Jersey doesn't follow the federal rules. For gross income tax, the state Section 179 deduction is capped at $25,000, so you'll usually need a state depreciation adjustment.
What is the Section 179 deduction?
Section 179 of the Internal Revenue Code lets you elect to treat the cost of qualifying business property as an expense in the year you place it in service. Without the election, you'd recover that cost through depreciation over the asset's recovery period, often 5 or 7 years for equipment.
The election is optional, and you choose it asset by asset. You claim it on Form 4562, Part I, filed with your return.
What are the Section 179 limits for 2026?
Rev. Proc. 2025-32 sets these inflation-adjusted amounts for tax years beginning in 2026:
| 2026 limit | Amount |
|---|---|
| Maximum Section 179 deduction | $2,560,000 |
| Phase-out threshold (total qualifying property placed in service) | $4,090,000 |
| Deduction fully phased out at | $6,650,000 |
| Section 179 cap for heavy SUVs (over 6,000 lbs, up to 14,000 lbs) | $32,000 |
The phase-out works dollar for dollar. If you place $4,200,000 of qualifying property in service, you go $110,000 over the threshold, so your maximum drops from $2,560,000 to $2,450,000. The $6,650,000 point is simply where the reduction reaches zero.
Some articles still quote the 2025 SUV cap of $31,300. The 2026 figure is $32,000.
The business income limit
Your Section 179 deduction can't be more than your taxable income from the active conduct of a trade or business. The Form 4562 instructions explain the calculation. If the limit stops you from using the full deduction, the unused amount carries forward to future years under IRC section 179(b)(3).
Example: a sole proprietor has $90,000 of business income before the deduction and buys $120,000 of equipment. They can elect Section 179 on all $120,000, but can deduct only $90,000 this year. The other $30,000 carries forward. Bonus depreciation, covered below, doesn't have this limit.
What property qualifies for Section 179?
IRS Publication 946 explains which property qualifies. In general, the property must be acquired by purchase for use in your business.
Qualifies:
- Tangible personal property, such as machinery, equipment, computers, office furniture and many vehicles
- Off-the-shelf computer software
- Qualified improvement property: certain interior improvements to nonresidential buildings
- These improvements to nonresidential real property placed in service after the building itself: roofs, HVAC, fire protection and alarm systems, and security systems
Doesn't qualify:
- Land and land improvements, such as paved parking areas, fences and swimming pools
- Buildings and their structural components, apart from the improvements listed above
- Property bought from a related person, or received as a gift or inheritance
- Property used mainly outside the United States
The placed-in-service rule
You can take the deduction only for the year the property is placed in service. Pub 946 says property is placed in service "when it is ready and available for a specific use." A machine you ordered in December but that arrives in January belongs to next year. If you're buying before year-end, plan for delivery and setup, not just payment.
The 50% business-use test
You can elect Section 179 only if you use the property more than 50% for business. If business use later falls to 50% or less, you may have to recapture part of the deduction. That means reporting as income the Section 179 deduction you took minus the depreciation you would otherwise have been allowed. Keep a usage log for vehicles and other assets with personal use.
Section 179 vs bonus depreciation: which should you use?
Both let you write off most or all of an asset's cost in year one, but they work differently.
Bonus depreciation (the "special depreciation allowance") is 100% for qualified property acquired after January 19, 2025, under the One Big Beautiful Bill Act. The Form 4562 instructions confirm it, and the law removed the old phase-down schedule from IRC section 168(k). It applies to new property and to certain used property, as long as you hadn't used it before you bought it.
| Section 179 | Bonus depreciation | |
|---|---|---|
| How it applies | You elect it, asset by asset | Automatic for each class of property, unless you elect out |
| Dollar limit | $2,560,000 (2026), with phase-out | No dollar limit |
| Business income limit | Yes; the excess carries forward | No |
| Can create a loss | No | Yes |
| Form 4562 | Part I | Part II |
Pub 946 describes bonus depreciation as "an additional deduction you can take after any section 179 deduction and before you figure regular depreciation under MACRS." So the order is Section 179 first, then bonus on the remaining basis, then regular depreciation on whatever is left.
Why you might choose one over the other
- Bonus is the default. With 100% bonus available, many businesses expense equipment without making a Section 179 election.
- Section 179 lets you pick assets. You can expense one asset and depreciate another. To skip bonus, you must elect out for an entire class of property, such as all 5-year property.
- Section 179 can cover certain building improvements, such as roofs, HVAC and security systems on nonresidential buildings (Pub 946).
- Spreading deductions can make sense. If you expect to be in a higher bracket later, a full write-off now isn't always best. Electing out of bonus requires a statement with a timely filed return, and you can't revoke it without IRS consent.
- The state may treat them differently. In New Jersey, the difference matters a lot (see below).
How do the rules work for vehicles?
Vehicles have their own limits, and the weight rating decides which ones apply.
- Passenger cars and light trucks: Pub 946 treats a vehicle rated at 6,000 pounds or less as a passenger automobile. For vehicles placed in service in 2026, Rev. Proc. 2026-15 caps first-year depreciation at $20,300 with bonus depreciation, or $12,300 without it. The caps for later years are $19,800, then $11,900, then $7,160 each year after.
- Heavy SUVs: for SUVs rated over 6,000 pounds and up to 14,000 pounds gross vehicle weight, the Section 179 deduction is capped at $32,000 for 2026.
- Business use over 50%: vehicles are listed property. If business use isn't more than 50%, you can't use Section 179 or bonus depreciation on them.
A heavy SUV isn't an automatic write-off. If the vehicle is also used for commuting or personal trips, only the business share counts, and you need records to prove it.
Is there a simpler option for small purchases?
Yes. The de minimis safe harbor lets you expense low-cost items without tracking them as assets at all. Under the IRS tangible property regulations, the limit is $2,500 per invoice or item if you don't have an applicable financial statement (most small businesses don't), or $5,000 if you do.
You elect it each year by attaching a statement titled "Section 1.263(a)-1(f) de minimis safe harbor election" to a timely filed original return. It's useful for laptops, phones, tools and small furniture, and it keeps these items off your depreciation schedule.
Does New Jersey follow Section 179 and bonus depreciation?
No. New Jersey decoupled from both federal rules years ago, so New Jersey businesses often have a state depreciation adjustment even when the federal return is simple.
The New Jersey Division of Taxation says the state disallowed federal bonus depreciation for the Corporation Business Tax starting in 2002, and extended the change to the Gross Income Tax for tax years beginning on or after January 1, 2004. The same law decoupled both taxes from the federal Section 179 calculation.
For Gross Income Tax, which covers sole proprietors, partners and S corp shareholders, the state's Worksheet GIT-DEP (revised 10/25) says:
- The maximum New Jersey Section 179 deduction is $25,000. Each partnership and S corporation is also limited to $25,000.
- The federal phase-out still applies, calculated using the $25,000 New Jersey maximum.
- There are no business income limitations, and unused New Jersey deductions can't be carried forward.
- If you took federal Section 179 or bonus depreciation, you calculate a separate New Jersey depreciation basis and adjustment on GIT-DEP until the asset is fully depreciated or sold.
Example: a New Jersey S corp expenses a $150,000 machine federally. For New Jersey, it can deduct only $25,000 under Section 179 in year one. The other $125,000 is depreciated over the machine's recovery period for state purposes, so New Jersey taxable income is higher in year one and lower in later years.
Corporations paying the Corporation Business Tax follow their own decoupling rules. Ask your tax preparer to handle the state adjustment.
How do you claim Section 179?
- Confirm the asset qualifies and was placed in service during the tax year.
- Record the asset in your books with its cost, date placed in service and business-use percentage. Your fixed-asset list should match your invoices.
- Complete Form 4562, Part I, and attach it to your return. Bonus depreciation goes in Part II.
- Make the election on time. You can make it on the original return for the year the property was placed in service, or on an amended return filed within the time allowed by law.
- Keep records of the invoice, delivery or installation date, and usage logs for as long as you own the asset, plus the record-keeping period after you sell it.
If you're buying equipment before December 31, our year-end tax planning checklist for 2026 covers the other moves to review before year-end.
How Asquaire can help
Section 179 decisions only work if your fixed-asset records are right. Our bookkeeping services start from $249 a month and include tracking assets with their cost and placed-in-service dates. Our tax preparation service starts from $650 for a business return (1065 or 1120-S), including Form 4562 and the New Jersey depreciation adjustment. Our founders are ACCA-qualified with Big Four experience. We are not a CPA firm.
If you're comparing professionals, our guide to how much a CPA costs for a small business explains the options.
Frequently asked questions
What is the Section 179 limit for 2026?
$2,560,000 for tax years beginning in 2026. It's reduced dollar for dollar once qualifying property placed in service during the year exceeds $4,090,000 (Rev. Proc. 2025-32).
Is bonus depreciation 100% in 2026?
Yes, for qualified property acquired after January 19, 2025. It's taken automatically unless you elect out for a class of property.
Can I take Section 179 on a vehicle?
Yes, if business use is more than 50%. Heavy SUVs (over 6,000 pounds and up to 14,000 pounds) are capped at $32,000 under Section 179 for 2026. Lighter passenger vehicles follow the first-year cap of $20,300 with bonus depreciation, or $12,300 without it.
Can Section 179 create a loss?
No. Section 179 is limited to your taxable business income, and the excess carries forward. Bonus depreciation has no income limit, so it can create a loss.
Does New Jersey allow Section 179?
Yes, but only up to $25,000 for Gross Income Tax, with no carryforward. New Jersey also doesn't allow federal bonus depreciation, so businesses that claim federal bonus depreciation, or Section 179 above $25,000, need a state depreciation adjustment.
Plan purchases before December 31
To deduct equipment on your 2026 return, it has to be ready and available for use by the end of your tax year. Check that you meet the business-use test, compare Section 179 with bonus depreciation, and if you're in New Jersey, plan for the $25,000 state limit.
Want help planning equipment purchases or cleaning up your fixed-asset records? Contact our team.
This article is general information, not tax advice for your situation.
