Every November, business owners hear the same advice: buy equipment before December 31 and write it off. The rule behind it is real, and since 2025 it is more generous than it has been in years. But it is also one of the most misunderstood deductions. A deduction lowers your taxable income; it does not give the money back, and the date that counts is not the day you pay. This guide explains how the two main tools, Section 179 and bonus depreciation, work for 2026, and the mistakes to avoid.
Key Takeaways
- Section 179 lets you deduct the cost of qualifying equipment in the year you start using it. For 2026 the limit is $2,560,000, reduced dollar for dollar once you place more than $4,090,000 of property in service.
- Bonus depreciation is 100% again for qualifying property acquired and placed in service after January 19, 2025, and unlike Section 179 it can create a tax loss.
- The tax year is decided by when the asset is placed in service (ready and available for use), not when you order or pay for it.
- A deduction reduces your taxable income; it does not refund the purchase. Never buy equipment you do not need just for the deduction.
- Section 179 cannot exceed the taxable income from your business, so a low-profit year may need bonus depreciation or carryforward instead.
Section 179 and bonus depreciation, side by side
Normally you recover the cost of equipment slowly, through depreciation over several years. Two provisions let you recover it faster.
| Section 179 | Bonus depreciation | |
|---|---|---|
| What it does | Deducts the cost of qualifying property in the first year | Deducts a percentage of the cost in the first year, automatically unless you opt out |
| 2026 amount | Up to $2,560,000 | 100% for property acquired and placed in service after January 19, 2025 |
| Size limit | Reduced dollar for dollar once more than $4,090,000 of property is placed in service | No dollar limit |
| Income limit | Cannot exceed taxable income from your business | Can create or increase a loss |
| Choice | You choose which assets and how much | You can elect out by class of property |
The 100% bonus rate was restored for property acquired after January 19, 2025. For property acquired before that date, the rate was lower, so the acquisition date matters as well. Most owners buying equipment now qualify for the 100% rate.
What qualifies
- Equipment and machinery used in the business, including computers, furniture, tools and production equipment.
- Certain business vehicles. Heavy SUVs have a lower Section 179 cap of $32,000 for 2026, and passenger cars have their own depreciation limits.
- Off-the-shelf software and some improvements to the inside of non-residential buildings, such as roofs, HVAC, fire protection and security systems (Section 179 only).
- Not qualifying: land, buildings themselves, and property used mostly for personal purposes. Business use must generally be more than 50%.
The date that decides your tax year: placed in service
The IRS says you place property in service when it is ready and available for its specific use, even if you are not yet using it. That means:
- Paying for equipment in December does not count if it arrives and is installed in January.
- For a calendar-year business, the equipment must be installed, set up and ready to use by December 31, 2026 to count for 2026.
- Equipment that needs delivery, installation or testing needs lead time, so the practical deadline is earlier than December 31.
Keep the invoice, the delivery or installation record and a note of the date it was ready for use. Those records support the deduction if you are ever asked.
Five common mistakes
- Buying to save tax. A deduction only reduces the tax on that income. Spending $50,000 on something you do not need costs you $50,000 and saves a fraction of it.
- Ignoring cash flow. The tax saving arrives when you file or reduce estimated payments, long after the equipment is paid for. Check your cash first; see our guide to cash flow forecasting.
- Missing the income limit. Section 179 cannot create a loss, so in a low-profit year bonus depreciation or a carryforward may be the better route.
- Missing the placed-in-service date on equipment that ships in late December.
- Forgetting the long run. Taking the whole deduction now leaves nothing to depreciate later, and a sale of the equipment can bring some of it back as taxable income.
Texas angle
Texas has no state income tax, so these deductions affect your federal return, and for pass-through owners (S corporations, partnerships, LLCs) they flow to your personal return. How equipment is treated for the Texas franchise tax is separate, so check with your tax adviser. Our year-end tax checklist and estimated tax guide show where an equipment decision fits among your other year-end moves.
How Ledger Tree helps
Ledger Tree works mainly with established, privately held Dallas–Fort Worth businesses in the $1 million to $20 million revenue range. Before you buy, we can show how a purchase affects your cash flow and your tax position this year and next, then record the asset and its depreciation correctly in your books. This is general information, not tax advice for your situation, so involve your tax adviser. See our tax filing and advisory services, or call (214) 807-2440.
Planning an equipment purchase before year-end?
We will model the effect on your cash flow and your 2026 taxes before you commit, so you buy what the business needs and know what it will really save.
SCHEDULE MY FREE CALLOr call +1-214-807-2440
Frequently Asked Questions
What is the Section 179 deduction limit for 2026?
For tax years beginning in 2026 the maximum Section 179 deduction is $2,560,000. It is reduced dollar for dollar once the cost of qualifying property placed in service in the year exceeds $4,090,000.
Is bonus depreciation 100% in 2026?
Yes, for qualifying property acquired and placed in service after January 19, 2025. You can elect out of bonus depreciation for a class of property if you prefer to depreciate it over time.
Does the equipment have to be paid for by December 31?
Payment alone is not enough. The property must be placed in service, meaning ready and available for its specific use, by December 31 to count for that tax year. Equipment that is delivered or installed in January belongs to the next year.
What is the difference between Section 179 and bonus depreciation?
Section 179 lets you choose which assets to expense, up to a dollar limit and capped by your business taxable income. Bonus depreciation applies automatically to qualifying property with no dollar limit and can create a loss, unless you opt out.
Does buying equipment give me a tax refund?
No. A deduction lowers your taxable income, so it only saves tax on that income at your rate. You still spend the full cost of the equipment, so buy only what the business needs.
Do these deductions work for vehicles?
Some vehicles qualify, but there are limits. Certain heavy SUVs have a Section 179 cap of $32,000 for 2026, and passenger cars have their own depreciation limits. Business use must generally be more than 50%.
Sources: IRS Publication 946, How to Depreciate Property (Section 179 deduction, special depreciation allowance for property acquired after January 19, 2025, placed-in-service rule); IRS Rev. Proc. 2025-32 (2026 Section 179 limit of $2,560,000, $4,090,000 phase-out threshold and $32,000 SUV limit). This is general information, not tax advice. Published 2026-10-28.