Bonus Depreciation vs. Section 179: When to Use Each and How They Interact

By Yarik Yarosh, CPA ·September 5, 2026 ·4 min read

Written by Yarik Yarosh, CPA (US & Canada) September 5, 2026 · FL CPA license AC61704 · CPA Ontario

Both Section 179 and bonus depreciation allow businesses to deduct the full cost of qualifying assets in the year they’re placed in service (instead of depreciating them over 5, 7, or 15+ years). However, they have different rules, limitations, and use cases. Understanding when to use each, and how they interact, maximizes the tax benefit.

✓Key takeaway

Section 179 (IRC 179):

2024 limit: $2,500,000 per year (indexed for inflation)
Phase-out: Begins when total qualifying purchases exceed $4,000,000; fully phased out at $4,270,000
Taxable income limitation: Section 179 deduction cannot exceed the business’s taxable income (cannot create or increase a loss). Unused Section 179 carries forward.
Qualifying property: Tangible personal property (equipment, machinery, vehicles, furniture, computers), certain software, qualified improvement property
Election: Must be elected on the return. Can be revoked on an amended return.
SUV/vehicle limit: $28,900 for vehicles with GVWR 6,001-14,000 lbs (2024). No limit for GVWR > 14,000 lbs.

Bonus depreciation (IRC 168(k)):

Rate: 100% (permanently restored by OBBBA for property placed in service after 2022)
No dollar limit: Can deduct unlimited amounts of qualifying property
No taxable income limitation: CAN create or increase a loss (unlike Section 179)
Qualifying property: New OR used tangible personal property with a recovery period of 20 years or less, certain computer software, qualified improvement property, certain plants
Automatic: Applies automatically unless the taxpayer elects OUT (election out is per class of property, per year)
No vehicle limit per se (but the luxury auto depreciation caps apply to passenger vehicles under 6,000 lbs GVWR)

When should you use Section 179 vs. bonus depreciation?

Hypothetical example

Round numbers. A business purchases $200,000 in equipment. The business has $150,000 in taxable income (before the equipment deduction).

Using Section 179 only:

Section 179 deduction: limited to $150,000 (taxable income limitation)
Remaining $50,000: carried forward to next year
Current year taxable income: $0
Next year: $50,000 Section 179 deduction applied against next year’s income

Using bonus depreciation only:

Bonus depreciation: $200,000 (no taxable income limitation)
Current year taxable income: $150,000 - $200,000 = -$50,000 (net operating loss)
The NOL carries forward and offsets 80% of future income

Using Section 179 first, then bonus depreciation:

Section 179 on $150,000 (up to taxable income): $150,000
Bonus depreciation on remaining $50,000: $50,000
Current year taxable income: $150,000 - $150,000 - $50,000 = -$50,000 (NOL from bonus depreciation)

Best approach: Use Section 179 up to the taxable income limit (avoiding the carry-forward), then let bonus depreciation handle the rest (creating an NOL if the total exceeds income). This preserves the Section 179 election for current-year certainty while using bonus depreciation’s ability to create losses.

Illustrative numbers only, not a real client and not advice for your facts.

Which property types qualify for each?

Both Section 179 and bonus depreciation apply to most tangible personal property (equipment, machinery, furniture, computers). The differences:

Real property: Section 179 applies to qualified improvement property, roofs, HVAC, fire protection, and security systems. Bonus depreciation also applies to these categories.
Used property: Both Section 179 and bonus depreciation apply to used property (TCJA expanded bonus depreciation to used assets). The used property must be “new to the taxpayer” (not previously used by the same taxpayer).
Land improvements: Bonus depreciation applies to 15-year MACRS property (fences, parking lots, landscaping). Section 179 doesn’t apply to land improvements.

What is the difference between Section 179 and bonus depreciation?

Both allow accelerated cost recovery, but they work differently. Section 179 lets you deduct the full cost of qualifying assets in the year placed in service, up to an annual limit ($1,220,000 in 2024), but only against net business income (it cannot create a loss). Bonus depreciation (60% in 2024, phasing down 20% per year) applies to both new and used property with no dollar limit and can create a net operating loss. Section 179 requires an active election on the return. Bonus depreciation applies automatically unless you elect out. For most small businesses, Section 179 is preferred when income supports the deduction. Bonus depreciation is better when you want to generate or increase a loss for carryforward.

What is bonus depreciation and how has it changed recently?

Bonus depreciation allows you to deduct a large percentage of an asset’s cost in the first year, rather than spreading it over the full MACRS recovery period. Under the Tax Cuts and Jobs Act, bonus depreciation was 100% for assets placed in service from September 27, 2017 through December 31, 2022. It began phasing down by 20% per year: 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and 0% in 2027. Unlike Section 179, bonus depreciation can create or increase a net operating loss, which you can then carry forward to offset future income. Bonus depreciation applies to new and used property (the TCJA removed the new-only requirement), as long as you have not previously used the asset.

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Cite this page

Yarik Yarosh, CPA. "Bonus Depreciation vs. Section 179: When to Use Each and How They Interact." Blue Cloud CPA, September 5, 2026. https://bluecloudcpa.com/guides/small-business-bonus-depreciation-section-179-comparison

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.