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

By Yarik Yarosh, CPA ·September 5, 2026 ·3 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.

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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.