Bonus Depreciation vs. Section 179: Which Should Your Business Use?

By Yarik Yarosh, CPA ·September 5, 2026 ·Updated September 23, 2026 ·6 min read

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

Section 179 and bonus depreciation both allow a business to deduct the full cost of an asset in the year it is placed in service, instead of spreading the deduction over 5-7 years. For most small businesses buying equipment, the result looks the same: a full first-year deduction. But the rules differ in important ways, and choosing wrong can cost money, especially in states that do not conform to federal bonus depreciation.

✓Key takeaway

Key differences between Section 179 and bonus depreciation:

Section 179 (IRC 179):

Annual limit: $2,500,000 (2024), $2,560,000 (2026 under OBBBA, adjusted for inflation)
Phase-out: begins when total qualifying purchases exceed $4,000,000 (2024)
Can’t create or increase a net operating loss (limited to taxable income from all active trades or businesses)
The owner CHOOSES which assets to expense (flexibility to take partial Section 179 and depreciate the rest)
Applies to new AND used property
Qualifying property: tangible personal property (equipment, vehicles, furniture), qualified improvement property, certain software
Doesn’t apply to: real property (buildings), land, inventory
SUV limitation: $31,300 maximum for vehicles with GVWR between 6,000 and 14,000 lbs (2024)
State treatment: most states conform, but some have lower limits or don’t allow Section 179 at all

Bonus depreciation (IRC 168(k)):

Rate: 100% (permanently restored under OBBBA, effective for property placed in service after 2025; was phasing down before OBBBA)
No annual dollar limit
CAN create or increase a net operating loss
Automatic (applies to all qualifying property unless the taxpayer elects out)
Applies to new AND used property (since TCJA 2017)
Qualifying property: tangible property with a MACRS recovery period of 20 years or less, qualified improvement property, certain software, certain film/TV/theatrical productions
No SUV limitation (a $100,000 SUV over 6,000 lbs GVWR gets full bonus depreciation, not capped at $31,300)
State treatment: many states Don’t conform (California, New York, New Jersey, Pennsylvania, and others disallow or limit bonus depreciation)

When each is better:

Scenario	Use Section 179	Use Bonus Depreciation
Business has taxable income	Either works	Either works
Business has a loss (or asset purchase creates a loss)	Can’t use (does not create a loss)	Use bonus (creates or increases loss, carried forward)
SUV purchase 6,000-14,000 lbs GVWR	Capped at $31,300	No cap (full cost)
State does not conform to federal bonus	Section 179 if state allows	Creates state/federal difference, book two sets
Want to choose which assets to expense	Section 179 (elective per asset)	Bonus is all-or-nothing per asset class (elect out per class)
Qualifying improvement property (QIP)	Eligible	Eligible

When should a business use one vs. the other?

Hypothetical example

Round numbers. An S-Corp owner buys the following assets in 2025:

Truck (GVWR 8,500 lbs): $65,000
Equipment (5-year property): $40,000
Office furniture (7-year property): $10,000
Total: $115,000

Net business income before depreciation: $90,000

Scenario A: Section 179 only.

Section 179 deduction: $90,000 (limited to taxable income, cannot create a loss)
Remaining $25,000 of asset cost: depreciated over MACRS lives
Year 1 net income: $0
Loss: none

Scenario B: Bonus depreciation only.

Bonus depreciation: $115,000 (100% of all qualifying assets)
Year 1 net income: $90,000 - $115,000 = ($25,000) loss
The $25,000 NOL carries forward to future years (limited to 80% of taxable income)
Tax saved in Year 1: $90,000 x 24% = $21,600 (income tax) plus approximately $6,885 FICA savings through S-Corp structure
Additional tax saved in Year 2 (from the $25,000 NOL carryforward): approximately $6,000

Scenario C: Combined approach (often optimal).

Bonus depreciation has no SUV cap, so the better approach skips Section 179 on the truck entirely and takes 100% bonus depreciation on the full $65,000 instead.
Section 179 on equipment and furniture: $50,000
Bonus depreciation on the truck: $65,000
Total first-year deduction: $115,000
Net income: ($25,000) loss

The critical insight: For vehicles over 6,000 lbs GVWR, bonus depreciation is almost always better than Section 179 because bonus has no SUV cap. A $65,000 truck gets a $65,000 deduction under bonus, but only $31,300 under Section 179.

State complication: If the business is in California (does not conform to bonus depreciation):

Federal return: $115,000 first-year deduction (bonus + Section 179)
California return: Section 179 is allowed (California has its own limit of $25,000). The remaining asset cost is depreciated over MACRS lives under California rules.
California taxable income is $65,000+ higher than federal in Year 1
This is a timing difference (California allows the depreciation over the asset life, not a permanent difference)
The business needs to track the different depreciation schedules for federal vs. state

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

What property qualifies for each?

Qualifies for both Section 179 and bonus depreciation:

Machinery and equipment
Office furniture and fixtures
Computers, printers, and technology equipment
Vehicles (subject to luxury auto limitations for passenger vehicles; no limitation for trucks and vans over 6,000 lbs GVWR)
Off-the-shelf software
Qualified improvement property (QIP): interior improvements to non-residential buildings (HVAC, lighting, interior walls, flooring, fire protection)
Used property purchased from an unrelated party (the property must be new to the taxpayer, not previously used by the same taxpayer)

Doesn’t qualify for either:

Land (never depreciable)
Buildings (depreciated over 39 years for commercial, 27.5 years for residential rental; not eligible for Section 179 or bonus depreciation except QIP)
Property used outside the US
Property used 50% or less for business
Inventory (expensed as COGS, not depreciated)

Where the two provisions differ:

Land improvements: Bonus depreciation applies to 15-year MACRS property (fences, parking lots, landscaping). Section 179 doesn’t apply to land improvements.
Real property categories: Section 179 applies to qualified improvement property, roofs, HVAC, fire protection, and security systems on nonresidential buildings. Bonus depreciation also applies to these same categories.

What about the SUV limitation?

Sport utility vehicles (SUVs) with a gross vehicle weight rating (GVWR) over 6,000 lbs but under 14,000 lbs are subject to the Section 179 SUV cap noted above. This cap applies to SUVs specifically (vehicles built on a truck chassis with a passenger-type body). It does NOT apply to:

Pickup trucks with an open bed (Ford F-150, Ram 1500, and similar)
Cargo vans (Ford Transit, Mercedes Sprinter, Ram ProMaster)
Vehicles over 14,000 lbs GVWR

Bonus depreciation has no SUV cap at all, which is why bonus is usually the better choice for an SUV purchase. A $65,000 Chevy Tahoe (GVWR 7,100 lbs, SUV classification) gets its Section 179 deduction limited to the SUV cap in Year 1, but the remaining cost still qualifies for 100% bonus depreciation, so the total Year 1 deduction is the full $65,000 either way. A $55,000 Ford F-250 (GVWR 10,000 lbs, truck classification, not an SUV) gets the full $55,000 Section 179 deduction with no cap.

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Cite this page

Yarik Yarosh, CPA. "Bonus Depreciation vs. Section 179: Which Should Your Business Use?." Blue Cloud CPA, September 5, 2026, updated September 23, 2026. https://bluecloudcpa.com/guides/small-business-bonus-depreciation-vs-section-179-decision

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