Section 179 and Bonus Depreciation: The Complete Guide for Small Business Owners

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

Small business owners who purchase equipment, vehicles, furniture, or make tenant improvements can deduct the full cost in Year 1 rather than spreading the deduction over 5-7 years. Two provisions make this possible: Section 179 (the business owner elects to expense the asset) and bonus depreciation (an automatic first-year deduction on qualifying property). The One Big Beautiful Bill Act (OBBBA) permanently restored 100% bonus depreciation, which had been phasing down from 2023-2027 under the TCJA.

✓Key takeaway

Section 179 allows a business to deduct up to $2,500,000 (2024, indexed for inflation) of qualifying property in the year placed in service. The deduction phases out dollar-for-dollar when total qualifying purchases exceed $4,000,000. Section 179 can’t create or increase a business loss (the deduction is limited to taxable income from all active businesses). Section 179 applies to: tangible personal property (equipment, furniture, computers, vehicles), off-the-shelf software, and qualified improvement property (QIP). Bonus depreciation (100%, permanently restored by the OBBBA) applies automatically to new and used property with a recovery period of 20 years or less. Unlike Section 179, bonus depreciation CAN create a loss (no income limitation). Bonus depreciation applies to: all Section 179-eligible property PLUS used property (Section 179 also covers used property, so the practical difference is the income limitation). For most small businesses, Section 179 and bonus depreciation produce the same result: full Year 1 deduction. The income limitation on Section 179 matters only when the business has a loss or very low income.

How do Section 179 and bonus depreciation interact?

The business applies Section 179 first (elective), then bonus depreciation on any remaining depreciable basis, then regular MACRS depreciation on any remaining amount. In practice, most small businesses use Section 179 to deduct the full cost, and bonus depreciation is a backstop for amounts exceeding the Section 179 limit or when the income limitation applies.

Hypothetical example

Round numbers. A plumbing company purchases the following in 2026:

Service van: $48,000 (over 6,000 lbs GVWR, no SUV cap)
Sewer camera: $8,000
Tools and equipment: $5,000
Office computer: $2,000
Total: $63,000

Section 179 election: $63,000 (well under the $2,500,000 limit). The business deducts the full $63,000 in Year 1.

Tax savings at 24% marginal rate: $63,000 x 24% = $15,120.

If the business had $50,000 in net profit (before the Section 179 deduction), the Section 179 deduction is limited to $50,000 (can’t exceed taxable income). The remaining $13,000 would be deducted through bonus depreciation (which has no income limitation), creating a $13,000 net operating loss (NOL) that carries forward to future years.

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

What property qualifies?

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)

Doesn’t qualify:

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)

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 a $30,500 Section 179 cap (2024). This cap applies to SUVs specifically (vehicles built on a truck chassis with a passenger-type body). It doesn’t apply to:

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

A $65,000 Chevy Tahoe (GVWR 7,100 lbs, SUV classification): Section 179 limited to $30,500 in Year 1. The remaining $34,500 is deducted through bonus depreciation, so the total Year 1 deduction is still $65,000.

A $55,000 Ford F-250 (GVWR 10,000 lbs, truck classification, not an SUV): full $55,000 Section 179 deduction, no cap.

Related guides:

Want this checked against your own situation?

Start with a Diagnostic: a CPA licensed in the US and Canada reads your file and answers in writing, three to four business days after you finish the questions. $250 for cross-border, $195 for a second opinion on a filed return, and it comes straight off the bill if we do the work after. Or book a free 15-minute fit call first.

Start a Diagnostic →Book a free call

Get the next cross-border guide by email

One or two plain-English guides a week on US-Canada tax. No spam, unsubscribe anytime.

Cite this page

Yarik Yarosh, CPA. "Section 179 and Bonus Depreciation: The Complete Guide for Small Business Owners." Blue Cloud CPA, September 5, 2026. https://bluecloudcpa.com/guides/small-business-section-179-bonus-depreciation-guide

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