Section 179 in 2026: Higher Limits and More Qualifying Property

Section 179 is the provision that lets a business deduct the full cost of qualifying equipment in the year it's placed in service, rather than depreciating it over time. For 2026, both the deduction limit and the phase-out threshold went up substantially, and both are now indexed for inflation.

The 2026 numbers

The maximum Section 179 deduction for 2026 is $2.56 million. The phase-out threshold — the point at which the deduction begins to shrink — is $4.09 million of total qualifying purchases.

Under the prior law, the cap was $1.25 million with a phase-out starting around $3.13 million. The increase roughly doubles the ceiling.

The phase-out works dollar for dollar. If your total qualifying purchases for the year exceed $4.09 million, your maximum deduction drops by the excess. At $5 million of purchases, the deduction is reduced by roughly $910,000. At $6.65 million, it's gone entirely.

For the overwhelming majority of small and mid-sized businesses, these limits are not a constraint. A contractor buying a $95,000 truck and $40,000 of tools is nowhere near the ceiling. The numbers matter mainly for capital-intensive operations and for businesses in a heavy expansion year.

What qualifies, including some things people miss

The obvious category is tangible personal property used in the business: machinery, equipment, computers, servers, office furniture, and off-the-shelf software.

Less obvious, and frequently missed, are improvements to non-residential real property. Qualifying categories include roofs, heating and air conditioning systems, fire protection and alarm systems, and security systems.

This is worth pausing on. If you own your building and you replaced the HVAC system this year, that is potentially a Section 179 deduction rather than a 39-year depreciation schedule. A $70,000 rooftop unit deducted immediately instead of at roughly $1,800 a year is a materially different outcome. Many business owners assume anything attached to the building is a long-term capital item and never raise it.

Vehicles are their own category with their own limits. Passenger vehicles are subject to annual caps. Vehicles over 6,000 pounds gross vehicle weight get more favorable treatment, and vehicles that are genuinely not suitable for personal use — work vans without seating behind the driver, vehicles with permanent shelving, certain heavy trucks — can escape the passenger vehicle limits entirely. The distinctions are specific and worth confirming before you buy based on a tax assumption.

The two limits that trip people up

The business income limitation. Section 179 cannot create or increase a net operating loss. Your deduction is capped at your taxable business income for the year. If you have $100,000 of business income and $180,000 of qualifying purchases, you can take $100,000 this year. The remaining $80,000 carries forward to future years, but it isn't available now.

This is the single biggest difference from bonus depreciation, which has no such limit and can create a loss. A business with modest income and a large equipment purchase will often be better served by bonus depreciation.

Placed in service, not purchased. The asset must be placed in service — actually available and ready for its intended use — during the tax year. Ordering equipment in December that arrives in February gives you a deduction next year, not this year.

Using Section 179 and bonus depreciation together

Because bonus depreciation is now permanent at 100%, some business owners have asked whether Section 179 still matters. It does, for one main reason: control.

Section 179 is elected asset by asset. Bonus depreciation applies to entire asset classes unless you elect out of the class. If you want to fully expense the new equipment but depreciate the office furniture normally — perhaps to preserve income for a QBI deduction or to avoid wasting a credit — Section 179 gives you that precision.

The typical approach is to apply Section 179 selectively where you want targeted expensing, then let bonus depreciation handle the remainder.

State conformity is a real consideration here as well. Many states cap Section 179 at amounts far below the federal limit, and some don't follow bonus depreciation at all. Your federal deduction and your state deduction may be very different numbers.

Before you buy

The deduction is a discount, not a rebate. Spending $100,000 to save $24,000 in tax only makes sense if you needed the $100,000 asset. The best sequence is to decide what the business needs, then time and structure the purchase to get the best tax result.

This article is general information, not tax advice for your specific situation. Tax rules change and apply differently depending on facts we may not know about your business. Please talk with us before acting on anything here.