Section 179 & Bonus Depreciation Calculator 2026

How Section 179 and bonus depreciation work in 2026

When you buy equipment for your business, the default IRS rule requires you to depreciate it over its "useful life" — typically 5 or 7 years under the Modified Accelerated Cost Recovery System (MACRS). Section 179 and bonus depreciation let you front-load that deduction into year 1 instead of spreading it over multiple years.

Section 179 — the mechanics for 2026

• 2026 deduction limit: $2,560,000¹ — raised under OBBBA with inflation indexing going forward
• Phase-out: Reduces dollar-for-dollar once total qualifying property placed in service exceeds $4,090,000 (businesses spending $6.65M+ get $0 Section 179, but can still use bonus depreciation)
• Income limitation: Cannot exceed your net income from all active trades or businesses for the year. Unused Section 179 carries forward indefinitely
• Flexibility: You choose which assets and how much to deduct (partial amounts are allowed). This is the key advantage over bonus depreciation, which is all-or-nothing per asset class
• Eligible property: Equipment, machinery, computers, off-the-shelf software, certain vehicles, qualifying improvements to nonresidential real property (HVAC, roofing, fire protection, security systems)

Bonus depreciation — the mechanics for 2026

• Rate for OBBBA-eligible property: 100% for property both acquired AND placed in service after January 19, 2025 — permanent under OBBBA²
• Rate for pre-cutoff property: 20% bonus for property acquired before January 19, 2025 (TCJA phase-down schedule: 80% → 60% → 40% → 20% in 2026 for pre-cutoff)
• No income limitation: Unlike Section 179, bonus depreciation can create a net operating loss (NOL). The NOL carries forward and can offset up to 80% of taxable income in future years
• New and used property both qualify: Property doesn't need to be "original use" — purchased used equipment qualifies as long as it's new to you
• IRS guidance: Notice 2026-11 (January 14, 2026) provides rules and elections for the transition period³

Vehicle limits under § 280F (2026)

Vehicles face "luxury auto" caps under IRC § 280F regardless of purchase price. The limits apply even to a $30,000 sedan. Understanding the GVWR category determines your maximum first-year deduction:

Check the window sticker GVWR (gross vehicle weight rating), not curb weight or towing capacity, to determine your category. More than 50% business use must be maintained for the entire recovery period — dropping below 50% in years 2–5 triggers depreciation recapture.

The acceleration advantage: year 1 vs. spreading over 5 years

A sole proprietor earning $300,000 buys $85,000 of equipment in November 2026:

MACRS recovers the same $85,000 total over 5–6 years — the advantage of expensing is getting that cash now rather than later. At a 6% cost of capital, the NPV difference is roughly $9,000 on an $85,000 purchase. That's real money that can be reinvested immediately.

Year-end planning: the December 31 deadline

Equipment must be placed in service by December 31, 2026 — meaning operational and ready for business use. Ordered but not received, paid for but still uncrated, or delivered but not connected doesn't count. If you're buying equipment in Q4, confirm delivery, installation, and operational status before year-end. For vehicles, "placed in service" means the vehicle is driven for business — not just purchased.

How Section 179 interacts with the QBI deduction

A large Section 179 deduction in one year can reduce your qualified business income (QBI) — and therefore your § 199A deduction — for that year. If you're in the QBI phase-out range (above $201,775 single / $403,550 MFJ) and relying on W-2 wages to support the QBI deduction, a large Section 179 deduction doesn't directly reduce the W-2 wage component. But for businesses that are SSTB-limited or where the QBI deduction is already zero, this interaction doesn't matter. See the QBI Deduction Optimizer for the interaction with your specific situation.

Combining Section 179 with retirement contributions

For a sole proprietor, a $85,000 Section 179 deduction reduces Schedule C profit from $300,000 to $215,000. At $215,000, you can still contribute up to $72,000 to a solo 401(k) or SEP IRA. Combined, these two moves reduce taxable income by $85,000 + $72,000 = $157,000 — knocking someone in the 35% bracket down to 24% on their last dollar of income. The Self-Employed Tax Calculator can show you the full combined picture.

1. Section 179 2026 limit ($2,560,000) and phase-out threshold ($4,090,000): Section179.org — 2026 Deduction Limits · TS CPA — Section 179 Deduction 2026 New $2.56M Limit · Porter Brown — OBBBA Section 179 Changes
2. Bonus depreciation 100% permanent restoration (OBBBA, July 2025) for property acquired after January 19, 2025: IRS Notice 2026-11 Guidance · RSM — OBBBA Restores and Expands Bonus Depreciation
3. IRS interim guidance on OBBBA bonus depreciation transition rules: RSM — IRS Interim Guidance on OBBBA Bonus Depreciation · BDO — OBBBA Expands Depreciation Expensing
4. Vehicle § 280F limits for 2026 ($12,200 light vehicles, $32,000 heavy SUV cap, $20,200 combined first-year with bonus): Section179.org — 2026 Vehicle Deduction Limits · Block Advisors — Section 179 Vehicle List 2026

Tax values verified against 2026 sources: OBBBA (July 2025), IRS Notice 2026-11 (Jan 14, 2026), IRS Rev. Proc. 2025-32, Section179.org. May 2026.