Section 179 vs. Bonus Depreciation in 2026: What Changed Under the OBBBA

If you're a tax preparer working through 2025 returns right now, or planning for 2026, depreciation rules just had the biggest overhaul since the TCJA. The One Big Beautiful Bill Act (OBBBA), signed into law July 4, 2025 as Public Law 119-21, did three things that change the equipment-expensing playbook:

1. Permanently restored 100% bonus depreciation (which had been scheduled to phase out to 0% by 2027)
2. Doubled the Section 179 limits (base amounts up from $1.25M to $2.5M)
3. Created a brand-new 100% write-off category for certain real property (Qualified Production Property)

The good news: for most capital purchases, your client can deduct 100% of the cost in year one. The bad news: the rules around how to get there — Section 179 vs. bonus, effective dates, state conformity — are more nuanced than "just expense it." Getting it wrong means amended returns or missed deductions.

Here's what every preparer needs to know for 2026.

Section 179 in 2026

Section 179 lets a taxpayer elect to expense the cost of qualifying property in the year it's placed in service, rather than depreciating it over the MACRS recovery period.

OBBBA doubled the statutory limits beginning with tax years after December 31, 2024. For 2026, the inflation-adjusted amounts are:

• Maximum deduction: $2,560,000
• Phase-out threshold: $4,090,000 — the deduction reduces dollar-for-dollar once total qualifying purchases exceed this
• Complete phase-out at $6,650,000 ($4.09M threshold + $2.56M maximum deduction)
• Heavy SUV cap: $32,000 (for SUVs over 6,000 lbs GVWR that are still subject to the SUV sub-limit)

Qualifying property

Section 179 applies to most tangible depreciable personal property used more than 50% for business, plus a specific list of real property categories:

• Machinery and equipment (new or used)
• Computer hardware and off-the-shelf software
• Office furniture
• Vehicles (subject to §280F limits for passenger autos)
• Qualified Improvement Property (QIP)
• Roofs, HVAC, fire protection, alarm, and security systems for nonresidential real property

Property that does not qualify: buildings (except the specific real property categories above), land and land improvements, inventory, and property used in passive activities.

Key limits beyond the dollar caps

• Business income limitation. Section 179 cannot create or increase a net operating loss. If the deduction exceeds the client's aggregate business income from active trades and businesses, the excess carries forward indefinitely. This is the single most-missed limit.
• More than 50% business use. If the asset is used 50% or less for business, it's ineligible for Section 179 — and subject to recapture if business use drops below 50% in a later year.
• Entity-level and shareholder-level caps. For partnerships and S-corps, Section 179 is applied at both the entity level and the partner/shareholder level. A shareholder with $2.5M of Section 179 flowing from one S-corp cannot also claim another $2.5M from a second entity.

Bonus Depreciation in 2026

Bonus depreciation under IRC §168(k) allows an additional first-year depreciation deduction on qualifying property. Under the TCJA, bonus was 100% through 2022, then phased down: 80% in 2023, 60% in 2024, scheduled to hit 40% in 2025, 20% in 2026, and 0% thereafter.

OBBBA reversed the phase-down and restored 100% bonus — permanently — for property acquired and placed in service after January 19, 2025.

Three things to understand about the effective date:

1. Both acquired and placed in service after 1/19/2025 → 100%. This is the new OBBBA rule.
2. Acquired before 1/20/2025, placed in service in 2025 → 40%. Falls under pre-OBBBA phase-down.
3. Acquired before 1/20/2025, placed in service in 2026 → 20%. Still under the old phase-down schedule.

"Acquired" generally means the date of a binding written contract, not the delivery date. If a client signed a purchase order in December 2024 but the equipment wasn't delivered until February 2025, you're looking at 40% bonus for 2025 placement — not 100% — and only 20% if placed in service during 2026. This catches clients with late-placed-in-service property from 2024 or earlier purchases, and it's the single biggest trap for preparers transitioning between the old and new rules.

Transitional election

OBBBA allows taxpayers to elect 40% bonus (instead of 100%) for the first taxable year ending after January 19, 2025. For long production period property and certain aircraft, the transitional rate is 60%. The election is made on a class-by-class basis and can be valuable for businesses in a low-income year that don't want to accelerate the deduction into a year with little tax to offset.

Qualifying property

The same general categories as Section 179, with one major expansion and a few exclusions:

• Tangible property with a MACRS recovery period of 20 years or less
• Computer software
• Qualified Improvement Property (QIP) — interior improvements to nonresidential real property
• Used property is eligible, provided the taxpayer hasn't previously used the asset and it wasn't acquired from a related party

Unlike Section 179, bonus depreciation:

• Has no dollar cap
• Can create or increase a net operating loss
• Is automatic — you have to elect out on a class-by-class basis if you don't want it
• Does not apply to many real property categories that Section 179 covers (roofs, HVAC, fire protection, security systems on nonresidential real property — still a Section 179 play)

Section 179 vs. Bonus Depreciation: Side-by-Side

	Section 179	Bonus Depreciation (§168(k))
2026 limit	$2.56M (phases out above $4.09M)	No cap
Can create a loss?	No — capped at business income	Yes
Automatic or elective?	Elective per asset	Automatic; elect out by class
Used property?	Yes	Yes (if new to taxpayer)
Real property coverage	Roofs, HVAC, security, QIP	QIP and specified plants; not roofs/HVAC
Carryover	Yes — unused amount carries forward	No — deduction creates NOL if it exceeds income
State conformity	Most states conform	Many states decouple
Application order	Applied first	Applied to remaining basis

The State Conformity Issue (Why Section 179 Still Matters)

Here's the practical reason preparers shouldn't just default to bonus depreciation for everything: many states don't conform to federal bonus depreciation, but most do conform to Section 179.

States including California, New York, Pennsylvania, New Jersey, Connecticut, and several others require add-backs for federal bonus depreciation. The client gets the federal deduction in year one but owes more state tax, then recovers the depreciation slowly on state returns over the MACRS life. It's a timing difference, not a permanent loss — but it creates substantial record-keeping burden and future-year reconciliation headaches.

Section 179 generally flows through to state returns without the same add-back issues (though a handful of states impose their own lower Section 179 caps — California's Section 179 limit, for example, is dramatically lower than federal).

Practical implication. For clients in non-conforming states, Section 179 is often the better choice even though 100% bonus achieves the same federal result. You avoid the state add-back and the deferred state recapture tracking. This is where "just take 100% bonus on everything" costs preparers real money on state returns.

The Vehicle Puzzle: §280F Still Caps Everything

Passenger autos — including trucks and vans under 6,000 lbs GVWR — are subject to the §280F "luxury auto" limits regardless of what Section 179 or bonus depreciation would otherwise allow.

2026 first-year limits (Rev. Proc. 2026-15):

	With bonus depreciation	Without bonus depreciation
Year 1	$20,300	$12,300
Year 2	$19,800	$19,800
Year 3	$11,900	$11,900
Year 4+	$7,160	$7,160

A client who buys a $75,000 luxury sedan for business in 2026 cannot deduct $75,000 in year one, no matter what the dealership told them. The §280F cap limits the first-year deduction to $20,300 (with bonus) — meaning recovery of the full cost takes years.

Heavy vehicles (GVWR > 6,000 lbs) escape these caps. Heavy SUVs, pickups, and vans get:

• Section 179: up to $32,000 (the 2026 heavy SUV-specific cap)
• Bonus depreciation: 100% of the remaining basis, no dollar cap

This is why you'll see small business owners intentionally buying 6,001-pound SUVs — the tax treatment is dramatically different from a 5,999-pound SUV. If a client is vehicle shopping, the GVWR threshold genuinely matters. A Ford Expedition, Chevy Suburban, Toyota Sequoia, or comparable-weight SUV can often be fully expensed in year one. A midsize luxury sedan cannot.

Heavy pickups with a 6-foot or longer bed used more than 50% for business often escape both the passenger auto caps and the heavy SUV sub-cap — those can be fully expensed via bonus depreciation with no dollar limit at all.

All business vehicles still require over 50% business use. Drop below that and Section 179 is disallowed and prior-year deductions may be recaptured.

Which to Apply First

IRS rules generally require Section 179 to be applied before bonus depreciation. The standard order:

1. Elect Section 179 on specific assets, up to the taxable income limit and the $2.56M/phase-out constraints.
2. Apply bonus depreciation (100%) to the remaining basis of qualifying property.
3. Apply regular MACRS to anything left.

When Section 179 is the better call for a specific asset:

• The asset is real property (roofs, HVAC, security) that qualifies for §179 but not bonus
• The client is in a state that doesn't conform to bonus depreciation
• The client wants to cherry-pick which specific assets get expensed (§179 is asset-by-asset; bonus applies by class)
• The client needs to limit the deduction to current-year business income anyway

When bonus depreciation is the better call:

• Total qualifying purchases exceed the Section 179 phase-out
• The client wants a deduction that can create or expand a loss (for NOL carryforward)
• The asset is QIP or another category where bonus is more favorable than regular §179
• Administrative simplicity — bonus is automatic; §179 requires election and tracking

Qualified Production Property (QPP): The New 100% Real Property Write-Off

OBBBA created a completely new category: 100% first-year depreciation for nonresidential real property that qualifies as Qualified Production Property.

QPP generally means real property used as an integral part of manufacturing, agricultural production, or chemical refining of a qualified product. This is significant because nonresidential real property historically depreciates over 39 years — being able to write off a manufacturing facility in year one is unprecedented.

This is a specialized provision that most Schedule C and small-business clients won't touch, but it's worth knowing exists. Clients in manufacturing, food production, or chemical processing should be asked whether any of their facilities might qualify. The regulations are still being developed — IRS Notice 2026-11 provided interim guidance in early 2026, with final rules expected later this year.

The $2,500 De Minimis Safe Harbor (Still in Play)

Before you reach for Section 179 or bonus depreciation, remember the de minimis safe harbor under Treasury Regulation §1.263(a)-1(f).

Taxpayers without an applicable financial statement can elect to expense items costing $2,500 or less per invoice or per item. Taxpayers with an applicable financial statement get $5,000. This is purely an expense — no depreciation schedule, no recapture risk, no Form 4562 entry.

For most Schedule C clients, the $2,500 threshold is the right mental line for "flag for depreciation review." Anything under $2,500 can usually be expensed directly to supplies or equipment. Anything over $2,500 should trigger a depreciation decision — Section 179, bonus, or regular MACRS — along with documentation of business use percentage.

This threshold is not OBBBA-related and didn't change. The election must be made annually on the client's timely filed return.

What Tax Preparers See on Bank Statements

When you're processing a client's bank statement for write-up work, equipment and vehicle purchases create an immediate decision point. You cannot simply categorize a $25,000 equipment purchase as "supplies" or expense it to the P&L and move on. The cost has to flow through the depreciation election process on Form 4562.

Transactions that should trigger depreciation review:

• Any single equipment purchase over $2,500
• Vehicle purchases or down payments (any amount — §280F and business use tracking always apply)
• Computer hardware, servers, networking equipment over $2,500
• Office furniture sets over $2,500
• Building improvements (flooring, HVAC, roofing) on business real property
• Qualified Improvement Property on leased spaces
• Software purchases over $2,500

Information the preparer needs to gather before making the election:

• Exact purchase contract date (for the acquired-before-or-after-1/20/2025 determination)
• Placed-in-service date (often different from purchase date)
• Business use percentage
• Vehicle GVWR (for vehicles — determines §280F treatment)
• Whether the client has prior-year §179 carryovers to use first
• State of operation (for conformity analysis)

This is why a categorization tool that simply drops a $30,000 equipment purchase into "Supplies — Line 22" is failing your workflow. The correct behavior is to flag the transaction, quarantine it from the auto-generated P&L, and route it to the preparer's decision queue. WriteupOS handles this automatically — large equipment purchases, vehicle payments, and building improvement transactions are flagged for depreciation review rather than dropped on a Schedule C expense line.

Common Mistakes in 2026

1. Assuming "100% bonus" applies automatically to everything in 2026. Property acquired before January 20, 2025 and placed in service in 2026 is subject to the old phase-down at 20%, not 100%. Check acquisition dates, not just placed-in-service dates.

2. Ignoring state conformity. Federal 100% bonus may be terrific, but if your client is in California, New York, New Jersey, Connecticut, or Pennsylvania, the state add-back creates a multi-year timing difference. Section 179 is frequently the better call for these clients.

3. Missing the §280F cap on passenger autos. A $60,000 luxury SUV under 6,000 lbs GVWR is NOT fully expensed in year one, regardless of bonus depreciation being "100%." First-year limit is $20,300.

4. Overlooking the 50% business use requirement. Drops below 50% → Section 179 disallowed, recapture triggered on prior years' deductions.

5. Applying Section 179 past the income limit. Section 179 cannot create a loss. If the client's aggregate active business income is $80,000 and they bought $150,000 in equipment, only $80,000 of §179 is usable this year — the rest carries forward. Bonus depreciation would let you deduct the full $150,000 and generate a $70,000 NOL.

6. Forgetting to file Form 4562. Both Section 179 and bonus depreciation require Form 4562, even when the calculation is simple. Missing the form can invalidate the election.

7. Partnership/S-corp double-counting. Section 179 limits apply at both the entity and owner level. A shareholder with §179 flowing through from two S-corps cannot exceed the overall $2.56M personal cap.

8. Missing acquisition vs. placed-in-service date distinctions. The date you sign the contract matters for the OBBBA effective date; the date you put the asset into actual business use matters for when the deduction begins. These are often different.

Decision Framework for 2026

When a client presents a capital purchase:

1. Is it under $2,500? Use the de minimis safe harbor — expense directly. Stop.
2. Is it over $2,500? You're in depreciation territory.
3. When was it acquired vs. placed in service? Acquired after 1/19/2025 and placed in service in 2025 or 2026 = 100% bonus eligible. Acquired before 1/20/2025 = old phase-down rules apply.
4. What's the client's state? Conforming state → bonus is fine. Non-conforming (CA, NY, NJ, CT, PA, etc.) → strongly consider Section 179 to avoid add-backs.
5. Is the asset a passenger auto under 6,000 lbs? §280F caps first-year deduction regardless of what else you do. Heavy vehicle → no §280F cap.
6. What's the client's business income this year? Expecting a loss → bonus beats §179 (§179 can't create a loss). Profitable year → §179 and bonus both work.
7. Is the asset QIP, roofing, HVAC, or security on nonresidential real property? §179 covers these; bonus may not.
8. Document the acquisition date, placed-in-service date, business use percentage, and election chosen. The paperwork is what makes the deduction defensible in audit.

The Bottom Line for 2026

The tax code now offers the most aggressive capital expensing rules since the original TCJA's full-expensing window. For most equipment and vehicle purchases made after January 19, 2025, your clients can deduct 100% of the cost in year one — through bonus depreciation, Section 179, or both stacked together.

But "100% bonus is back" is not the end of the analysis. State conformity, §280F vehicle caps, acquisition-date cutoffs, the $2,500 de minimis safe harbor, and the business income limit on Section 179 all shape what actually lands on the return.

For write-up work, the rule is simple: any single purchase over $2,500 flagged as equipment, vehicles, or real property improvements gets pulled out of the auto-categorized P&L and routed to depreciation review. The preparer — not the software — decides between Section 179, bonus depreciation, and MACRS for each asset, based on the client's state, business income, and long-term plan.

Get the depreciation decisions right, and OBBBA is a massive tax win for your clients. Get them wrong, and you're filing amended returns in 2027.