Compare bonus depreciation and Section 179, including eligible property, 2026 limits, income rules, elections and California tax differences.
Bonus depreciation and Section 179 both accelerate federal deductions for qualifying business property, but they work differently. Section 179 is an elective dollar deduction limited by qualifying investment and taxable business income. Bonus depreciation is generally a percentage deduction for qualifying property, can create a tax loss, and applies unless the taxpayer elects out for a property class.
For qualifying property acquired after January 19, 2025, federal bonus depreciation is generally 100%. For tax years beginning in 2026, the federal Section 179 limit is $2,560,000 and begins phasing out when qualifying property placed in service exceeds $4,090,000.
| Feature | Section 179 | Bonus depreciation |
|---|---|---|
| Basic structure | Elect a dollar amount | Deduct the applicable percentage |
| 2026 federal amount | Up to $2,560,000, subject to phaseout and other limits | Generally 100% for qualifying property acquired after Jan. 19, 2025 |
| Business income limit | Yes; excess can carry forward | Generally can create or increase a tax loss |
| Selection flexibility | Commonly chosen asset by asset and amount by amount | Election out generally applies by property class |
| Used property | Can qualify | Can qualify when acquisition rules are met |
| Real property | Limited qualifying real-property improvements can qualify | Buildings generally do not; qualified improvement property can qualify |
| Business use | Generally must exceed 50% | Business-use and listed-property rules apply |
| California | Generally $25,000 limit and $200,000 threshold | California does not conform |
Section 179 commonly applies to qualifying tangible personal property used in an active trade or business and certain qualified real property, such as qualifying improvement property and specified improvements to nonresidential real property. Special restrictions apply to leased property, property acquired from related parties, lodging property, and other categories.
Bonus depreciation generally applies to qualified MACRS property with a recovery period of 20 years or less, certain computer software, qualified improvement property, and specified plants. A building with a 27.5- or 39-year recovery period generally does not qualify, although separately classified shorter-lived components may.
Both provisions can apply to new or used property, but related-party and prior-use rules matter. Property must be placed in service during the applicable year.
The usual federal sequence is:
Assume a business places $100,000 of qualifying equipment in service and elects $30,000 of Section 179. The remaining basis is $70,000. If 100% bonus depreciation applies and the business does not elect out, bonus depreciation can deduct the remaining $70,000. No regular basis remains in this simplified example.
The combined federal first-year deduction is $100,000, but the two pieces retain their own limits and reporting.
Section 179 can offer targeted control. A taxpayer can often choose particular assets and less than their full cost. That can help preserve future depreciation or keep taxable income near a planning target.
The deduction cannot generally exceed taxable income from the active conduct of trades or businesses. Disallowed Section 179 can carry forward. The annual investment phaseout can reduce the dollar limit for taxpayers placing large amounts of qualifying property in service.
Special limits apply to heavy sport utility vehicles and passenger automobiles. Entity and owner-level limits can both matter for pass-through businesses.
Bonus depreciation can cover qualifying basis after Section 179 and generally is not limited by taxable business income. It can therefore create or increase a loss, though basis, at-risk, passive activity, excess business loss, net operating loss, interest, and other rules may postpone the tax benefit.
Bonus is less selective. A taxpayer generally elects out for an entire class of property placed in service during the year rather than one chosen item. Planning should consider all assets within the class.
Accelerated depreciation changes timing, not necessarily total lifetime deductions. Reasons to preserve future deductions can include:
A deduction can reduce tax basis and increase taxable gain when the asset is sold. Cash flow should also be considered: buying equipment only for a deduction still requires spending money.
Assume a California business buys $100,000 of qualifying equipment in 2026. It has enough active business income for federal Section 179.
Federal law may permit a $100,000 Section 179 deduction, a 100% bonus deduction, or a planned combination, subject to all rules. California generally permits no federal bonus depreciation and limits Section 179 to $25,000 for all qualifying property, with a $200,000 investment threshold.
If the business elects $100,000 of federal Section 179 but receives only $25,000 for California, it may begin with a $75,000 state/federal difference before considering regular California depreciation. Separate schedules are essential.
Form 4562 reports Section 179, special depreciation allowance, MACRS depreciation, and listed property. Election timing and amended-return rules can differ. The taxpayer should document acquisition date, placed-in-service date, asset classification, business use, purchase relationship, elections, and state treatment.
Heath Income Tax can model federal and California depreciation choices, prepare Form 4562 and state adjustments, and maintain asset schedules that preserve later basis and disposition reporting.
Can I use both provisions on the same asset?
Yes, when the asset and taxpayer qualify. Section 179 is generally applied first.
Can either deduction apply to used equipment?
Yes, subject to acquisition, related-party, and prior-use requirements.
Can bonus depreciation create a loss?
Generally yes. Other loss limitations may delay its use.
Does California allow 100% bonus depreciation?
No. California does not conform to federal bonus depreciation.
The definitions and examples on this page are for informational purposes only and do not constitute tax advice. Tax laws change frequently and individual circumstances vary. Consult a qualified tax professional before making decisions based on this content.
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