Section 179 in 2026: What Changed and How to Use It Before December 31

October 13, 2026 · Equipment Financing & Leasing

If your business buys equipment this year, two numbers matter more than they used to: $2,560,000, the 2026 Section 179 limit, and 100%, the bonus depreciation rate that is now permanent. Together they let most small and mid-sized businesses write off the full price of qualifying equipment in the year it goes into use, even when the equipment is financed.

This post covers what changed, what it means for a purchase you are planning now, and the one deadline that catches people out every December. It is general information, not tax advice. Your accountant knows your numbers, so take this to them before you decide anything.

What changed

The 2025 tax law raised the Section 179 limit

Section 179 lets a business deduct the full cost of qualifying equipment in the year it starts using it, instead of depreciating it over five, seven or more years. For years the limit sat near $1 million. The One Big Beautiful Bill Act (Public Law 119-21), signed on July 4, 2025, roughly doubled it to $2,500,000 for property placed in service in tax years beginning after December 31, 2024, with a phase-out starting at $4,000,000 of purchases.

Both figures are indexed for inflation. For tax years beginning in 2026, the IRS set them in Revenue Procedure 2025-32:

Maximum Section 179 deduction: $2,560,000
Phase-out threshold: $4,090,000. Above this, the limit drops dollar for dollar.
Fully phased out at: $6,650,000
Heavy SUVs (6,001 to 14,000 lbs gross vehicle weight): capped at $32,000 under Section 179

Most small businesses never come close to the phase-out. If you place less than about $4 million of equipment in service in 2026, the full $2,560,000 limit is available to you.

Bonus depreciation went back to 100%, permanently

Bonus depreciation is the second tool, and since 2025 it matters as much as Section 179 itself. The 2017 tax law set it at 100% but phased it down by 20 points a year starting in 2023: 80%, then 60%, then 40% for 2025. Many businesses planned their 2025 purchases around that 40% figure.

The 2025 law changed course. For qualifying property acquired after January 19, 2025, bonus depreciation is 100% again, and this time there is no phase-down and no end date. Property acquired before January 20, 2025 stays on the old schedule, which is why some 2025 returns have two rates in them. For anything you buy in 2026, the rate is simply 100%.

How Section 179 and bonus depreciation work together

They are separate rules, and the order matters. Section 179 is applied first, up to its limit, and you choose which equipment it covers. Bonus depreciation then applies to whatever basis is left. Regular depreciation applies only after both, and with 100% bonus there is usually nothing left for it.

The practical differences:

Section 179 is capped by your profit. It cannot reduce your business income below zero. Anything you cannot use carries forward to next year.
Bonus depreciation has no income limit and no dollar cap. It can create a loss, which may carry forward or offset other income, depending on how your business is set up.
Section 179 is elective, asset by asset. Bonus depreciation applies automatically unless you elect out, class by class.

That flexibility is the point. An accountant can use Section 179 where it fits, let bonus depreciation pick up the rest, and adjust the mix to suit the year. A business with a strong year might take the full write-off now. A business expecting higher income next year might choose to spread some of it.

What qualifies

Most tangible equipment a business buys and uses qualifies:

Machinery, tools and production equipment
Construction, agricultural and landscaping equipment
Medical, dental and veterinary equipment
Restaurant and commercial kitchen equipment
Computers, servers, networking gear and off-the-shelf software
Office furniture and fixtures
Business vehicles, within the limits for passenger cars and heavy SUVs

Two conditions apply to all of it. The equipment has to be used for business more than 50% of the time, and if it is also used personally, only the business share counts. Used equipment qualifies too, as long as it is new to your business.

Land, buildings and inventory do not qualify. Certain improvements to the inside of a commercial building can, which is worth asking your accountant about if you are building out a space.

Financing does not disqualify the deduction

This is the part most owners do not expect. Section 179 is based on when the equipment is placed in service, not when it is paid for. If you finance a $250,000 machine and start using it in November, the deduction can apply to the full $250,000 on this year’s return, even though you will pay for the machine over the next several years.

How it works depends on the structure:

Equipment finance agreements and $1 buyout leases. You are treated as the owner from the start, so you can generally take Section 179 and bonus depreciation on the full cost.
Fair market value leases. These work more like a rental. You usually do not take Section 179. Instead you deduct each lease payment as a business expense, which still lowers your taxes, just spread out over the term.

If the tax write-off is part of the reason you are buying, tell your finance company before the paperwork is drawn up. At American Capital Group we structure the agreement to fit and put it in writing so your accountant can review it.

The deadline: December 31 means in service

The equipment has to be delivered, installed and ready to use by December 31 for a calendar-year business. Signing the order on December 28 is not enough. Neither is paying for it. If the machine arrives on January 4, the deduction moves to next year’s return.

That makes the fourth quarter a scheduling problem as much as a tax one. Build your timeline backward:

Ask the vendor for a delivery date in writing. Year-end lead times on heavy equipment, vehicles and specialty machinery can run several weeks.
Allow for installation and setup. Rigging, electrical work and calibration all count against the calendar.
Get the financing approved early. Financing is usually the fastest step, but it should not be the one holding up an order in mid-December.
Keep the paperwork. Your accountant will want the invoice, the finance or lease agreement, and something showing the in-service date, such as a delivery receipt or installation sign-off.

If having the equipment working before December 31 matters more than when the payments start, ask about a deferred first payment. It can run alongside the tax planning.

A quick example

Say a manufacturing company places a $300,000 CNC machine in service in October 2026, financed with an equipment finance agreement, and has enough taxable profit to absorb the deduction.

Section 179 can cover the full $300,000, since it is well under the $2,560,000 limit.
If the company prefers, Section 179 can cover part of it and 100% bonus depreciation the rest. The total first-year write-off is the same $300,000.
The tax saved is roughly the write-off multiplied by the company’s marginal tax rate.

That tax saving arrives with this year’s return, while the machine is paid for monthly over the term of the agreement. That timing gap is the reason financing and Section 179 work so well together.

To run your own numbers, use our Section 179 calculator. It applies Section 179 first, then bonus depreciation, then regular depreciation, in the order the IRS does, and shows the estimated savings for your tax bracket.

Before you buy: a short checklist

Confirm with your accountant that you have enough taxable income for Section 179, or that bonus depreciation fits better.
Check your state’s rules. Some states do not follow the federal limits or bonus depreciation.
Confirm the equipment will be used for business more than half the time.
Get a written delivery and installation date that lands before December 31.
Choose a finance structure that matches how you want to take the deduction.
Keep the invoice, the agreement and proof of the in-service date together for your return.

Sources

IRS, Revenue Procedure 2025-32 (2026 inflation-adjusted amounts, including the Section 179 limits)
IRS, Publication 946, How To Depreciate Property

American Capital Group is an equipment finance company, not a tax advisor. Nothing in this post is tax advice. Confirm how these rules apply to your business with your own CPA before you file.

Frequently asked questions

What is the Section 179 limit for 2026?

For tax years beginning in 2026, a business can expense up to $2,560,000 of qualifying equipment under Section 179. The limit starts to shrink, dollar for dollar, once the business places more than $4,090,000 of qualifying equipment in service in the year, and it is gone completely at $6,650,000. These are the IRS figures in Revenue Procedure 2025-32.

Is 100% bonus depreciation really permanent now?

Yes. The One Big Beautiful Bill Act, signed July 4, 2025, restored 100% bonus depreciation for qualifying property acquired after January 19, 2025 and removed the old phase-down schedule. Unlike the 2017 version, it has no end date. Congress can always change the law again, but as written there is no scheduled sunset.

Can I take Section 179 on equipment I finance?

Usually, yes. If you will own the equipment, for example with an equipment finance agreement or a $1 buyout lease, you can generally take the full deduction in the year the equipment goes into use, even though you pay for it over time. With a fair market value lease you usually deduct the lease payments as a business expense instead. Your accountant makes the final call.

What is the deadline to use Section 179 for 2026?

The equipment has to be placed in service, meaning delivered, installed and ready to use, by December 31, 2026 for a calendar-year business. Ordering or paying for it by then is not enough.

Does used equipment qualify?

Yes. Used equipment qualifies for Section 179 and for bonus depreciation as long as it is new to your business and you did not use it before. It still has to be used for business more than half the time.

Does my state follow the federal rules?

Not always. Some states cap Section 179 well below the federal limit or do not allow bonus depreciation at all. California, for example, caps Section 179 at $25,000 and does not follow federal bonus depreciation. Ask your accountant how your state treats the deduction.

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