Section 179 Deduction: 2026 Limits, Rules and What Qualifies

Section 179 is an election, made item by item on Form 4562, to deduct the cost of qualifying business property in the year it goes into use rather than over its depreciation life. P.L. 119-21, signed July 4, 2025, raised the limit for tax years beginning in 2025 from $1,250,000 to $2,500,000 and indexes it from 2026. The same law restored 100% bonus depreciation for property acquired after January 19, 2025, so a business buying equipment now has two ways to write it off in the first year. Below are the 2026 limits, what qualifies, the rules that decide the deduction, a worked example and a side-by-side comparison.

Section 179 deduction limits for 2025 and 2026

Two limits work together. The dollar limit caps the total you can elect. The phase-out cuts that cap by one dollar for each dollar of section 179 property you place in service above the threshold, so the deduction disappears once purchases reach the cap plus the threshold. A business that places $4,300,000 of section 179 property in service in 2026 loses $210,000 of its limit and can expense up to $2,350,000. The amounts are indexed for inflation for tax years beginning after 2025 (IRC 179(b)(6)), and the 2027 figures have not been published. If you see $1,250,000 quoted for 2025, that number came from Rev. Proc. 2024-40, issued before P.L. 119-21; Rev. Proc. 2025-32 removed it.

What qualifies for the section 179 deduction

Sources: IRC 179(d) and (e) and Publication 946, chapter 2. The building items are an election within the election: roofs, HVAC, fire protection and alarm systems, and security systems count only for nonresidential real property, and only when placed in service after the building itself was first placed in service. Estates and trusts cannot elect section 179 at all.

The rules that decide the deduction

More than 50% business use

You can elect section 179 only for property used more than 50% for business in the year you place it in service, and only on the business share of the cost (Publication 946). A $40,000 machine used 70% for business supports at most $28,000 of section 179.

Placed in service by the last day of the tax year

The deduction belongs to the year the property is placed in service, which the IRS defines as the day it is “ready and available for a specific use,” whether or not you have started using it. A machine delivered in December but not installed and working until January is a next-year deduction. The other year-end deadlines for your return are on the business tax calendar.

Bought, not inherited, and new or used

The property has to be acquired by purchase for use in the active conduct of your business (IRC 179(d)(1)-(2)). Buying from your spouse, parents, grandparents, children or grandchildren, or from another member of your controlled group, does not count, and neither does property received by gift or inheritance. Nothing in section 179 requires the property to be new. When you trade in equipment, only the cash you pay counts toward the section 179 cost.

An active business, not an investment

Property held only to produce income, such as investment property or rental property when renting is not your trade or business, does not qualify. You actively conduct a business if you meaningfully participate in its management or operations; a passive investor does not (Form 4562 instructions).

The business income limit and the carryforward

Section 179 cannot take business income below zero. After the dollar limit, the deduction is capped at the taxable income you earn from the active conduct of all of your trades or businesses, figured without the section 179 deduction itself (IRC 179(b)(3)). Anything disallowed carries forward and is deductible in a later year within that year's limits. Who counts what:

• Individuals include wages, salaries and tips from a job along with business profit, and figure the income without the section 179 deduction, the deduction for half of self-employment tax or any net operating loss. Joint filers combine both spouses (Form 4562 instructions, line 11).
• Partnerships and S corporations apply the limits at the entity level, and each partner or shareholder applies them again to the total passed through (IRC 179(d)(8)). An S corporation figures its business income without deducting the compensation it pays shareholder-employees.
• Married couples filing separately share one dollar limit, split 50/50 unless they elect otherwise (IRC 179(b)(4)). Members of a controlled group also share one limit.

Entity choice changes where these limits bite. How an S election changes the owner's own taxes is covered in S corp vs LLC.

Section 179 deduction example

The business expenses $220,000 in 2026 and carries $80,000 into 2027, where it is deductible within that year's dollar and income limits. The roof qualifies because the warehouse is nonresidential real property and the roof went into service after the building did (IRC 179(e)).

The alternative is to let 100% bonus depreciation take the machine and the software, which were acquired after January 19, 2025. Bonus depreciation is not limited by income, but it is a deduction, so it lowers the business income that caps section 179 to $20,000. Only $20,000 of the roof is expensed in 2026 and $80,000 still carries forward. The first-year total is the same $220,000 in this example. The two methods part ways when bonus depreciation alone exceeds income: bonus can produce a loss for the year, while section 179 stops at zero. Whether a loss helps depends on the owner's other income and the loss limits that apply to it.

How to claim section 179 on Form 4562

Section 179 is claimed in Part I of Form 4562, attached to the return for the year the property is placed in service. The election can be made on the original return, even one filed late, or on an amended return filed within the time allowed. You can revoke all or part of it on an amended return without IRS approval, and a revocation is final (Form 4562 instructions; IRC 179(c)).

1. Lines 1 to 5: the dollar limit after any phase-out reduction.
2. Line 6: each item's description, business-use cost and the amount you elect. Partners and shareholders enter “from Schedule K-1 (Form 1065)” or “from Schedule K-1 (Form 1120-S)” for their share.
3. Line 7: listed property, such as vehicles, carried from Part V, which you complete first.
4. Lines 8 to 12: total elected cost, the tentative deduction, any carryover from the prior year, the business income limit and the deduction itself.
5. Line 13: the amount that carries to the next year.

Once you expense part of an item's cost, you depreciate only the rest; the Form 4562 instructions tell you to reduce the amount you depreciate, including any special depreciation allowance, by the section 179 deduction.

Recapture when business use drops to 50% or less

If business use of section 179 property falls to 50% or less in any year of its recovery period, you add part of the deduction back to income. The amount is the section 179 deduction you took minus the depreciation you would have been allowed without it, reported as ordinary income in Part IV of Form 4797, and the property's basis goes up by the same amount (Publication 946). Selling the property is handled under the section 1245 recapture rules instead, and vehicles and other listed property follow their own recapture rules. Keep business-use records for every year of the recovery period, not just the first.

Section 179 vs bonus depreciation

The 100% bonus rate applies to property acquired after January 19, 2025, and property is treated as acquired no later than the date a written binding contract for it was signed (P.L. 119-21, section 70301(c), printed with IRC 168). Equipment contracted for before January 20, 2025 stays under the earlier phase-down rules even if it arrives later. For the first tax year ending after January 19, 2025, a business could elect 40% (60% for certain long-production property and aircraft) instead of 100% (IRC 168(k)(10)).

Building improvements are where the two part ways most often. Bonus depreciation covers property with a recovery period of 20 years or less. Qualified improvement property is 15-year property and qualifies; nonresidential real property, including a building's structural components such as a central heating or air-conditioning system, is 39-year property (Publication 946). For building improvements outside the qualified improvement definition, section 179(e) is the route to first-year expensing.

Vehicles and SUVs

For tax years beginning in 2026, no more than $32,000 of an SUV's cost can be taken into account under section 179 (Rev. Proc. 2025-32). The cap applies to four-wheeled passenger vehicles that fall outside the passenger automobile limits of section 280F and are rated at no more than 14,000 pounds gross vehicle weight. Vehicles seating more than nine behind the driver, those with an open cargo area at least six feet long (or one covered by a cap with no direct access from the cabin), and certain fully enclosed work vans are not SUVs for this purpose (IRC 179(b)(5)). Lighter passenger automobiles fall under the separate section 280F depreciation caps, and every vehicle needs more than 50% business use.

Year-end timing, estimates and state rules

Because the deduction follows the placed-in-service date, a December purchase has to be delivered, installed and ready to run by December 31 to count for 2026. A large deduction also lowers the tax your quarterly payments are meant to cover; refiguring them mid-year is explained in quarterly estimated taxes. State income tax rules for section 179 and bonus depreciation can differ from the federal rules, so check your state's treatment before counting on the same deduction there.

Sources: 26 U.S.C. 179, election to expense certain depreciable business assets; Public Law 119-21 (July 4, 2025), sections 70301 and 70306; IRS, Rev. Proc. 2025-32, section 4.24 (2026 amounts); IRS, Rev. Proc. 2024-40, section 2.25 (pre-2025-law amounts, since removed); IRS, Form 4562 (2025); IRS, Instructions for Form 4562 (2025); IRS Publication 946 (2025), How To Depreciate Property; 26 U.S.C. 168, including 168(k) bonus depreciation; 26 U.S.C. 280F, limits for automobiles and listed property. Figures and rules checked against these sources on September 25, 2026. This is general information, not tax advice for your situation. Tax services are provided by licensed tax professionals under a separate engagement agreement. BEG does not provide tax advice.