Section 179 vs Bonus Depreciation: Which Should You Use?

Section 179 bonus depreciation questions usually come down to one decision: which write-off to claim, in what order, on which assets. The rules for each are covered in their own guides, the section 179 deduction and bonus depreciation. This page is about the choice: how the two differ, the order Form 4562 imposes, an illustration with round numbers, and the situations where one beats the other.

Nine differences that decide the choice

Both deductions reach the same core assets: equipment, machinery, furniture, computers and off-the-shelf software placed in service in a trade or business. The choice turns on the mechanics, taken here from IRC 179, IRC 168(k), Rev. Proc. 2025-32 and the 2025 Form 4562 instructions.

One date matters for bonus: the 100% rate applies to property acquired after January 19, 2025, and a written binding contract fixes the acquisition date (P.L. 119-21 section 70301(c), in the notes to IRC 168). Property acquired before January 20, 2025 stays on the old phase-down, which Notice 2026-11 puts at 40% for 2025 placements, dropping 20 points a year. Section 179 has no acquisition-date test.

The order on Form 4562: section 179, then bonus, then MACRS

The Form 4562 instructions for line 14 describe bonus depreciation as “an additional deduction you can take after any section 179 expense deduction and before you figure regular depreciation under MACRS.” So for each asset the sequence is fixed:

• Part I, section 179: the amount you elect for that asset, up to the dollar cap and the business income limit on line 11. Disallowed cost lands on line 13 and comes back on next year's line 10.
• Part II, line 14, bonus: 100% of the basis left after section 179, unless the class was elected out.
• Part III, MACRS: whatever basis remains, over the asset's recovery period.

With bonus at 100%, anything section 179 does not absorb is deducted anyway. The choice is really about three things: whether a loss is useful, whether you want some assets deducted and others depreciated, and what your state allows.

Illustration: $600,000 of equipment, $350,000 of business income

Option A is the trap: electing section 179 on the whole $600,000 strands $250,000 in a carryforward, because IRC 179(b)(3) caps the deduction at business income and the elected cost is no longer available for bonus or MACRS. Option B matches Option D but keeps the section 179 election on specific assets, which matters in states that allow section 179 and not bonus. Option C suits a company that cannot use a loss this year.

When section 179 wins

• Building systems. Roofs, HVAC, fire protection and alarm systems and security systems on a nonresidential building are qualified real property under IRC 179(e). They are 39-year property, so bonus depreciation never reaches them. Section 179 is the only first-year write-off for a $90,000 rooftop unit.
• You want some assets, not the whole class. Bonus is all or nothing by class of property (all 5-year assets, all 7-year assets). Section 179 lets you expense the forklift and depreciate the trucks.
• State taxes. A state that allows section 179 (even at a lower cap) but disallows bonus produces a smaller state add-back when the federal deduction is taken under section 179.
• Older purchases. Property acquired under a contract signed before January 20, 2025 gets only the phase-down bonus rate. Section 179 still deducts all of it, subject to the caps.

When bonus depreciation wins

• Loss years and startups. Section 179 cannot exceed business income. Bonus can, and the resulting loss becomes a net operating loss (for individuals and pass-through owners, after the excess business loss limitation).
• Purchases above the cap. Section 179 phases out dollar for dollar above $4,090,000 and is gone at $6,650,000 of 2026 purchases. Bonus has no ceiling.
• Rental real estate that is not a trade or business. Publication 946 excludes from section 179 property held only for the production of income, including rental property when renting is not your trade or business. Bonus depreciation has no active-conduct requirement, which is why it pairs with a cost segregation study.
• Expected higher rates later. If you expect a much higher marginal rate in a later year, deferring is worth modeling: elect out of bonus for a class, or take section 179 only up to this year's income, and keep the rest as future MACRS deductions.

Vehicles: the SUV cap applies only to section 179

For a sport utility vehicle rated over 6,000 pounds and up to 14,000 pounds, IRC 179(b)(5) caps the section 179 amount, and Rev. Proc. 2025-32 sets the cap at $32,000 for tax years beginning in 2026. Bonus depreciation has no such cap, so an $80,000 SUV used entirely for business can take $32,000 under section 179 and $48,000 of bonus in the same year. Vehicles at or under 6,000 pounds face the IRC 280F annual limits instead. The weight lines, the exceptions for pickups and vans and four worked vehicles are in the section 179 vehicles guide.

State conformity: run the numbers twice

States write their own depreciation rules, and the federal choice can change the state bill. California is a documented example: the 2025 Form FTB 3885A instructions cap the California section 179 deduction at $25,000 with a $200,000 phase-out threshold and list “Additional depreciation (IRC Section 168(k))” among the federal and state differences. Other states have their own add-backs and, in some cases, their own recovery schedules. Before electing, ask your preparer for the state depreciation schedule under each option, not only the federal one.

Changing your mind after filing

The two elections travel differently. Publication 946 allows the section 179 election to be made on an amended return filed within the time prescribed by law, and IRC 179(c)(2) lets you revoke an election, but a revocation, once made, is irrevocable. The bonus election out has a narrower window: the Form 4562 instructions allow a late election by amended return within 6 months of the return's due date, excluding extensions, and IRC 168(k)(7) says an election out can be revoked only with IRS consent. A section 179 choice is easier to fix after filing than a bonus choice.

Sources: 26 U.S.C. 179, election to expense certain depreciable business assets; 26 U.S.C. 168(k), special allowance for certain property; IRS Rev. Proc. 2025-32, section 3.24 (2026 section 179 amounts); IRS, 2025 Instructions for Form 4562; IRS Publication 946 (2025), How To Depreciate Property; IRS Notice 2026-11, bonus depreciation after P.L. 119-21; California FTB, 2025 Instructions for Form FTB 3885A. Rules and amounts checked against these sources on September 26, 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.