Section 179 and Bonus Depreciation: How to Write Off Equipment Correctly

Buy qualifying equipment, put it to work, and you can usually deduct the whole cost in year one instead of spreading it across five to seven years. Two separate rules get you there: Section 179 and bonus depreciation under Section 168(k). Bonus depreciation is back at 100% with no scheduled expiration, Section 179 limits are permanent and indexed to inflation, and the places people get hurt are vehicle caps, loss limits, and Florida's own treatment.

The two rules in plain terms

Section 179 is an election. You choose specific assets, deduct up to an annual dollar limit, and the deduction cannot push your return into a loss. For tax years beginning in 2026 the maximum deduction is $2,560,000, and it phases out dollar for dollar once you place more than $4,090,000 of qualifying property in service. Both figures are indexed annually, so confirm the current-year numbers before you rely on them.

Bonus depreciation is automatic. There is no annual dollar ceiling and no investment phase-out at the aggregate level, and it can create a loss. You do not elect in. You elect out.

The acquisition date matters more than the calendar year

This is the single most expensive misunderstanding in circulation. The One Big Beautiful Bill Act restored 100% bonus depreciation for property acquired after January 19, 2025. It was signed in July 2025, but it reaches back to that January date.

So a "2025 = 40%" rate table is wrong, and a business that filed a 2025 return claiming 40% on a March 2025 purchase left the other 60% on the table.

One trap inside the trap: property is generally treated as acquired when you enter into a written binding contract, not when it shows up on your loading dock. Sign a purchase contract in December 2024, take delivery in 2025, and you are in the 40% regime no matter what the placed-in-service date says.

If you would rather spread deductions than bunch them, there is an election under Section 168(k)(10) to take 40% instead of 100% for the first tax year ending after January 19, 2025. It is a real planning lever and almost nobody mentions it.

IRS Notice 2026-11, issued in January 2026, is the operating guidance here. It covers the acquisition-date substitutions, the component election for self-constructed property, and the elections just described. It does not publish a list of qualifying gadgets, and it does not say a car under 6,000 pounds gets an uncapped write-off.

The Section 179 income limit is not "your business profit"

You will read everywhere that Section 179 cannot exceed your business's net income. That is a sloppy version of the rule and it costs people deductions.

The actual limit is your aggregate taxable income from the active conduct of any trade or business, computed without regard to the Section 179 deduction itself, the self-employment tax deduction, or any net operating loss. Per IRS Publication 946, that figure includes Section 1231 gains, interest from working capital, and wages, salaries, tips, or other pay earned as an employee.

Read that last part twice. If you run a low-profit side business and you or your spouse earn W-2 wages on a joint return, you can often deduct far more under Section 179 than "business net income" would suggest. Anything still disallowed carries forward indefinitely.

Side by side

Order of operations: Section 179 first, then bonus depreciation on whatever basis is left.

What qualifies, and the three categories people get wrong

The general test is tangible property with a MACRS recovery period of 20 years or less, placed in service in your business, used more than 50% for business. Machinery, restaurant and medical equipment, tools, computers, servers, point-of-sale systems, office furniture, and work vehicles all fit comfortably. Land, inventory, investment property, and the building itself do not.

Three areas where the internet is confidently wrong:

HVAC. Old articles say air conditioning and heating units are excluded from Section 179. That exclusion was repealed for tax years beginning after 2017. Pub. 946 lists heating, ventilation, and air-conditioning property as qualified real property that you can elect under Section 179, and portable units as ordinary Section 179 property. Meanwhile a building HVAC system is 39-year property and generally does not get bonus depreciation. If you follow the old rule you skip a real deduction and claim one you are not entitled to.

Qualified improvement property. QIP is narrowly defined: an improvement to the interior of a nonresidential building, excluding enlargements, elevators and escalators, and internal structural framework. QIP is 15-year property, eligible for both Section 179 and bonus. Roofs, HVAC, fire protection and alarm systems, and security systems are not QIP. They are a separate category of qualified real property, eligible for Section 179 only.

Software. Off-the-shelf purchased software qualifies for Section 179. A SaaS subscription is not property at all. It is an ordinary business expense you deduct currently, and there is nothing to elect or depreciate.

Vehicles: where the money actually gets lost

Vehicles are the most-marketed and least-understood piece of this.

A passenger automobile under 6,000 pounds GVWR is listed property subject to the Section 280F cap. For 2026, the first-year deduction is limited to $20,300 if bonus depreciation applies, or $12,300 if it does not. Buy a $60,000 sedan expecting a $60,000 write-off and you will be off by roughly $40,000.

A sport utility vehicle over 6,000 pounds escapes 280F but hits the Section 179 SUV sublimit, which is $32,000 for 2026. The rest of the basis can generally go to bonus depreciation.

Here is the exception the marketing posts never mention: the SUV sublimit does not apply to a vehicle with a cargo area of at least six feet in interior length that is not readily accessible from the passenger compartment, a vehicle seating more than nine passengers behind the driver, or a classic cargo van. Most work trucks and service vans a trades business in Orlando or Jacksonville actually buys are exempt and need no cap analysis at all.

And the recapture trap: if business use of a vehicle or other listed property drops to 50% or less in a later year, the excess Section 179 and bonus depreciation comes back as ordinary income. Keep contemporaneous mileage logs.

The loss limit nobody talks about

"Bonus depreciation has no income limit" is true about Section 168(k) and misleading about your actual return.

If you are a noncorporate owner, the excess business loss limitation under Section 461(l) caps how much business loss you can use against wages, spousal income, and investment income. For tax years beginning in 2026 the threshold is $256,000, or $512,000 on a joint return. Anything above that is disallowed currently and converted into a net operating loss carryforward, which is then limited to 80% of taxable income in the year you use it. That 80% figure is an NOL rule for everyone, not a special pass-through rule.

Translation: a large Q4 equipment purchase will not necessarily zero out your personal tax bill.

Florida: the part most articles get backwards

No state personal income tax. Sole proprietors, single-member LLCs, partners, and S-corporation shareholders keep the full federal benefit with no state-level clawback. That is a genuine structural advantage over owners in California, New York, or Illinois.

But Florida decouples from bonus depreciation. Florida imposes a 5.5% corporate income tax, and under Fla. Stat. 220.13(1)(e) corporate filers must add back all Section 168(k) bonus depreciation for property placed in service before January 1, 2027, then recover it as a one-seventh subtraction over seven years. Bonus depreciation on qualified improvement property placed in service on or after January 1, 2018 is added back with no one-seventh subtraction at all.

For a Florida C corporation, 100% federal bonus produces essentially zero first-year Florida benefit. Any article telling you Florida "makes this more valuable" for entities that file an F-1120 has it backwards. Florida S corporations generally do not file the corporate return, so the add-back is not their issue.

Sales tax and hurricane season. Florida sales tax and county discretionary surtax paid on equipment become part of your depreciable basis, so they get expensed along with the machine. The county surtax generally applies only to the first $5,000 of the price of a single item of tangible personal property, which caps the surtax on a large purchase. And if a storm forces you to replace equipment in Q3 or Q4, the placed-in-service test still governs. Delivered on December 28 but not operational until January means a January deduction.

Non-resident founders with U.S. entities

If you are forming a U.S. company from abroad, the same federal rules apply to the entity, with two practical notes. A U.S. C corporation you own can use bonus depreciation to generate losses that carry forward, but the Florida add-back above applies to its F-1120. And Section 179's active-trade-or-business income limit is measured at the entity level for a corporation, so a startup with no revenue yet will generally get more mileage from bonus depreciation than from Section 179. Get the entity type and state footprint decided before you start buying assets, not after.

It is timing, not free money

Every one of these deductions accelerates cost recovery. It does not increase it. You deduct the same total either way. The benefit is the time value of money and any rate arbitrage, not the full bracket-rate figure you see quoted.

Two things shrink that benefit further. If you qualify for the Section 199A deduction, expensing equipment reduces qualified business income, so the true marginal benefit runs closer to 80% of your bracket rate. And because basis drops to zero, Section 1245 recaptures gain as ordinary income when you sell the asset. If you expect to be in a materially higher bracket later, accelerating can genuinely cost you money.

Sole proprietors filing Schedule C get a partial offset in the other direction, since accelerated depreciation also reduces self-employment tax.

What to do next

1. 01Pull every capital invoice from the year, plus your remaining purchase pipeline. Note the contract signature date, not just the invoice date.
2. 02Confirm placed-in-service dates. The test is ready and available for use, not paid for.
3. 03Estimate your active-business taxable income, including W-2 wages on the return, before applying Section 179.
4. 04Check GVWR and business-use percentage on every vehicle, and check whether the cargo-area or seating exception takes the SUV sublimit off the table.
5. 05Layer Section 179 first, then bonus on the remaining basis, and model whether the result trips the excess business loss threshold.
6. 06Decide affirmatively whether you want 100%. If you would rather spread the deduction, the election-out is made by attaching a statement to your return identifying the class of property. If you filed timely without making it, you can generally still elect on an amended return within six months of the original due date, not counting extensions, marked "Filed pursuant to section 301.9100-2."
7. 07File Form 4562 and keep invoices, delivery records, and usage logs.
8. 08Run the Florida corporate add-back separately if you file an F-1120. Your federal and Florida depreciation schedules will not match.

Accounting BOSS works with small businesses in Orlando, Jacksonville, and Miami, and with non-resident founders setting up U.S. entities. The right answer here depends on your entity type, your income outside the business, and what you expect next year to look like. Talk it through before the purchase, not at filing time.