Depreciation isn’t just for tax season.
Business equipment is generally treated as a capital asset, and depreciation allows a business to recover its cost through tax deductions spread over time. If you need a quicker, larger write-off, there are two accelerated options that can work together to maximize savings:
- Section 179, which allows qualifying businesses to expense some or all of the cost immediately, subject to limits.
- Bonus Depreciation, which allows qualifying property to be fully depreciated in the first year.
Here’s how Section 179 and Bonus Depreciation compare:
| Section 179 | Bonus Depreciation | |
|---|---|---|
| What it does | Allows immediate expensing of qualifying property | Accelerates depreciation into the first year |
| 2026 Threshold | $2.56 million* | 100% for qualifying property** |
| Phaseout | Yes | No comparable overall dollar phaseout |
| Taxable income limitation | Yes. It cannot create a net loss for your business | Can create or increase a net operating loss |
| Control & selection | You can choose which specific assets to apply it to and how much of a deduction to take | Typically all-or-nothing automatic application (unless you explicitly elect out of it) |
*The Section 179 maximum for 2026 is $2.56 million, reducing once qualifying property placed in service exceeds $4.09 million.
**The property must qualify for Bonus Depreciation, and other tax rules still matter.
When is one better than the other?
When would you only use Section 179?
- When you need flexibility to precisely target a specific net income number
- If your state disallows bonus depreciation
- If you need a first-year write-off
When would you only use Bonus Depreciation?
- If you want to intentionally create a net loss
- To avoid spending and purchasing caps
- When you want to apply the deduction automatically to all qualifying property
Section 179 and Bonus Depreciation can be used together…
When using both on your tax return, the IRS requires you to apply Section 179 first, then apply bonus depreciation to any remaining cost over the $2.56M threshold. If your business purchases more than that limit in qualifying equipment, you can use bonus depreciation to deduct 100% of the remaining balance with no overall dollar limit.
The best part? These deductions work whether you pay cash or finance!
The IRS notes that property can be considered owned for depreciation purposes even when it’s subject to debt. What this means is that you may be able to finance qualifying equipment and still take advantage of applicable depreciation deductions, provided the tax requirements are met! Here’s what your first year investment could look like with both options:
Cash Purchase
$100,000 equipment
$100,000 cash leaves the business
Financed Purchase
$100,000 equipment
$2,000 monthly payment
Preserve working capital (cash on hand)
Same depreciation treatment!
Other stuff you need to know…
Remember, tax deduction ≠ tax credit.
A $100,000 deduction does not mean the government sends you $100,000. Instead, it’s a reduction in taxable income. Your actual tax savings will depend on your unique circumstances and tax rate.
Also, equipment needs to not only be purchased but also placed in service – ready and available for its intended business use – in the year you plan to use the deduction(s). If you’re considering equipment for your business, don’t wait until December! Financing, delivery and install, and gettin the equipment ready to be used take time.
For the current IRS rules and limitations, see the IRS’s Section 179 guidance (scroll down the left menu to the Section 179 section). Geneva Capital can help find a structure to fit your needs, but you should also consult your tax advisor when weighing your tax options and making purchasing decisions.
