Articles · Basics · Business Deductions and Depreciation
Section 179 vs. Bonus Depreciation
Section 179 and bonus depreciation both let businesses deduct more of an asset's cost in the first year. They work differently, and many businesses use both.
Section 179
Section 179 is an election made asset by asset. It has an annual dollar limit, which phases out when total qualifying purchases exceed a threshold. The deduction also cannot exceed taxable income from active business, although a disallowed amount carries forward.
Bonus depreciation
Section 168(k) applies automatically to qualifying property unless the taxpayer elects out by class. It has no dollar limit and can create a loss. Legislation in 2025 restored a 100% rate for qualifying property acquired after January 19, 2025.
Choosing between them
Section 179 suits a business that wants to choose individual assets, and it can cover certain roof, HVAC, and security improvements to nonresidential buildings. Bonus depreciation suits larger purchases or years with a planned loss.
State rules can differ sharply, because many states do not follow bonus depreciation. A separate state depreciation schedule is often needed.
What property qualifies
Both provisions cover most tangible personal property, such as machinery, equipment, computers, and off-the-shelf software. Both can apply to used property if it is new to the taxpayer and acquired from an unrelated party.
Section 179 can also cover qualified improvement property, which is an interior improvement to an existing nonresidential building. It can also cover roofs, HVAC, fire protection, alarm, and security systems on nonresidential real property. Bonus depreciation generally applies to property with a recovery period of 20 years or less, which includes qualified improvement property.
The order of the deductions
When a taxpayer uses more than one, the order matters. Section 179 is applied first and reduces the depreciable basis. Bonus depreciation applies next to the remaining basis, and regular MACRS depreciation applies to anything left.
For example, a company buys a $200,000 machine and elects $50,000 under Section 179. With 100% bonus depreciation, the remaining $150,000 is also deducted, for a full $200,000 in year one.
An example of the income limit
A business has $100,000 of active business income and buys $250,000 of equipment. Section 179 is limited to $100,000 for the year, and any amount elected above that carries forward. Bonus depreciation, by contrast, can deduct the full $250,000 and produce a $150,000 loss.
That loss may be useful, but the owner should first check the excess business loss limit, the passive activity rules, and basis limits. A corporation would have a net operating loss, which is subject to the 80% limit in later years.
Other differences to watch
Section 179 is chosen asset by asset, while the election out of bonus depreciation applies to a whole class of property for the year. The Section 179 limit applies at both the entity and owner level for pass-through entities, so owners with several businesses can lose part of the benefit.
If business use of an asset falls to 50% or less, Section 179 amounts can be recaptured. Vehicles have further limits under Section 280F, and heavy SUVs have a separate Section 179 cap.
Selling an asset that was fully expensed can trigger ordinary income under Section 1245. A large deduction in a low-rate year may also be worth less than regular depreciation over later, higher-rate years, so it pays to model the options.
A preparer's checklist
Begin with the fixed asset additions for the year, and confirm the placed-in-service date, cost, and business-use percentage of each one. An asset bought but not ready for use by year-end generally belongs in the following year.
Classify each addition by recovery period, and confirm whether it qualifies for Section 179, bonus depreciation, or both. For acquired used property, check that it did not come from a related party. Review total purchases against the Section 179 phase-out, and active business income against the income limit.
Then decide on any elections, because a class-wide election out of bonus depreciation affects every asset in that class. Prepare a separate state schedule where needed, and record the elections made so that later years, and any eventual sale of the asset, are handled consistently.
Key takeaways
- Section 179 is elective and limited by business income.
- Bonus depreciation has no dollar cap and can create a loss.
- Check state conformity before finalizing.
Frequently asked questions
Can I use both on the same asset?
Yes. Section 179 is applied first, and bonus depreciation can then apply to the remaining basis.
Do I have to take bonus depreciation?
It applies automatically to qualifying property, unless the taxpayer elects out for a class of property.
Do states follow these rules?
Not always. Many states decouple from bonus depreciation, and some set lower Section 179 limits, so separate state schedules are often needed.
For general education only, not tax advice. Tax law changes often, so confirm current rules and amounts with primary sources.