Bonus Depreciation and Section 179 : What to Buy Before December 31

September is a good time to start reviewing year-end equipment decisions: not because every business should rush to make a purchase, but because thoughtful Q4 planning requires time.

Under the One Big Beautiful Bill Act (OBBBA), the rules for bonus depreciation and Section 179 changed significantly. For many small businesses, qualifying property acquired and placed in service in 2026 may be eligible for 100% bonus depreciation. The Section 179 deduction limit has also increased.

That may create useful planning opportunities. But a tax deduction should never be the reason you buy something your business does not need.

The better question is:

> What investment will improve the business: and what do the numbers say about making that investment this year?

What changed under the OBBBA?

The OBBBA permanently restored 100% bonus depreciation for certain qualified property acquired and placed in service after January 19, 2025. That means eligible property placed in service during 2026 may qualify for a first-year deduction equal to 100% of its depreciable basis.

The law also increased the Section 179 expense limit. For 2026, the IRS lists the maximum Section 179 deduction at $2,560,000, with the phaseout beginning when the total cost of qualifying property placed in service exceeds $4,090,000.

The $2.5 million figure often referenced in summaries is the statutory amount established by the law. For 2026, inflation adjustment brings the practical limit to $2.56 million.

These amounts are far above what most small businesses will use. Still, understanding the rules matters because the choices affect your taxable income, cash position, financial statements, and future depreciation.

What qualifies for bonus depreciation?

Bonus depreciation, called the “special depreciation allowance” in IRS guidance, generally applies to certain qualified property with a recovery period of 20 years or less under the Modified Accelerated Cost Recovery System (MACRS).

Common examples may include:

• Machinery and production equipment

• Computers and certain off-the-shelf software

• Office furniture and equipment

• Certain business vehicles

• Qualified improvement property

• Certain improvements to nonresidential property

• Certain used property that meets the applicable requirements

The rules are more specific than this list suggests. Property may need to be purchased, used in the business, and not subject to certain exclusions. Property required to use the Alternative Depreciation System generally does not qualify for bonus depreciation.

A vehicle may also be subject to special business-use and depreciation limits. A vehicle that is used partly for personal purposes requires careful documentation, and passenger automobiles can have separate deduction limitations.

The IRS also distinguishes between property that is merely purchased and property that is placed in service.

“Placed in service” does not mean “ordered”

For depreciation purposes, property is generally placed in service when it is ready and available for its specific business use.

Ordering equipment in December may not be enough. Paying a deposit may not be enough. Having an invoice dated December 28 may not be enough.

If a machine is delivered but still requires installation, customization, or testing before it can perform its intended function, the placed-in-service date may be later.

This is one reason year-end planning should begin before December. You need time to confirm:

• What asset is being purchased

• When ownership transfers

• When the asset will be delivered

• Whether installation is required

• When the asset will be ready and available for business use

• How much of the asset will be used for business

The timing must be supported by documentation: not assumptions.

How does Section 179 work in 2026?

Section 179 allows a business to elect to expense all or part of the cost of qualifying property in the year it is placed in service, subject to limitations.

For 2026:

• The maximum Section 179 deduction is $2,560,000

• The phaseout begins at $4,090,000 of qualifying property placed in service

• The limit applies per taxpayer, not simply per business

• The deduction is generally limited to taxable income from the active conduct of a trade or business

• Certain sport utility vehicles have a separate limitation; the 2026 maximum listed by the IRS is $32,000

Qualifying Section 179 property may include tangible personal property, off-the-shelf computer software, and certain qualified improvements to nonresidential real property. These improvements can include items such as qualified improvement property, roofs, HVAC systems, fire protection and alarm systems, and security systems, provided the specific requirements are met.

Land and most building structures do not qualify for Section 179. Neither does every software subscription or technology expense. The classification depends on the nature of the purchase and the applicable tax rules.

Section 179 can also be useful because a business may generally choose which qualifying assets receive the election. That can provide more flexibility than applying a deduction automatically across a class of property.

How do Section 179 and bonus depreciation interact?

The two provisions are related, but they are not interchangeable.

Generally, Section 179 is applied first. Bonus depreciation may then apply to the remaining depreciable basis of eligible property. Regular MACRS depreciation applies to any basis that remains after those deductions.

For example, suppose your business purchases $100,000 of qualifying equipment and elects to expense the entire amount under Section 179. There may be no remaining basis for bonus depreciation on that asset.

If you elect Section 179 on only part of the cost, the remaining eligible basis may qualify for bonus depreciation. The exact result depends on the asset, the business entity, taxable income, business-use percentage, and other circumstances.

Bonus depreciation generally does not have the same taxable-income limitation as Section 179 and may create or increase a net operating loss. That does not automatically make it the better choice. A larger deduction today may not be the best result if it creates an unintended loss, affects other calculations, or removes deductions that would have been useful in later years.

A tax professional should evaluate the choice before the business commits to a strategy.

What should your business consider buying?

The best purchase is not the one with the biggest deduction. It is the one that supports your business model and produces a reasonable return.

Consider equipment that will:

Increase capacity

Will the purchase allow you to serve more customers, complete more jobs, or fulfill orders more efficiently?

Reduce recurring costs

Could new equipment reduce repair costs, outsourcing expenses, labor hours, energy usage, or production waste?

Improve quality

Will the investment reduce errors, rework, delays, customer complaints, or returned products?

Protect revenue

Is the purchase replacing an asset that is unreliable or likely to fail during your busiest season?

Create measurable efficiency

Can you identify how the asset will improve your time, margin, throughput, or customer experience?

These questions turn a tax-related purchase into a business decision.

A deduction may reduce taxable income, but it does not make an unneeded purchase profitable. If you spend $50,000 to save a portion of that amount in taxes, you still spent $50,000.

Your books need to support the decision

This is where current bookkeeping becomes essential.

A P&L is an output, not the work. The report may show income, expenses, and depreciation, but the report does not decide whether the underlying numbers are reliable. That depends on accurate transaction coding, reconciled accounts, correctly recorded loans, properly classified assets, and a balance sheet that reflects what the business actually owns and owes.

Before making a major Q4 purchase, you should know:

• Your year-to-date taxable income estimate

• Your current cash position

• Your expected cash needs for the next 90 days

• Your gross margin and operating margin

• Your existing debt obligations

• Your accounts payable and accounts receivable

• Whether the purchase will improve capacity or profitability

• Whether your books are current enough to support the analysis

If your records are not current or reliable, Bookkeeping Made Simple can help through ongoing bookkeeping, advisory support, and cleanup services. Cleanup engagements are available at $997, $1,997, and $3,500, depending on the scope and condition of the records. Visit our cleanup services page to learn more.

The goal is not simply to produce a lower taxable-income number. The goal is to understand what the business can afford, what it needs, and what the investment will do.

A practical Q4 decision process

Before December 31, work through these steps:

1. Identify the business need.
   What problem will the purchase solve?

2. Review the year-to-date numbers.
   Look beyond revenue. Review margins, cash flow, debt, and upcoming obligations.

3. Confirm the asset qualifies.
   Ask a qualified tax professional about eligibility, business-use requirements, limitations, and placed-in-service timing.

4. Compare Section 179 and bonus depreciation.
   Do not assume the largest first-year deduction is automatically best.

5. Protect your cash.
   Consider the down payment, financing costs, maintenance, insurance, training, and operating expenses.

6. Document everything.
   Keep purchase agreements, invoices, delivery records, installation documentation, financing documents, and business-use records.

7. Record the asset correctly.
   Make sure the purchase, loan, depreciation, and payments are reflected accurately in your books.

The bottom line

The 2026 bonus depreciation rules and increased Section 179 limits may give eligible businesses more flexibility when investing in equipment and improvements before year-end.

But tax planning should begin with reliable financial information: not with a deduction search.

Before you buy, make sure you know your year-to-date taxable income, cash position, and actual asset need. Then work with your bookkeeping and tax professionals to determine whether the purchase, the timing, and the depreciation method make sense for your business.

If you want to enter Q4 with numbers you can use: not just reports that exist: explore our bookkeeping and accounting services.

Tax note: This article is for general educational purposes and is not tax, legal, or investment advice. Tax rules, eligibility requirements, entity-level limitations, vehicle rules, and state treatment can vary. Consult your qualified tax professional before making a purchase or depreciation election. For current federal guidance, review IRS Publication 946 and the IRS guidance on the additional first-year depreciation deduction.