Section 179 is a U.S. tax provision that allows businesses to deduct the cost of qualifying equipment, software, and certain improvements in the year the asset is placed into service rather than depreciating it over time.
As 2025 winds down and a new planning season approaches, business owners enter that familiar moment of reflection. How many investments did the company make this year? What needs upgrading next year? Which major purchases can't wait, and which can be strategically timed for better tax results? It's in this season of sharpening pencils and modeling out the path ahead that one tool rises to the top of the planning stack: the Section 179 deduction.
And 2026 brings new relevance. Updates under the One Big Beautiful Bill (OBBB) increased the baseline Section 179 expensing limit, and the next round of IRS inflation adjustments means the deduction is poised to become even more powerful for entrepreneurs, founders, and growing businesses. For many companies, the difference between spreading deductions over five or seven years and writing off the entire investment immediately can reshape cash flow, profitability, and expansion decisions.
That is exactly why we're publishing this comprehensive article for clients, prospects, and curious readers looking for clarity. Section 179 is often misunderstood, sometimes underused, and occasionally misapplied. What follows is the clearest, most actionable explanation of what's changing in 2026 and how to use those changes to your advantage.
The core idea behind Section 179 is simple: the IRS lets businesses deduct the full cost of qualifying property in the year it's placed into service, rather than depreciating it over several years. It's immediate expensing. Instead of waiting, you get to claim the deduction now.
Qualifying property generally includes tangible personal property used in a trade or business, business equipment, certain off-the-shelf software, and qualified improvement property (interior improvements to nonresidential buildings). The key is that the asset must be used more than 50% for business, a rule that becomes especially important in vehicle-related planning.
In practice, this deduction can fundamentally alter how business owners think about investments: equipment upgrades, technology overhauls, fleet purchases, production expansions, and even office improvements. If the company has taxable income to offset and a real business need for the asset, Section 179 can inspire a more decisive, growth-oriented strategy.
The OBBB increased the Section 179 baseline expensing cap to $2.5 million beginning with tax years after December 31, 2024. That baseline receives annual inflation adjustments, and industry reporting indicates the 2026 limits will be approximately $2.56 million for the maximum deduction and $4.09 million for the phase-out threshold. As always, the IRS will issue the authoritative inflation-adjusted numbers in its yearly revenue procedure, and business owners should confirm the final figures when planning purchases or filing returns.
Even at a glance, it's clear these expanded limits can pack a punch. A business investing multiple millions into growth can deduct more upfront rather than waiting for depreciation to trickle through future tax years. A smaller company can complete long-delayed upgrades and use the deduction to lower taxable income meaningfully. And a growing firm can coordinate purchase timing to stay below the phase-out threshold and preserve the full deduction.
This is one of those moments when "up to date" isn't a technicality; it's the difference between optimizing a year-end strategy and missing opportunities simply because the rules shifted.
Of every question we get about Section 179, nothing comes close to the sheer volume of vehicle inquiries. Business owners love clarity around cars, trucks, SUVs, & fleets, and the rules reward clarity.
Heavy SUVs, trucks, and vans with a gross vehicle weight rating (GVWR) above 6,000 pounds often qualify for far more generous deductions. When these vehicles are used predominantly for business, Section 179 can allow a substantial first-year deduction, usually coupled with bonus depreciation for the remaining basis. This makes them some of the most tax-efficient assets a business can buy.
Passenger autos, however, fall under strict "luxury vehicle" limits that sharply curb the first-year deduction. Business owners still benefit from depreciation, but not at the level often imagined.
Business-use percentage is everything here. Claiming Section 179 on a vehicle that is casually used for personal trips, or that lacks proper mileage logs, is one of the quickest paths to serious audit friction. The IRS considers vehicles "listed property," which means meticulous documentation is required. When business use drops below 50% in a later year, depreciation must be recaptured, a rude surprise many taxpayers discover only after the fact.
For companies with travel-heavy teams, regional services, construction operations, or delivery routes, thoughtful planning at the intersection of GVWR, business use, and recordkeeping creates real value.
The tax code rarely gives you a single tool. More often, it's a toolkit. That's the case with Section 179, bonus depreciation, and MACRS (the traditional multi-year depreciation system).
The IRS requires taxpayers to apply deductions in this order:
Elect Section 179.
Apply bonus depreciation (if available and beneficial).
Depreciate the remaining basis using MACRS.
Understanding this order makes planning more strategic.
Section 179 is limited by taxable business income. Bonus depreciation is not. So a business experiencing a low-income year may lean more heavily on bonus depreciation. A company with high taxable income may prioritize Section 179 because it offers controlled, elective expensing.
The OBBB revived bonus depreciation for certain property classes, increasing the first-year planning flexibility companies can bring to their planning. Compared with a few years ago, businesses now have a greater ability to tailor their deduction strategy to their profitability, entity type, and asset mix.
To ground these ideas, here are three live scenarios using the industry-reported 2026 limits. (We will update the figures immediately once the IRS publishes its authoritative final numbers.)
Example 1: A consulting firm upgrades its technology.
A sole-owner advisory and software consulting company invests $120,000 into new computers, servers, and office equipment. The owner elects Section 179 to expense the full cost. Because the business has sufficient taxable income, the entire $120,000 is deductible in the year the assets are placed into service. Instead of spreading the deduction over five years, the owner gets immediate tax relief and improved cash flow.
Example 2: A founder buys a heavy SUV for business.
A founder purchases a $75,000 SUV with a GVWR of 6,500 pounds, used 70% for business. The business-use basis is $52,500. Section 179 allows a first-year deduction up to that business-use portion (subject to vehicle-specific caps), and bonus depreciation can reduce the remaining basis. With proper logs, the founder gets a significant deduction without waiting for multi-year depreciation schedules.
Example 3: A growing company invests in expansion.
A manufacturing firm purchases $4.5 million of qualifying equipment. With the industry-reported $4.09 million phase-out threshold for 2026, the company exceeds the threshold by approximately $410,000. Section 179 is reduced dollar-for-dollar above the threshold, leaving no Section 179 deduction available. Instead, the company turns to bonus depreciation and MACRS to manage the remaining basis. This is a prime example of why strategic timing matters: had the purchase been split across two tax years, the company could have preserved significant Section 179 value.
These examples reflect the power and nuance of the rules in 2026.
As we move into a new planning season, several strategies stand out.
Placing assets into service before year-end remains one of the simplest and most effective ways to capture deductions. But the timing can also help businesses avoid the phase-out. For companies nearing the threshold, staggering investments across tax years may preserve larger immediate deductions.
Cash flow should play a significant role in planning. Section 179 doesn't require the purchase to be paid in full; financing is allowed as long as the asset is placed in service. That said, deducting the entire cost upfront while spreading actual payments over time can make the business feel cash-richer than it truly is. Good planners model this in advance.
Entity structure matters, too. S-Corp owners must consider reasonable compensation and its effect on taxable business income. Partnerships distribute deductions differently. C-corporations often align expensing with broader capital strategy. Any of these conditions can influence whether Section 179 or bonus depreciation should be prioritized.
Above all, Section 179 rewards businesses that plan both their purchases and their profitability with intention.
Federal rules tell one story. States often tell another.
Many states do not fully conform to federal Section 179 rules. Some conform only partially. Others decouple from bonus depreciation entirely. That means a business could write off the entire cost of an asset for federal purposes but depreciate it slowly over several years at the state level.
These differences can affect taxable income, estimated payments, and the overall value of the investment. For multistate businesses or companies with remote workforces, annual conformity checks are essential. Ignoring state rules is one of the easiest ways to invite unpleasant tax surprises later.
Section 179 is powerful, but it draws attention. The IRS knows how often business owners misunderstand or stretch the rules, which is why documentation is everything.
Common audit triggers include:
• Excessive vehicle deductions with weak mileage logs
• Rapid swings in business-use percentages from year to year
• Assets placed "into service" with unclear evidence of actual use
• Large Section 179 elections in low-income years
• Inconsistent reporting across federal forms or between the business and its owners
Good documentation is not complicated; it's consistent. Receipts, financing documents, mileage logs, usage records, and clear descriptions of business purpose go a long way in creating audit-proof confidence.
As the year turns, many business owners focus on growth, hiring, innovation, and serving their customers; not tax code nuances. But Section 179 is one of those rare tax provisions that genuinely shapes strategic decisions. With higher limits on deck for 2026 and the IRS preparing to release its final numbers, the window is wide open for smart investment planning.
VIP Wealth Advisors works with founders, executives, and high-earning professionals to turn these rules into advantages. Whether you're considering a major equipment upgrade, expanding your footprint, adopting new technology, or revamping your fleet, thoughtful planning can create substantial differences in after-tax profitability.
If you're preparing for 2026 purchases or want a strategic review before you finalize your year-end investments, we're here to help you use these rules to your full benefit.
Yes. Section 179 is applied first, and bonus depreciation can apply to the remaining basis.
You can only deduct the business-use percentage. If business use drops below 50 percent later, recapture applies.
In some cases, yes - but the rules are specific. True leases typically do not qualify, while certain financing arrangements do.
Section 179 is limited by taxable business income, but bonus depreciation has no such limitation.
If you're planning equipment, technology, office improvements, or a vehicle purchase, the best time to model the deduction is before you commit to timing and financing. We'll help you pressure-test Section 179 vs bonus depreciation, confirm "placed in service" timing, and reduce audit friction with clean documentation.