Section 179 and bonus depreciation both accelerate the deduction for equipment and other qualifying property, and they interact in a fixed order. The 2025 legislation, Public Law 119-21, made the 100 percent additional first-year depreciation allowance permanent for qualifying property acquired after January 19, 2025, and the IRS issued interim guidance in Notice 2026-11. This article explains the mechanics, the limits and the decisions a CPA firm needs to document.
Section 179 limits
Section 70306 of Public Law 119-21 set the base amounts at $2,500,000 and $4,000,000 for property placed in service in tax years beginning after 2024. The 2026 inflation-adjusted amounts and the SUV caps come from Revenue Procedure 2024-40 (2025 SUV cap) and Revenue Procedure 2025-32 (2026):
| Tax year | Maximum deduction | Reduced when qualifying property placed in service exceeds | SUV cap |
|---|---|---|---|
| 2025 | $2,500,000 | $4,000,000 | $31,300 |
| 2026 | $2,560,000 | $4,090,000 | $32,000 |
The deduction is reduced dollar for dollar by the amount the cost of section 179 property placed in service exceeds the threshold. The deduction is also subject to business income and taxable income limits, with a carryover of any disallowed amount. The Form 4562 instructions set out the computation.
Eligible property includes tangible personal property, off-the-shelf computer software, qualified section 179 real property and qualified improvement property. Land and land improvements do not qualify. For taxpayers other than corporations, property purchased and leased to others is excluded unless the taxpayer manufactured or produced it or the lease meets the short-term lease test in the Form 4562 instructions. Passenger automobiles, other transportation property that lends itself to personal use and entertainment or recreation property fall under the listed property rules, and the Form 4562 instructions treat passenger automobiles weighing 6,000 pounds or less as listed property.
Bonus depreciation
Publication 946 describes the special depreciation allowance as an additional deduction in the year the property is placed in service, taken after any section 179 deduction and before regular MACRS depreciation. The allowance applies only in the first year. Unless the taxpayer elects out, the allowance is mandatory for qualified property.
Notice 2026-11 explains the changes made by section 70301 of the 2025 act:
- A permanent 100 percent additional first-year depreciation deduction for qualified property acquired and placed in service, and specified plants planted or grafted, after January 19, 2025.
- Removal of the requirement that qualified property be placed in service before January 1, 2027, and of the annual phase-down of the percentage.
- A taxpayer election under section 168(k)(10) to deduct 40 percent instead of 100 percent (60 percent for certain property with longer production periods and certain aircraft) for qualified property placed in service during the first taxable year ending after January 19, 2025.
For property acquired before January 20, 2025 and placed in service in 2025, Publication 946 states that the allowance is generally 40 percent. The acquisition date therefore decides the rate, and the Notice explains how to identify it.
The acquisition date
The effective date applies to property acquired after January 19, 2025. The Notice states that property is not treated as acquired after the date a written binding contract is entered into for the acquisition. For property acquired under a non-binding contract, the Notice, applying Treasury Regulation 1.168(k)-2(b)(5)(v), looks to the date the taxpayer paid or incurred more than 10 percent of the total cost, excluding land and preliminary activities. Self-constructed property carries its own rules. For every asset placed in service in 2025 or later, the fixed asset file should include the date of the binding contract, the invoice date and the placed-in-service date.
The order of deductions
- Section 179 first, limited by the dollar limit, the investment threshold and the income limits.
- Bonus depreciation on the remaining basis.
- Regular MACRS depreciation on what remains. See MACRS recovery periods and conventions.
Because bonus is mandatory unless the taxpayer elects out, a client who wants to spread deductions has to elect out by class of property. The election applies to the whole class placed in service in the year. A taxpayer who wants a different split between assets uses section 179 selectively, since section 179 is elective asset by asset.
Choosing between them
- Taxable income is low or negative. Section 179 is limited by business income, and bonus has no such limit, so bonus can create or increase a net operating loss. Consider whether the client needs that loss now.
- State conformity. States differ on conformity to bonus depreciation and section 179 limits. State decoupling creates a book-tax-state difference that the firm should track.
- QBI deduction. Accelerated depreciation lowers qualified business income. Model the net effect with the deduction in the QBI article.
- Interest limitation. The business interest limitation base is again computed with depreciation added back for tax years beginning after 2024, per the IRS Form 8990 instructions, so depreciation timing no longer reduces the base for those years. See the glossary entry on section 163(j).
- Future income. Front-loading deductions reduces later depreciation. A client expecting higher rates or income should compare.
Documentation
Maintain for each asset: description, cost, vendor, contract date, invoice date, placed-in-service date, property class, recovery period and convention, section 179 amount, bonus amount and the election in effect. Reconcile the tax fixed asset register to the book register each year, and track the difference. See the glossary entries on section 179 deduction and bonus depreciation, and depreciation schedules and MACRS.
Qualified production property
Section 70307 of the 2025 act added a separate elective allowance under section 168(n) for qualified production property. Notice 2026-11 provides interim guidance on section 168(k) only, so treat the section 168(n) allowance as a separate analysis under the statute and any later IRS guidance.
FAQ
Is bonus depreciation optional?
Unless the taxpayer elects out for a class of property, the allowance is taken.
Does section 179 apply to buildings?
Land and land improvements do not qualify, but qualified improvement property and certain qualified real property can.
Which limit applies to a 2026 purchase?
The 2026 figures in the table: $2,560,000, reduced above $4,090,000, with a $32,000 SUV cap.
CORAA prepares ready-to-review audit files for US CPA firms; see /us.
Sources
- IRS, Notice 2026-11, Interim Guidance on Additional First Year Depreciation Deduction under Section 168(k): https://www.irs.gov/pub/irs-drop/n-26-11.pdf
- IRS, Revenue Procedure 2025-32, 2026 inflation adjustments: https://www.irs.gov/pub/irs-drop/rp-25-32.pdf
- IRS, Revenue Procedure 2024-40, 2025 inflation adjustments: https://www.irs.gov/pub/irs-drop/rp-24-40.pdf
- Public Law 119-21, sections 70301, 70306, 70307 and 70303 (statute text, GovInfo): https://www.govinfo.gov/content/pkg/PLAW-119publ21/html/PLAW-119publ21.htm
- IRS, Publication 946, How To Depreciate Property: https://www.irs.gov/publications/p946
- IRS, Instructions for Form 4562: https://www.irs.gov/instructions/i4562
- IRS, Instructions for Form 8990: https://www.irs.gov/instructions/i8990
- IRS, One Big Beautiful Bill provisions: https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions
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