Depreciation, §179, and Bonus Depreciation in 2026

OBBBA restored permanent 100% bonus depreciation

Under TCJA, bonus depreciation was scheduled to phase down: 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, zero in 2027. The One Big Beautiful Bill Act (OBBBA) reversed this, restoring 100% bonus depreciation for qualifying property placed in service after January 19, 2025 — and making it permanent rather than time-limited. Property placed in service between 1/1/2025 and 1/19/2025 remains subject to the TCJA 40% rate.

Section 179 in 2026

§179 lets a business expense the cost of qualifying tangible personal property and certain real property improvements (qualified improvement property, roofs, HVAC, fire systems, security systems on non-residential real property) in the year of placement. The 2026 ceiling is $2.56 million, with a dollar-for-dollar phase-out beginning at $4.09 million of qualifying purchases. §179 is also limited to taxable business income — it cannot create a loss (unlike bonus depreciation).

§179 vs bonus depreciation — when each matters

Functionally similar, but four differences matter: 1. §179 is income-limited; bonus depreciation can create or expand an NOL. 2. §179 is elected asset-by-asset; bonus applies automatically to all eligible classes unless the taxpayer elects out. 3. §179 covers some real-property improvements (roofs, HVAC) that bonus may not. 4. State conformity varies — many states cap or disallow bonus depreciation but follow federal §179 with their own ceilings (CA, NJ, NC). Practical order: §179 the asset categories the state recognises, then 100% bonus the remainder, then state-only MACRS adjustments.

Cost segregation studies

A cost segregation study disassembles a building into its components and reclassifies items normally embedded in 39-year non-residential (or 27.5-year residential) real property into shorter MACRS class lives: 5-year (carpet, decorative lighting, computer cabling), 7-year (some equipment), 15-year (land improvements — landscaping, parking lots, exterior signage). Reclassified assets become eligible for 100% bonus depreciation, dramatically accelerating deductions on real-estate acquisitions and improvements. IRS Audit Technique Guide for Cost Segregation Studies (2017, updated 2022) sets out the engineering-based methodology the IRS accepts.

Listed property and luxury autos

Passenger vehicles under 6,000 lb GVWR fall under §280F luxury-auto caps: ~$13,200 first-year depreciation without bonus, ~$21,200 with bonus (2026 estimates pending IRS Rev. Proc. update). Heavy SUVs (>6,000 lb GVWR) get a $31,300 §179 cap but escape §280F's luxury caps on the remaining basis — common planning territory for owner-operators choosing between a sedan and a heavy SUV. Business-use percentage must exceed 50% for any §179 / bonus on listed property; drop below 50% and recapture applies in the year of the drop.

Recapture risk

Depreciation recapture under §1245 (personal property) and §1250 (real property) converts gain on sale up to accumulated depreciation back into ordinary income (§1245) or 25% rate gain (unrecaptured §1250). Bonus and §179 accelerate the recapture exposure, not eliminate it. Multi-year holding plans should model recapture, not just the front-loaded deduction.

Worked example: Stoney Creek Bakery LLC (Sole-Proprietor Schedule C)

Bought a new commercial oven for $48,000 and a delivery van (8,500 lb GVWR) for $62,000, both placed in service in May 2026. Net profit before depreciation: $185,000.

Commercial oven: 7-year MACRS class. §179 election: 48,000 → full expense Delivery van (heavy GVWR, no luxury cap): §179: up to $31,300 cap on SUV-style vehicles, but standard heavy vans/trucks not subject to that cap Take full §179: 62,000 §179 total: 110,000 — well under $2.56M ceiling and below taxable-income cap (185k). Remaining depreciation: 0. First-year deduction: $110,000. Adjusted Schedule C net: 75,000 before SE tax half-deduction.

Statute references

• Section 179 expensing — IRC §179
• Bonus depreciation (100% post-1/19/2025, permanent) — IRC §168(k); OBBBA §70301
• MACRS depreciation system — IRC §168
• Listed property and luxury auto caps — IRC §280F
• Depreciation recapture — IRC §§1245, 1250

Related pages

• Schedule C Guide →
• Tax Changes 2026 Guide →
• §174 R&D Guide →