Most five-person firms end up using bonus depreciation, because it applies unless someone chooses otherwise. Since the 2025 tax law, bonus depreciation is 100% and permanent for qualified property acquired after January 19, 2025, so the laptop, the van and the machine you buy this year can be deducted in full in the year they go into service without any election. Section 179 does the same job by election, item by item, and its 2026 ceiling of $2,560,000 sits far above anything a small service firm spends on equipment. The choice between them matters only at the edges, in a year with little income, on a state return that treats the two rules differently, and for a vehicle, which carries caps of its own.
This is general information, not tax advice; the figures were checked in September 2026 and apply to tax year 2026. Any sentence below that touches your own return is one to take to your CPA.
Both rules move the deduction into the first year
Normally regular depreciation spreads the cost of equipment over its life. Both rules pull that cost forward into the year the equipment is placed in service. Qualified property for bonus depreciation includes tangible property with a recovery period of 20 years or less and off-the-shelf software, which covers most of the equipment a small firm buys. We covered what qualifies for Section 179 in our guide to Section 179 for a small service business.
For a tax year beginning in 2026, Section 179 lets you expense up to $2,560,000 of qualifying property, and that limit shrinks dollar for dollar once you place more than $4,090,000 of it in service. A firm of five will never see either number.
Section 179 is a choice, and it stops at your income
You elect Section 179 item by item. The IRS wording is that you can elect to recover "all or part of the cost" of qualifying property, so you can expense all of one purchase, part of another, and none of a third. You make the election in Part I of Form 4562, and if you skip it, nothing happens. Whatever part of the cost you leave out you can generally depreciate in the ordinary way.
For a small firm, the income limit is the one that binds. Section 179 stops at the taxable income from your active trade or business for the year, so it cannot take you below zero. Whatever the limit blocks carries to the next year. The limits apply to you as a taxpayer, so an owner of two businesses shares one limit across both.
For an individual, the income figure on that line of Form 4562 also counts wages you earned as an employee. An owner with a W-2 job, or a working spouse on a joint return, has a wider income limit than the business alone would give.
Bonus depreciation is the default, and it takes used equipment
Unless you elect out, the IRS says you must take bonus depreciation.
Electing out is all or nothing for a class of property for that year. You cannot drop bonus on one laptop and keep it on another laptop in the same class. You make the election with a statement attached to a timely filed return, including extensions, or on an amended return within 6 months of the original due date. Once you elect out, you cannot take it back without IRS consent, which means a letter ruling. In a partnership or S corporation, the election belongs to the business itself.
Bonus depreciation also reaches second-hand equipment. The IRS says qualified property "can be either new property or certain used property." Used property counts if you had not used it before, you did not buy it from a related party, and your cost is not carried over from the seller's basis, per the IRS's bonus depreciation FAQ. The first test catches a common case. Buying out a van you were already leasing does not qualify as used property for bonus, because you used it before you bought it.
The business income cap in the IRS instructions is written into the Section 179 part of Form 4562 only. The bonus depreciation line has no such cap attached, so ask your CPA how a loss from it would be used on your own return.
Exhibit 1
Section 179 waits for you to elect it and stops at your income, while bonus depreciation applies by default to a whole class of property
The date rule behind the 100% rate rarely bites. The property has to be acquired after January 19, 2025, and if you signed a written binding contract on or before that date, the IRS treats the property as acquired on the contract date. Anything you order and buy in 2026 is well past it. The current IRS guidance is Notice 2026-11, issued in January 2026 as interim guidance, with proposed regulations still to come.
The form applies them in a fixed order
When you use both rules on the same purchase, the sequence is set in the Form 4562 instructions: bonus depreciation is taken "after any section 179 expense deduction and before you figure regular depreciation." So the order is Section 179 on whatever part you choose, then 100% bonus on the rest of the business cost, then regular depreciation on anything still left.
Exhibit 2
Each step works only on the cost the step before it left behind
With 100% bonus in place, the third step usually has nothing left to depreciate unless you elected out. For most firms the two rules reach the same first-year total, and the difference shows up only when income is low or the state return disagrees.
Vehicles are where small firms get it wrong
A car, truck or van rated 6,000 pounds or less that you place in service in 2026 has a first-year cap of $20,300 when bonus depreciation applies and $12,300 when it does not. The cap covers Section 179 and bonus together, so stacking them does not get past it. Use the car 70% for business and the cap is 70% of those figures. A vehicle used 50% or less for business gets no bonus depreciation at all.
A heavy SUV, rated over 6,000 and up to 14,000 pounds gross vehicle weight, is capped at $32,000 under Section 179 in 2026. That is the only figure we can give you for that vehicle, so check any plan that relies on writing off the whole price of one with your CPA before the purchase.
California and Florida change the answer
The IRS warns that you may need separate records for state income tax. We looked at two states.
California does not follow federal bonus depreciation at all, and caps the Section 179 election at $25,000 with the phase-out starting at $200,000. California also refuses the federal Section 179 treatment of off-the-shelf software. So a California owner can take a full write-off on the federal return and a much smaller one on the state return for the same purchase. Those figures are from the FTB's 2025 guidelines, the newest posted in September 2026.
A business that files the Florida corporate income tax return adds federal bonus depreciation back, then takes one seventh of it back each year for seven years, starting the same year. The Section 179 deduction has no add-back line in those Florida instructions. As printed, the Florida add-back covers property placed in service before January 1, 2027. We have not researched any other state.
The date that sets the year is the day it is ready
Both deductions land in the year the equipment is placed in service, which the IRS defines as ready and available for its specific use. The day you ordered it or paid for it does not decide the year. A machine delivered in December but not installed until January is a January asset. You do not have to be using it yet. For a calendar-year business, equipment has to be in service by December 31, 2026 to count this year, and no election can move that date. It is the same December trap we described for Section 179, and our note on preparing your books for year-end without a December panic covers the rest of that month.
The decisions that are yours
For a firm that buys a laptop, a van and a machine in a year, the default takes care of itself. Bonus depreciation applies, the vehicle cap applies to the van if it is light enough, and nothing needs electing.
The first decision is a low-income year. If income is thin now and you expect a stronger year ahead, electing out of bonus for a class of property spreads those deductions into later years through regular depreciation. The election covers the whole class and cannot be undone without IRS consent. Section 179 is the finer tool here, because you choose the amount per item and the income limit carries any excess forward.
The second is the state return. A California owner, or a Florida corporation, gets a different deduction on the state return, and that can change which rule is worth using. The third is the vehicle, where weight, business-use share and the first-year cap decide what it is worth in year one before either rule does.
Exhibit 3
Most purchases need no decision, and only a thin income year, a state return or a vehicle sends you to your CPA
Keep the records where your bookkeeper can find them
For Section 179 the IRS wants a record of each item, how you acquired it, who you bought it from, and when you placed it in service. Those same facts decide bonus depreciation: the acquisition date sets whether the 100% rate applies, and the placed-in-service date sets the year. Keep the invoice and the date each item was ready for use with the asset in your books. That job fits a monthly bookkeeping rhythm far better than a scramble at filing time.
The IRS had not published the 2027 Section 179 figures as of late September 2026, so the figures above hold for 2026 only. Keeping an asset register current, with the dates and invoices a CPA asks for, is part of what our bookkeeping service covers.