Rules
Section 179 vs Bonus Depreciation: What a Small Business Bookkeeper Should Choose First
Section 179 vs bonus depreciation small business owners must pick between: a criteria table on limits, phase-outs, state conformity and bookkeeping load.
What to take away
- Section 179 lets you choose the deduction year by year, but it caps total spending and cannot create a business loss.
- Bonus depreciation is automatic and has no dollar ceiling, but the rate is 100 percent for property acquired after January 19, 2025, and 20 percent for 2026 under the old schedule.
- Most small businesses should claim Section 179 first on used equipment, then let bonus depreciation absorb whatever is left.
- Your state may not follow either rule, so the federal answer is only half the calculation.
The two elections on the table
Section 179 is an election. Each year you pick whether to use it, how much to claim, and which assets. The deduction is limited to taxable business income, so it cannot push a profitable year into a loss.
Bonus depreciation is different. It applies automatically to qualified property unless you elect out, and it has no income limitation.
The IRS sets out both in Publication 946, which remains the controlling document for asset classes, recovery periods and the records behind them. Bookkeepers who have never read the asset tables tend to guess at recovery periods.
The criteria that matter
Section 179
- Annual dollar cap
- $1,250,000 for 2025
- Investment ceiling before phase-out
- $3,130,000 for 2025
- Limited to business income
- Yes
- Used property qualifies
- Yes
- Election required
- Yes, per year
- Applies to buildings
- Rarely
- State treatment
- Varies widely
Bonus depreciation
- Annual dollar cap
- None
- Investment ceiling before phase-out
- None
- Limited to business income
- No
- Used property qualifies
- Yes, since 2017
- Election required
- No, opt out instead
- Applies to buildings
- No
- State treatment
- Varies widely
Read the cap column carefully. The published 2025 figures are $1,250,000 of deduction and a $3,130,000 phase-out threshold. The IRS adjusts both for inflation each year in its annual revenue procedure, so confirm the amounts for the year you are filing.
Section 179 works well until total asset purchases cross the phase-out threshold, at which point the deduction shrinks. Bonus depreciation has no such cliff, which is why it carries the load for larger equipment years.
Section 179 vs Bonus Depreciation
Section 179
- Annual dollar cap
- Yes, indexed
- Investment ceiling
- Yes, phase-out
- Business income limit
- Yes
- Used property
- Yes
- Election
- Required yearly
- Buildings
- Rarely
- State treatment
- Varies widely
Bonus Depreciation
- Annual dollar cap
- None
- Investment ceiling
- None
- Business income limit
- No
- Used property
- Yes, since 2017
- Election
- Opt out instead
- Buildings
- No
- State treatment
- Varies widely
Where Section 179 wins
Section 179 is the right first choice when you bought used equipment, when you want to control the timing, or when you are close to a loss year you would rather not deepen. A single used box truck, a set of shop tools, or a purchased client list all fit.
It also wins on planning. Because you elect it, you can leave an asset on bonus depreciation in one year and switch the following year without amending anything. That flexibility has real value for a business whose income swings.
Where bonus depreciation wins
Bonus depreciation wins on volume. If total purchases in a year run past the Section 179 phase-out range, the bonus rule keeps working where Section 179 starts to erode. It also wins on simplicity: no election, no income test, no allocation decision.
The catch is the federal phase-down. The rate was 60 percent for 2024, 40 percent for 2025 and 20 percent for 2026 under the schedule written into the Tax Cuts and Jobs Act.
Federal legislation enacted in July 2025 restored 100 percent for qualified property acquired after January 19, 2025 and placed in service before January 1, 2030. Confirm the rate for your placed-in-service year before you promise a client a number.
Where each one wins, in one line
Where each one wins
- Section 179used assets, income-limited years, and owners who want to choose.
- Bonus depreciationlarge purchase years, new and used property, and owners who want the default.
- Both togetherthe standard sequence for a normal small business equipment year.
What none of them solve
Both rules are tax elections. Neither one creates a fixed asset register, assigns a recovery period, or tracks disposals. A business can claim a full deduction in year one and still be unable to answer what it owns two years later.
That gap shows up at sale, at insurance renewal, and at lender review. The fix is a register that lists each asset, its cost, its in-service date, its method and its accumulated depreciation. A balance sheet is a single date, not a period, and that changes everything, so the register is what carries the history the statement cannot.
Recordkeeping is the other unsolved piece. Purchase documents, placed-in-service dates and business-use logs are what survive an examination. The IRS recordkeeping rules in Publication 583 apply to the paper behind the deduction, not just to the return.
State conformity and the bookkeeping load
Most states start from federal taxable income, then adjust. Some decouple from bonus depreciation entirely and require the deduction to be spread over the asset's life. Others follow Section 179 but cap it at a lower figure. A few follow both without change.
That means the federal election is not the whole answer. Check your state's current form instructions before filing, and keep a separate state depreciation schedule when your state decouples. The reconciliation between federal and state basis is where most small business returns get messy.
State conformity bookkeeping checklist
- Confirm placed-in-service year for every asset
- Check current Section 179 cap and phase-out
- Check current bonus percentage for tax year
- Read your state's decoupling rule
- Reconcile fixed asset register to return
Example: one year, two assets
An owner buys a used delivery van for $38,000 in June and a new packaging line for $210,000 in November. Section 179 covers the van in full because used property qualifies and income is sufficient.
The packaging line pushes total purchases past the phase-out range, so remaining deduction comes from bonus depreciation at the rate in effect for that year. At 40 percent, the $210,000 line yields $84,000 in year one; at the restored 100 percent rate, the full $210,000 comes off in year one. Two assets, two methods, one register.
