The Section 179 deduction just got its biggest increase ever. Under the One Big Beautiful Bill Act, the base limit more than doubled — from approximately $1.22 million to $2.5 million. After inflation adjustments for 2026, the effective limit is approximately $2.56 million. For mid-size businesses that buy equipment, vehicles, and technology, this changes the math on every capital purchase.
Combined with the restoration of 100% bonus depreciation, this is the most favorable equipment write-off environment in the history of the tax code. Here's exactly what changed, who benefits, and how to use it.
Old vs. New: Side-by-Side Comparison
| Feature | Old Rules (2025) | OBBBA (2026) |
|---|---|---|
| Maximum deduction | ~$1.22 million | $2.5M base (~$2.56M adjusted) |
| Phase-out threshold | ~$3.05 million | $4M base (~$4.09M adjusted) |
| Complete phase-out at | ~$4.27 million | ~$6.65 million |
| Permanent? | Yes (indexed for inflation) | Yes (indexed for inflation) |
The phase-out works dollar-for-dollar: for every dollar of qualifying property placed in service above the $4.09M threshold, the Section 179 deduction is reduced by one dollar. The deduction reaches zero when total qualifying property hits approximately $6.65 million — nearly double the old complete phase-out point.
Who Benefits Most From the Increase
The old $1.22M limit was already generous for small businesses. The doubling to $2.5M+ primarily benefits mid-size businesses that were previously constrained:
- Construction companies buying multiple pieces of heavy equipment in a single year
- Medical and dental practices doing full-office buildouts with expensive equipment
- Manufacturers upgrading production lines
- Fleet operators purchasing multiple vehicles
- Technology companies investing in servers, development infrastructure, and specialized hardware
- Restaurants and hospitality doing multi-unit buildouts with kitchen equipment, furniture, and fixtures
A general contractor who buys $2 million in equipment in 2026 can now deduct the entire amount under Section 179 alone — no need to rely on bonus depreciation for the overflow. Under the old rules, $780,000 of that purchase would have exceeded the cap.
Section 179 + Bonus Depreciation: The Complete Picture
With both provisions at historic highs, understanding how they work together is critical:
Section 179 lets you elect to expense qualifying property up to the annual limit. It's flexible — you choose how much to expense, and you can apply it selectively to specific assets. But it cannot create a net operating loss. Your Section 179 deduction is limited to your taxable income from active business operations.
Bonus depreciation at 100% applies automatically to all eligible property (unless you elect out). It has no dollar cap and can create an NOL. Any amount that exceeds your Section 179 election — or that you choose not to expense under 179 — gets picked up by bonus depreciation.
In practice, most businesses use Section 179 first (up to the income limitation), then let bonus depreciation handle the rest. The combination means there's effectively no limit on first-year equipment deductions for businesses with sufficient qualifying property.
Key planning point: If you expect a loss year, don't use Section 179 (it can't create an NOL). Instead, let bonus depreciation generate the loss, which you can carry forward or back to offset income in other years. Section 179 is most valuable in profitable years.
Real Example: Dental Practice Buildout
Dr. Martinez opens a second dental practice in 2026 with the following capital purchases:
- Dental chairs and operatory equipment: $480,000
- Digital imaging systems (CBCT, panoramic): $320,000
- Office furniture and fixtures: $85,000
- Computer systems and practice management software: $65,000
- Leasehold improvements (qualified improvement property): $350,000
Total: $1,300,000
Under the old Section 179 limit (~$1.22M), Dr. Martinez would have maxed out the deduction and needed bonus depreciation for the remaining $80,000. Under the new $2.56M limit, the entire $1.3 million is comfortably within Section 179 — with $1.26 million of headroom left.
At a 35% combined tax rate, that $1.3 million first-year deduction saves $455,000 in taxes — cash that goes directly toward paying off the buildout loan, hiring staff, or funding the practice's first year of operations.
Planning a major equipment purchase or buildout? The doubled Section 179 limit plus restored 100% bonus depreciation means 2026 is the optimal year for capital investment. Let's map out the most tax-efficient approach.
Book a Free Review →The Phase-Out Zone: $4.09M to $6.65M
Businesses spending between $4.09M and $6.65M on qualifying property are in the phase-out zone. Here's how the math works:
A manufacturing company places $5 million in qualifying equipment in service during 2026. The excess over the $4.09M threshold is $910,000. The Section 179 deduction is reduced dollar-for-dollar: $2.56M minus $910,000 = $1.65 million in Section 179 deductions.
The remaining $3.35 million ($5M total minus $1.65M Section 179) would be covered by 100% bonus depreciation — so the business still deducts the full $5 million in year one. The phase-out only matters in situations where bonus depreciation doesn't apply (rare) or where you need the deduction to come from Section 179 specifically for income limitation purposes.
What Qualifies for Section 179
The expanded limit applies to the same categories of property that have always qualified:
- Tangible personal property: Equipment, machinery, tools, furniture, fixtures
- Business vehicles (subject to specific limits for passenger vehicles — see our vehicle deduction guide)
- Computers and software
- Qualified improvement property: Interior improvements to non-residential buildings
- Certain improvements: Roofs, HVAC, fire protection, alarm/security systems for non-residential buildings
Property must be purchased (not leased with a purchase option that isn't exercised) and placed in service during the tax year. It must be used more than 50% for business purposes.
Strategic Timing Considerations
With the new limits permanent and inflation-indexed, the "buy before December 31" urgency is reduced compared to temporary provisions. But timing still matters:
- Income matching: Section 179 can't create a loss, so take it in years when business income is high enough to absorb the full deduction
- Entity-level planning: If you operate multiple businesses, structuring which entity makes the purchase affects where the deduction lands
- Financing: You can finance the purchase and still take the full Section 179 deduction. Deducting $2.5M while paying it off over 5 years is a massive cash flow advantage.
- Cost segregation pairing: If you're also doing a building purchase or renovation, a cost segregation study can reclassify building components into Section 179-eligible categories, further amplifying the deduction
The doubled Section 179 limit is permanent, but your specific business circumstances change year to year. The best time to make a major equipment purchase is when your income is high, your tax rate is favorable, and the equipment will generate returns immediately. With limits this generous, the tax code is no longer the constraint — your business strategy is.