Section 179 Expensing vs. Bonus Depreciation: Key Differences

Understand the two primary ways businesses can immediately deduct the cost of qualifying assets, and how to choose between them.

By Garret Merkley · Explainer · Aug 12, 2026

Branched from How to Claim Section 179 Deductions on Your Business Tax Return

Quick take

Section 179 allows businesses to deduct the full cost of qualifying assets up to an annual limit, subject to taxable income.
Bonus depreciation lets businesses deduct a significant percentage of an asset's cost, without a taxable income limit, and is phasing down.
Both accelerate tax deductions, improving cash flow by reducing current-year taxable income.
Choosing between them, or using both, depends on a business's profitability, asset type, and tax strategy.

Section 179 expensing and bonus depreciation are tax provisions designed to encourage businesses to invest in new equipment and property by allowing them to deduct the cost of qualifying assets in the year they are placed in service, rather than depreciating them over several years. While both achieve a similar goal of accelerating deductions, they operate under different rules and limitations, making one potentially more advantageous than the other depending on a business's specific situation.

How Section 179 Expensing Works

Section 179 allows businesses to deduct the full purchase price of qualifying equipment and off-the-shelf software, up to an annual dollar limit, in the year the asset is placed in service. This deduction is an election made by the business. The amount a business can expense is limited by its taxable income; you cannot use Section 179 to create a net operating loss (NOL). There's also an overall spending cap, where the deduction begins to phase out dollar-for-dollar once a business purchases more than a certain amount of qualifying property in a given tax year. Any amount disallowed due to the taxable income limit can be carried forward to future tax years.

How Bonus Depreciation Works

Bonus depreciation allows businesses to deduct a significant percentage of the cost of qualifying new or used property in the year it's placed in service. Unlike Section 179, bonus depreciation is generally automatic unless a business elects out of it. There is no annual dollar limit on the amount that can be deducted, nor is there a taxable income limitation, meaning it can be used to create or increase a net operating loss (NOL) that can be carried back or forward. The bonus depreciation percentage is currently phasing down; for example, it was 80% for property placed in service in 2023 and is 60% for property placed in service in 2024, continuing to decrease in subsequent years.

Why and When These Deductions Matter

Both Section 179 expensing and bonus depreciation are powerful tools for managing a business's taxable income and improving cash flow. By accelerating deductions, businesses can reduce their current-year tax liability, freeing up capital for other investments or operations. Choosing between them, or using them in combination, depends on factors like the business's profitability, the total cost of assets acquired, and whether the business anticipates a loss. For example, a highly profitable business might prioritize Section 179 up to its limits, then use bonus depreciation for the remaining cost. A business anticipating a loss might lean more heavily on bonus depreciation because it can create or increase an NOL.

Feature	Section 179 Expensing	Bonus Depreciation
Purpose	Immediate deduction of asset cost	Immediate deduction of asset cost
Eligibility	New or used tangible personal property, certain real property improvements, off-the-shelf software	New or used tangible personal property with a recovery period of 20 years or less, certain real property improvements
Annual Dollar Limit	Yes (e.g., $1.16M for 2023, $1.22M for 2024)	No
Taxable Income Limit	Yes (cannot create a loss)	No (can create or increase a loss)
Phase-Out Rule	Yes (for total asset purchases exceeding a limit)	No
Election Required	Yes, business elects to take it	No, automatic unless opted out
Percentage Deducted	Up to 100% of cost (within limits)	Fixed percentage of cost (e.g., 80% for 2023, 60% for 2024, decreasing)

Can a business use both Section 179 and Bonus Depreciation for the same assets?

Yes, a business can often use both. Typically, a business would first apply Section 179 expensing to qualifying assets, then apply bonus depreciation to any remaining basis of those assets, provided they also qualify for bonus depreciation. This strategy maximizes immediate deductions.

Which deduction is generally better for a small business?

It depends on the business's profitability and total asset purchases. For a small, profitable business investing below the Section 179 phase-out threshold, Section 179 might be simpler and sufficient. If a business anticipates a loss or makes very large purchases, bonus depreciation might be more advantageous because it has no taxable income limit and can create an NOL.

What types of assets qualify for these deductions?

Both generally apply to tangible personal property, such as machinery, equipment, vehicles (with specific limits), and certain qualified real property improvements (like qualified improvement property). Off-the-shelf computer software also qualifies for Section 179. Used property can qualify for both, a change from earlier rules.

Are these deductions permanent, or do they change?

Both provisions are subject to legislative changes. Section 179 limits are adjusted annually for inflation. Bonus depreciation, however, is currently in a phase-down period, meaning the percentage allowed for deduction is decreasing in future tax years until it reaches 0%.