Section 179 and Bonus Depreciation in 2026: Three Things Your Equipment Vendor Will Not Tell You
Every fall, the same email lands in inboxes. Buy equipment before December 31 and write the whole thing off. The headline is accurate. What usually gets left out is the part that decides whether your business keeps the money.
For the 2026 tax year, a business may expense up to $2,560,000 of qualifying equipment under Section 179, and 100 percent bonus depreciation is now permanent federal law. Both are real. Both apply to copiers, multifunction printers, production print equipment, servers, workstations, network hardware, and off-the-shelf software. And both carry conditions that a surprising number of businesses discover in February, when their accountant asks a question nobody asked in November.
The 2026 numbers
Section 179 lets you deduct the full purchase price of qualifying equipment in the year you place it in service rather than recovering that cost over five or seven years. For tax years beginning in 2026, the maximum deduction is $2,560,000. That limit shrinks dollar for dollar once total qualifying purchases pass $4,090,000, and it disappears entirely at $6,650,000. Those figures come from Revenue Procedure 2025-32, the annual IRS inflation adjustment sitting on top of the permanent increases Congress passed in 2025.
If your organization has 25 to 250 employees, you are nowhere near the phase-out. The practical ceiling is not the $2.56 million cap. It is your taxable income, because a Section 179 deduction cannot take your business below zero. Anything you cannot use this year carries forward.
Bonus depreciation works differently. The One Big Beautiful Bill Act restored 100 percent bonus depreciation permanently for qualified property acquired and placed in service after January 19, 2025. There is no dollar cap and no phase-out, and unlike Section 179 it can create or increase a loss. Used equipment qualifies for both, as long as it is new to your business.
You do not have to choose between them
Most businesses use both. You may be different (check with your advisor for the best options that may apply for you). Section 179 is elected asset by asset and comes off the cost first. Bonus depreciation then applies to whatever basis is left.
Section 179 gives you control. You decide which assets to expense and how much, which matters when you are managing toward a specific taxable income number. Bonus depreciation is broader and blunter, and it is the better tool when you want the write-off regardless of whether the business is profitable this year. Your accountant will have a view on which order serves you best, and that view will depend heavily on the next three sections.
Three Things That Decide Whether You May Qualify
- Placed in service is not the same as ordered, invoiced, or paid for
The deduction attaches to the date the equipment is placed in service, not the date you signed the paperwork. Delivered, installed, configured, and available for use.
A multifunction printer sitting on a loading dock on December 29 does not qualify. A server that arrives December 20 and gets racked and turned over to users on January 8 does not qualify for 2026 either.
This is the most common way businesses miss the window, and it is a logistics problem rather than a tax problem. Lead times on production print and enterprise network hardware run in weeks. December installation calendars fill early, and they fill with everyone else who had the same idea. If the plan is to decide during the third week of December, that is not a tax strategy. It is a bet on a delivery truck.
- Your lease structure decides whether you qualify at all
Roughly nine out of ten of our office equipment clients lease rather than buy, and leasing is usually the right call. But not every lease is the same in the eyes of the IRS, and here the difference is the whole ballgame.
A capital lease, often called a $1 buyout lease or finance lease, and an equipment finance agreement are both treated as purchases for tax purposes. You are the owner from day one, which means you can elect Section 179 and bonus depreciation on the full equipment cost while still making monthly payments. That is the structure behind the familiar pitch about financing equipment and taking the full deduction anyway.
A fair market value lease, sometimes called a true lease or operating lease, is a different animal. The leasing company owns the equipment. You deduct your lease payments as an ordinary business expense instead, which is still a legitimate deduction, just spread across the term rather than concentrated in year one.
Neither structure is better in the abstract. A fair market value lease usually carries a lower monthly payment and makes refreshing technology easier, which matters for equipment that ages quickly. A $1 buyout lease costs more per month and delivers the year-one write-off. The mistake is assuming you have one when you have the other. If a large current-year deduction is the point of the purchase, the structure has to be chosen at signing. It cannot be repaired in April.
- Indiana does not follow the federal rules
This is the part almost no equipment vendor puts in writing.
Indiana caps the Section 179 deduction at $25,000 for state adjusted gross income purposes, no matter what you claim federally. Indiana also does not allow bonus depreciation. Whatever you deduct federally under Section 168(k) is added back on your Indiana return, and you recover that cost through regular depreciation over the asset’s life instead.
The money is not gone. The difference returns as a deduction in later years, so the Indiana effect is a timing difference rather than a lost benefit. But it means first-year savings on an Indiana return look nothing like the federal headline. Any projection that applies a blended federal and state rate to the full purchase price is overstating what you will actually save this year.
Illinois takes its own approach, handling bonus depreciation through a modification on Form IL-4562 that adds back and then subtracts over time. If you file in both states, those two returns will not look alike. Your accountant will know exactly how your entity is affected, and that conversation is worth having before you sign, not after.
What This Means for a Year-End Equipment Decision
Tax treatment should not be the reason you buy equipment. It should be the reason you buy equipment now instead of in March.
The better question is whether there is a technology decision you were already going to make in the next six months. An aging copier fleet with climbing service costs. Servers past end of support. Workstations that cannot run the security tooling your cyber insurance carrier now requires. A print environment nobody has reviewed since hybrid work changed how your people actually use it. If any of that is true, moving the purchase into 2026 converts a deduction you would have taken slowly into one you take now, and starts the operational benefit three months earlier.
If none of it is true, buying equipment to reduce taxes is still spending a dollar to save a fraction of it. Any vendor who tells you otherwise is selling rather than advising.
Start the Conversation Before the Calendar Makes It for You
Braden Business Systems is not a tax expert, but we have been helping organizations make these decisions since 1989. We will tell you what equipment is genuinely worth replacing, what a realistic installation timeline looks like for a December placed-in-service date, and which financing structure fits the outcome you are after. Then we will tell you to run the numbers past your CPA, because we are a technology partner and not a tax advisor.
Call 317-580-0100 or contact us to start the conversation. If you want equipment working for you in 2026, the practical deadline is not December 31. It is whenever the December installation calendar fills, which is usually earlier than clients expect.
Frequently Asked Questions
What is the Section 179 limit for 2026?
For tax years beginning in 2026, the maximum Section 179 deduction is $2,560,000. It is reduced dollar for dollar once total qualifying equipment placed in service during the year exceeds $4,090,000, and it is eliminated entirely at $6,650,000. These amounts come from Revenue Procedure 2025-32.
Can I use Section 179 and bonus depreciation on the same purchase?
Yes, and many businesses do. Section 179 is applied first against the cost of the asset, and 100 percent bonus depreciation applies to the remaining basis. Section 179 is limited to your taxable business income with an indefinite carryforward, while bonus depreciation has no income limit and can create a loss.
Does leased office equipment qualify for Section 179?
It depends entirely on the lease structure. A capital lease with a $1 buyout, or an equipment finance agreement, is treated as a purchase for tax purposes and is generally eligible. A fair market value or operating lease is not, because the leasing company retains ownership. In that case you deduct the lease payments as a business expense instead. Confirm your structure before signing.
What does placed in service mean?
Equipment is placed in service when it is delivered, installed, and ready and available for its intended use. Ordering, invoicing, or paying for equipment in December does not qualify it for that tax year if the equipment is not operational until January.
Does used equipment qualify?
Yes. Both Section 179 and 100 percent bonus depreciation may apply to used equipment as long as it is new to your business and meets the other requirements, including more than 50 percent business use.
Does Indiana follow the federal Section 179 and bonus depreciation rules?
No. Indiana caps the Section 179 deduction at $25,000 for state purposes and requires bonus depreciation claimed federally to be added back on the Indiana return. The cost is then recovered through regular depreciation, so the benefit is deferred rather than lost. Illinois applies its own depreciation modification. Businesses filing in both states should review the impact with their accountant.