2026 Expensing Rules for Business Assets: What Every Business Owner Should Know
Purchasing business equipment, software, vehicles, or building improvements can provide significant tax savings—but only if you understand how the IRS expensing rules work.
For 2026, businesses generally claim depreciation in the following order:
- Apply any Section 179 deduction.
- Apply bonus depreciation.
- Depreciate any remaining basis using MACRS.
Knowing how these rules work together can help maximize first-year deductions and improve your business’s cash flow.
Section 179 Expensing in 2026
Section 179 allows businesses to immediately deduct the cost of qualifying business assets instead of depreciating them over several years.
2026 Section 179 Limits
- Maximum deduction: $2,560,000.
- Phase-out begins when qualifying property placed in service exceeds $4,090,000.
Once total qualifying purchases exceed the phase-out threshold, the available deduction is reduced dollar-for-dollar.
Taxable Income Limitation
The Section 179 deduction generally cannot exceed your taxable income from the active conduct of a trade or business. Any unused deduction may generally be carried forward to future tax years.
Qualifying Property
Section 179 generally applies to:
- Business equipment and machinery.
- Computers and technology.
- Certain computer software.
- Qualified improvement property.
- Roofs.
- HVAC systems.
- Fire protection and alarm systems.
- Security systems installed in existing nonresidential buildings.
Important Exclusions
Section 179 generally does not apply to:
- Estates and trusts.
- Property acquired by gift or inheritance.
- Certain related-party purchases.
- Property used predominantly outside the United States.
Special SUV Limitation
For qualifying SUVs placed in service during 2026, the maximum Section 179 deduction is generally limited to $32,000.
Bonus Depreciation in 2026
After applying Section 179, businesses may qualify for bonus depreciation on the remaining basis of eligible assets.
Bonus Depreciation Rates
- 100% for qualified property acquired after January 19, 2025 and placed in service during 2026.
- 20% for qualified property acquired before January 20, 2025 and placed in service during 2026.
Unlike Section 179, bonus depreciation generally is not limited by taxable income or annual dollar caps.
Qualifying Property
- MACRS property with a recovery period of 20 years or less.
- Certain computer software.
- Water utility property.
- Certain film, television, theatrical, and sound recording productions.
- Eligible used property that satisfies IRS acquisition requirements.
When Bonus Depreciation Does Not Apply
Bonus depreciation generally does not apply to:
- Property required to use the Alternative Depreciation System (ADS).
- Property placed in service and disposed of during the same tax year.
- Property converted from business to personal use during the year it was acquired.
- Property for which the taxpayer elects out of bonus depreciation.
Electing Out
Businesses may elect out of bonus depreciation for an entire class of property if it better supports their long-term tax planning objectives.
MACRS Depreciation
After Section 179 and bonus depreciation are applied, any remaining basis is depreciated under the Modified Accelerated Cost Recovery System (MACRS).
Depending on the asset, MACRS generally uses:
- 200% declining balance for most 3-, 5-, 7-, and 10-year property.
- 150% declining balance for most 15- and 20-year property.
- Straight-line depreciation for residential rental property, nonresidential real property, qualified improvement property, and certain other assets.
Special Rule for Qualified Production Property
Beginning in 2026, certain qualified production property may also qualify for a separate 100% special depreciation allowance under IRC Section 168(n), provided all statutory acquisition, construction, election, and placed-in-service requirements are satisfied.
This provision may provide substantial tax benefits for qualifying manufacturing and production facilities.
Final Thoughts
The 2026 business asset expensing rules continue to offer valuable opportunities for immediate tax savings, but applying them correctly is essential.
Generally, businesses should:
- Apply Section 179 first.
- Apply bonus depreciation second.
- Depreciate any remaining basis under MACRS.
Because deduction limits, acquisition dates, income limitations, and asset classifications all affect the final tax outcome, strategic planning before purchasing business assets can significantly increase your tax savings.
Need Help Maximizing Business Asset Deductions?
As a CPA firm, we help business owners develop proactive tax strategies that maximize Section 179 deductions, bonus depreciation, and other available tax incentives while ensuring full IRS compliance.
Whether you’re purchasing equipment, upgrading technology, renovating your business, or planning major capital investments, our experienced CPA team can help you make informed tax decisions that support long-term growth.
Contact our CPA team today to schedule a consultation and build a tax strategy designed to maximize your business deductions in 2026 and beyond.
Smart asset planning today can generate meaningful tax savings and strengthen your business for years to come.
