Depreciation, Section 179 and bonus depreciation in plain English

What is depreciation?

Things the business buys that last more than a year, such as computers, machinery, furniture and vehicles, are not deducted all at once by default. Their cost is spread over a set number of years: five years for computers and most vehicles, seven years for furniture and equipment, 39 years for non-residential buildings. Section 179 and bonus depreciation are ways to deduct the cost upfront instead. See Form 4562.

Land is never depreciated, because it does not wear out. When you buy property, split the price between land and building, and depreciate only the building and its improvements.

How do Section 179 and bonus depreciation compare?

How do you choose?

1. Check your income

   If the deduction would exceed business income, bonus depreciation can create a loss; Section 179 cannot.

2. Check your state

   Where the state does not follow bonus depreciation, Section 179 may give a better state result.

3. Pick assets

   Section 179 lets you choose asset by asset; bonus applies to a whole class.

4. Think about future years

   If your tax rate will rise, regular depreciation may be worth more later.

What does an example look like?

A sole proprietor with $40,000 of business profit buys $60,000 of equipment in 2026. Section 179 is limited to $40,000 this year, the business income, with $20,000 carried forward. Bonus depreciation can deduct the full $60,000, creating a $20,000 loss that may offset other income. Regular depreciation would spread the $60,000 over seven years. In a state that does not follow bonus depreciation, the state return may use Section 179 or regular depreciation instead.

What about vehicles?

Business use must be more than 50% for either method. Passenger cars have annual depreciation caps that limit the first-year deduction, while trucks and SUVs over 6,000 pounds gross vehicle weight escape those caps, though a separate Section 179 limit applies to SUVs. Keep a mileage log. See mileage vs actual vehicle expenses.

What happens later?

If you sell an asset for more than its depreciated value, the gain up to the depreciation claimed is taxed as ordinary income. If business use of Section 179 property or a vehicle drops to 50% or less, part of the deduction is added back. Writing off everything at once is not always the best plan. See year-end tax planning.

Keep a fixed asset register listing each asset, its cost, date placed in service and the method used, so recapture and later sales are easy to work out.

What about small purchases?

Under the de minimis safe harbor, most small businesses can simply expense items costing up to $2,500 each, without depreciation. See how to categorize business expenses.

Repairs that keep an asset in its normal working condition, such as servicing a machine, are deducted as ordinary expenses rather than depreciated. Improvements that make an asset better, bigger or longer lasting are capitalized and depreciated.

This guide is general information. It is not tax or legal advice for your situation.