Section 179 vs. Bonus Depreciation: What has Changed After the 2025 Tax Law Overhaul
KEY FACTS — POST-2025 LAW
Section 179 (as of January 1, 2026):
Maximum expensing limit: $2,500,000
Phaseout threshold: Begins at $4,000,000
Inflation indexing: Begins in 2026
Applies to tangible personal property, off-the-shelf software, and qualified improvements to nonresidential real estate
Bonus Depreciation:
100% Bonus Depreciation is permanently restored for qualified property placed in service on or after January 19, 2025
Applies to new and used property with a recovery period of 20 years or less
Qualified Production Property (QPP), including some commercial real estate used in manufacturing, also becomes eligible for 100% expensing if placed in service before January 1, 2031, or before January 1, 2033 if construction began before 2031
WHEN TO USE SECTION 179
You Want Targeted Expensing
Section 179 allows a taxpayer to elect exactly which assets to expense and by how much. It is great for nuanced tax management and phase-in strategies.
Taxable Income Limitation is Helpful
Section 179 cannot create or increase a net operating loss (NOL). It is capped at the taxpayer’s active trade or business income, making it ideal for smoothing taxable income in profitable years.
State Conformity Considerations
Some states do not conform to Bonus Depreciation (e.g., California), but they do conform to Section 179, either partially or in full. If you’re trying to manage multistate returns, Section 179 might produce better after-tax results.
WHEN TO USE BONUS DEPRECIATION
You are Purchasing Assets After January 19, 2025
The 100% Bonus Depreciation is restored permanently for assets placed in service on or after January 19, 2025. If you can delay placing assets into service until after this date, you can claim the full write-off in the first year.
You Want Maximum Immediate Deduction
Unlike Section 179, Bonus is not limited by income and can create or increase NOLs. This makes it ideal for startups or capital-intensive businesses with little or no taxable income in the early years.
You are Buying Used Equipment in Bulk
The TCJA originally expanded Bonus to include used property (with unrelated-party rules), and the 2025 Act preserved this treatment. Large used equipment purchases qualify fully for 100% Bonus under the new law.
WHEN TO USE BOTH STRATEGICALLY
Taxpayers can combine Section 179 and Bonus Depreciation in the same year:
Apply Section 179 first—up to the income limitation.
Then use Bonus Depreciation on remaining basis.
Any leftover basis defaults to MACRS (Modified Accelerated Cost Recovery System).
This layered approach maximizes flexibility and allows for income smoothing and basis management.
SPECIAL RULE — Qualified Production Property (QPP)
The One Big Beautiful Bill Act introduced 100% expensing for QPP, which includes certain commercial real estate improvements used directly in manufacturing, extraction, refining, etc.
Placed in service window: Must be placed in service before January 1, 2031
Extended deadline: Until January 1, 2033, if construction begins before 2031
This is elective—you must opt into it on a timely filed return
This is a huge benefit for heavy industry and production-focused commercial landlords, especially those investing in manufacturing facilities post-2025.
TAX PLANNING NOTES
Place in service date is critical. Assets placed in service before January 19, 2025 follow the pre-law change phasedown (40% in 2025, 20% in 2026, 0% in 2027).
The permanent 100% Bonus Depreciation applies only to assets placed in service on or after January 19, 2025.
Section 179 is capped by income and phased out over $4 million in asset purchases—but it offers greater state conformity and more control.
Documentation matters: for QPP, the election must be made affirmatively and only applies to certain production-related commercial use.