Before buying a machine for a tax deduction, answer the operating question: what work will it do, and does owning it improve the business’s cash position compared with renting or keeping the current equipment?
Then compare the deduction choices. Section 179, bonus depreciation and regular depreciation can produce different timing, carryforwards and state results. This guide applies current federal rules to equipment decisions in 2026; the numerical example is hypothetical.
- The work
What jobs will it do? How often will you use it?
- The cash
What will the payments, upkeep and insurance cost?
- The timing
When will it be ready to use on a job?
What equipment can qualify?
Machinery, tools, qualifying vehicles, computers and certain software may be depreciable business property. Land is not depreciable. Buildings and improvements follow different classifications; do not assume the rules for a skid steer apply to the entire shop building.
For each asset, establish ownership, tax basis, business use and when it became ready and available for its intended business use. A financed purchase can have depreciable basis beyond the down payment. A refundable deposit for equipment still on order is different. IRS Publication 946.
Keep these facts in an asset register that someone can reconcile to both invoices and the equipment on hand. The register should survive a change in bookkeeper or tax preparer.
Section 179 in 2026
The overall Section 179 limit is $2,560,000 for tax years beginning in 2026. It is reduced dollar for dollar when the cost of qualifying property placed in service exceeds $4,090,000. There is also a taxable-income limitation, and unused amounts may carry forward. IRS Revenue Procedure 2025-32.
Section 179 is an election. Review it asset by asset alongside the business’s other purchases, active-business income and any owner-level limitations. Pass-through owners should not assume that an entity’s deduction is fully usable on their personal return.
Ask for the proposed election and carryforward schedule in writing. That turns “we wrote it off” into a record you can check when equipment is sold, traded or moved out of business use.
Bonus depreciation after the 2025 law change
The former general phase-down schedule is no longer the right description for newly qualifying purchases. Under current federal law, eligible property acquired and placed in service after January 19, 2025 can qualify for 100% bonus depreciation. Acquisition timing, binding-contract rules, related-party transactions and elections still matter. Form 4562 instructions.
When both apply, Section 179 is considered before bonus depreciation on remaining eligible basis. Regular depreciation applies to remaining basis after the accelerated deductions. Do not deduct the same basis under all three methods.
Bonus depreciation can create or increase a tax loss, but that does not establish an immediate cash refund. Basis, at-risk, passive-activity, excess-business-loss and NOL rules may restrict when the owner can use it. State law may require different depreciation.
Trucks, vans and SUV limits
Weight is one input, not the whole test. Passenger automobiles can be subject to annual depreciation caps. Certain heavy SUVs have a $32,000 Section 179 cap in 2026, while vehicle configuration can create exceptions to that SUV classification. Any remaining bonus-depreciation eligibility must be analyzed separately. 2026 Section 179 limits.
Listed-property rules generally require more than 50% qualified business use for accelerated treatment. If business use falls later, recapture can apply. A truck’s commercial appearance does not turn family trips into business use. IRS depreciation guidance.
Before a vehicle purchase, send the advisor the actual specification sheet, intended use and current vehicle depreciation history. “It’s a heavy truck” is not enough information to select a method.
When the deduction starts
Depreciation generally begins when the asset is placed in service. For a calendar-year business seeking a 2026 deduction, that means ready and available for the business use by the end of 2026. Ordering, paying for or taking delivery of an incomplete machine may not be sufficient. Form 4562 definitions.
A year-end purchase should also fit the operating schedule. Include delivery, installation, required attachments, operator training and financing in the decision. Maintain evidence of the actual service date rather than relying on the date the credit card was charged.
Buying compared with leasing
Compare total cash cost over the expected holding period. Include the down payment, interest, lease obligations, maintenance, insurance, expected resale value and the risk of idle capacity. Then add the tax timing under each arrangement.
A true lease generally produces expense over the lease term; a transaction treated as a purchase follows purchase and depreciation rules even if the contract uses the word “lease.” Buying is not automatically better merely because it can generate a larger first-year deduction. IRS business-expense guidance.
Ask for two cash schedules using the same job forecast: cash before tax and cash after the modeled tax effects. This makes it harder for an attractive deduction to hide a weak equipment decision.
A hypothetical $300,000 purchase
Illustration only · Not a tax projection
Assume a business buys qualifying machinery from an unrelated seller in 2026, places it in service that year, uses it entirely for business and qualifies for 100% federal bonus depreciation without electing out. The potential first-year federal depreciation deduction is $300,000.
For a deliberately simplified illustration, assume the entire deduction is currently usable and reduces income taxed at a constant 24% marginal federal rate. Multiplying $300,000 by 24% gives a $72,000 modeled reduction in federal income tax. The business still incurs $300,000 of equipment cost, or financing obligations for that amount.
That multiplication is not a full tax projection. A real deduction can cross brackets, alter QBI, create a limited loss or have different state treatment. Financing affects cash timing, and a later sale can trigger taxable gain or depreciation recapture. These assumptions must be checked before treating the example as a decision model.
Sale, trade-in and recapture
A trade-in needs both a disposal calculation for the old asset and a basis calculation for the replacement. Do not merely subtract the allowance from the new invoice and discard the old depreciation schedule. Business equipment generally does not receive the real-property like-kind exchange treatment. IRS Publication 544.
Accelerated depreciation lowers adjusted basis quickly. Sale proceeds can therefore produce taxable income even when the equipment is worth less than its original purchase price. Include the expected exit in the acquisition analysis.
The documents to keep
- Purchase agreement, invoice, financing terms and proof of payment.
- Asset description, serial number and allocation among bundled assets.
- Acquisition and placed-in-service dates with supporting records.
- Business-use logs and any vehicle classification details.
- Federal and state depreciation schedules, elections and carryforwards.
- Sale or trade-in documents and subsequent business-use changes.
Use the contractor deductions review for the surrounding operating expenses. The equipment decision should fit that wider plan, with tax timing supporting a sound purchase.
Frequently asked questions
Is bonus depreciation still 40%?
That is not the general rule for newly qualifying purchases. Eligible property acquired and placed in service after January 19, 2025 can qualify for 100% federal bonus depreciation. Acquisition rules and elections matter.
Does a heavy truck automatically qualify for a full write-off?
No. Business use, vehicle classification, service date, prior elections and deduction limits must be checked. Certain heavy SUVs have a separate Section 179 cap.
Is buying always better than leasing?
No. Compare operating needs and total cash cost, then model the tax timing. A larger first-year deduction does not by itself establish a better equipment decision.
Put the review to work
Use the current rules and your own records to identify decisions that need a closer look. Eligibility, timing and the combined tax calculation determine the result.