Section 179 vs Bonus Depreciation: When to Use Each
Most business owners hear about Section 179 the same way: from a sales rep at the end of the year, mentioning it as a reason to buy equipment before December 31. The pitch usually skips the details. So does the answer to the natural follow-up question, which is whether bonus depreciation is the same thing or something different. The two provisions overlap in what they do, but the mechanics, limits, and timing differ in ways that matter at tax time.
Understanding both is worth a little time, because choosing the wrong one (or using them in the wrong order) can leave deductions on the table or, more often, push deductions into a year where they're worth less. The rules also shifted under the Tax Cuts and Jobs Act (TCJA) of 2017 and continued shifting through scheduled phase-outs that started in 2023, so what was true a few years ago may not be true now.
This guide walks through how each provision works, what changed under TCJA, when one is preferable to the other, and how owners typically combine them on the same year’s return. We’ll also look at how Slash supports the day-to-day side of equipment purchases. With business banking that shows every transaction in real time and automatic sync with QuickBooks, Xero, and Sage Intacct, your books stay up to date. Twin, an AI financial assistant built into the platform, can also surface and categorize equipment spending whenever you ask.¹
What Is Section 179?
Section 179 of the Internal Revenue Code lets a business deduct the full purchase price of qualifying equipment and software in the year it's placed in service, up to an annual cap, instead of capitalizing it and depreciating over several years. The provision has been in the tax code since the 1950s, but it was significantly expanded under the TCJA.
As of 2024, the deduction limit is $1,160,000 and the spending cap (the point above which the deduction begins to phase out) is $2,890,000. Above the spending cap, the deduction phases out dollar-for-dollar, meaning meaning every dollar you spend above $2,890,000 reduces your available deduction by $1. Above $4,050,000 in qualifying purchases, the deduction is fully phased out. These numbers are indexed for inflation, so they increase modestly year over year.
Three features distinguish Section 179 from regular depreciation:
- It only applies to property placed in service during the tax year.
- The deduction can't create or increase a net operating loss; it's limited to taxable income from active business activity.
- The taxpayer elects which assets to apply it to, and at what amount.
That last point is what gives Section 179 its flexibility. You can apply it to some assets and not others, and you can elect a partial Section 179 amount on a given asset and depreciate the rest normally.
What Is Bonus Depreciation?
Bonus depreciation, technically called the additional first-year depreciation deduction under IRC Section 168(k), lets a business deduct a percentage of the cost of qualifying property in the year it's placed in service. The deduction applies to most new and used tangible property with a recovery period of 20 years or less, which covers most equipment, machinery, vehicles, computers, and qualified improvement property.
Under TCJA, bonus depreciation was set to 100% for property placed in service from 2018 through 2022, then scheduled to phase down by 20 percentage points each year:
- 2023: 80% bonus depreciation
- 2024: 60% bonus depreciation
- 2025: 40% bonus depreciation
- 2026: 20% bonus depreciation
- 2027 and after: 0%, unless extended by Congress
The remaining basis of the property (after the bonus depreciation deduction) is depreciated under Modified Accelerated Cost Recovery System (MACRS) over the asset's normal recovery period.
Unlike Section 179, bonus depreciation has no annual dollar cap and no income limitation. It can create or increase a net operating loss. It's also not elective in the same way; bonus depreciation applies automatically to qualifying property unless the taxpayer affirmatively elects out, and that election is made by class of property rather than asset by asset.
Section 179 vs Bonus Depreciation: How They Differ
The two provisions cover similar ground but with several important differences. The differences typically matter most when a business has a large equipment purchase, an unusual income year, or a mix of asset types:
Income Limitation
Section 179 cannot create a tax loss. The deduction is limited to net business income, with the unused portion carried forward to the next year. Bonus depreciation has no such limitation; it can drive a business into a loss position that may be useful for owners with other taxable income.
Annual Caps
Section 179 has an annual deduction cap and a spending phase-out (currently $1,160,000 and $2,890,000 for 2024). Bonus depreciation has neither, which makes it the workhorse for businesses with large capital expenditures.
Property Eligibility
Both cover most tangible personal property and qualified improvement property. Section 179 also covers off-the-shelf software and certain non-residential real property improvements (roofs, HVAC, fire protection, alarm systems, security systems on commercial buildings). Bonus depreciation covers a similar list but excludes some property that is required to use the alternative depreciation system.
Used Property
Under TCJA, both provisions now allow deductions on used property, provided the taxpayer hadn't previously used it. Before TCJA, bonus depreciation was limited to new property. The change made used equipment purchases meaningfully more attractive.
Election Mechanics
Section 179 is elected on a per-asset basis using IRS Form 4562. Bonus depreciation applies automatically by class of property; opting out also happens by class. This matters when a business wants to deduct one asset and depreciate another in the same class normally, which only Section 179 supports cleanly.
State Conformity
Many states conform to federal Section 179 but not to bonus depreciation, or conform partially. State decoupling can change the calculus significantly, especially for businesses that operate in multiple states or in a state that doesn't allow bonus depreciation at all (California, for instance, does not conform to bonus depreciation).
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When Each Tends to Make More Sense
The choice between Section 179 and bonus depreciation often comes down to a few practical questions about the year's purchases and the business's tax position:
Section 179 Tends to Be Preferred When:
- The business has a profitable year and total qualifying purchases are below the Section 179 cap.
- The owner wants flexibility to apply the deduction selectively, e.g., expense one asset fully and depreciate another.
- The business operates in a state that conforms to Section 179 but not to bonus depreciation.
- A modest but specific deduction is needed to manage taxable income to a target level.
Bonus Depreciation Tends to Be Preferred When:
- Total purchases exceed the Section 179 cap (the excess can pick up bonus depreciation).
- The business is in a loss year and wants to push more deductions through, possibly creating an NOL that carries forward. The owner has substantial passive or other income that would benefit from a flow-through loss
- Property doesn't qualify for Section 179 but does qualify for bonus depreciation.
How Owners Typically Combine Section 179 and Bonus Depreciation
The two provisions aren't either/or; they're applied in sequence on the same year's return. The standard ordering is:
- Section 179: Apply Section 179 to the assets where it provides the most value first, up to the income limitation.
- Bonus depreciation: Second, apply bonus depreciation to the remaining basis on those assets and to any other qualifying assets that didn't get Section 179.
- MACRS depreciation: Depreciate any remaining basis (including basis on assets that don't qualify for either provision) under MACRS using the appropriate recovery period last.
The ordering matters because Section 179's income limitation can create a carryforward that's lost if bonus depreciation is taken first. By using Section 179 to bring taxable income down to zero (but no further), then applying bonus depreciation to push the business into a loss, the business captures both provisions efficiently.
Here’s an example to illustrate how they work in tandem: a business with $400,000 in net income before depreciation buys $700,000 of qualifying equipment in 2024. The owner could elect $400,000 of Section 179 (eliminating the income limitation issue), then take 60% bonus depreciation on the remaining $300,000 ($180,000), then depreciate the residual $120,000 under MACRS. The total first-year deduction is $580,000 plus the first-year MACRS amount, with no Section 179 carryforward.
In states that don't conform to bonus depreciation, the calculation is run separately for state purposes, and the differences are tracked as state-only book/tax differences. This creates ongoing schedule maintenance that's worth flagging to your bookkeeper.
Vehicles: A Common Source of Confusion
Vehicles are one of the most common Section 179 and bonus depreciation purchases, and also the place where the rules are most easily misapplied. Here are the general rules of thumb:
- Heavy SUVs, which are vehicles with a gross weight rating over 6,000 pounds, are eligible for a Section 179 deduction up to $30,500 for 2024, with the remaining basis subject to bonus depreciation.
- Cars and light trucks are subject to the luxury auto limits under IRC Section 280F, which cap first-year depreciation at $20,400 for 2024 (including bonus depreciation).
- Trucks and vans over 6,000 pounds that are not classified as SUVs (e.g., cargo vans, pickups with a 6+ foot bed) escape the SUV limit and can be fully expensed up to the Section 179 cap.
Vehicle deductions are closely watched by the IRS, so keeping detailed records is important. Your business use percentage affects how much you can claim, since both Section 179 and bonus depreciation are reduced if the vehicle is not used entirely for business. If business use later falls below 50 percent, you may have to pay some of that deduction back.
How Slash Supports Equipment Purchases and Capital Spend Tracking
A tax election is only as good as the records behind it. The IRS expects clear evidence of the asset, the date it was placed in service, the cost, and (for vehicles) the percentage of business use. Slash surfaces every equipment purchase in real time and syncs it to QuickBooks, Xero, and Sage Intacct, so your fixed asset register stays current instead of being rebuilt from receipts at year end.
For businesses making large capital purchases in a single year, the Slash Card supports high-volume vendor payments. You can issue unlimited virtual cards with per-card spending controls, which helps keep capital purchases separate from operating spend. Twin, the AI financial assistant, can also pull equipment spend summaries on demand, whether you need a list of vendors and amounts over a date range or a comparison of capital spending year over year.
Here's what else you get with Slash:
- Slash Visa® Platinum Card with customizable spending controls and up to 2% cash back on business purchases.
- High-yield treasury earning up to 3.83% annualized yield on idle cash through money market investments from BlackRock and Morgan Stanley.⁶
- Two-way accounting integrations with QuickBooks, Xero, and Sage Intacct.
- Native cryptocurrency support including USDC and USDT stablecoin payments across 8 supported blockchains.⁴
- Multi-rail payments including ACH, RTP, FedNow, card, and international wires to 180+ countries.
- Tailored lines of credit for businesses that want to time large purchases without depleting working capital; drawdowns have flexible payment terms ranging from 30, to 60, to 90 days.⁵
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This article presents general information rather than tax advice; the right choice for any specific business depends on entity structure, taxable income, and state tax rules. Contact a licensed CPA or tax professional for guidance specific to your situation.
Frequently Asked Questions
Can I take both Section 179 and bonus depreciation on the same asset?
Yes, in most cases. The standard approach is to apply Section 179 first to the portion you want to expense, then apply bonus depreciation to the remaining basis on that same asset. The two stack on a single asset rather than being mutually exclusive. Most accounting software handles this automatically once the elections are entered.
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Does Section 179 apply to vehicles?
Yes, with significant limits. Heavy SUVs (over 6,000 pounds GVWR) are capped at $30,500 of Section 179 deduction for 2024. Cars and light trucks fall under the luxury auto limits and have a much smaller first-year cap. Cargo vans and full-size pickups over 6,000 pounds GVWR can typically be fully expensed up to the general Section 179 cap. Business use must be over 50% for the deduction to apply.
What happens if my state doesn't conform to bonus depreciation?
You'll calculate state taxable income using the state's depreciation rules, which usually means depreciating the asset under MACRS for state purposes even if you took bonus depreciation federally. The result is a temporary book/tax difference that reverses over the asset's life. Tracking these differences requires a separate state depreciation schedule, which most tax software supports.
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Is bonus depreciation going away?
Under current law, bonus depreciation phases down 20 percentage points each year starting in 2023, reaching 0% in 2027. Several bills have been introduced to extend or restore 100% bonus depreciation, and tax legislation can change this schedule. Through 2026, the deduction is still meaningful (40% in 2025, 20% in 2026), so the planning question is shifting from "how much" to "in which year to make purchases."
