Handbook / Business deductions

Section 179 deduction for the 2026 tax year: expensing equipment and software

Tax-year note: Tax information on this page applies to the 2026 tax year (returns filed in 2027), from IRS pages checked in November 2026. Figures and dates are labelled with their tax year where they appear. Check current IRS pages before you rely on them.

When you buy a laptop, camera, tools or machinery for your business, the cost is usually not deducted all at once by default. Business property that lasts more than a year is normally depreciated over several years. Section 179 is an election that lets many small businesses deduct the cost in the year the property is placed in service. This guide explains how it works for the 2026 tax year.

What it does

Under Section 179, you can elect to treat all or part of the cost of qualifying property as an expense rather than a capital cost. The result is a larger deduction in the first year and smaller depreciation later, since the expensed amount is no longer depreciated.

The 2026 limits

IRS Publication 946 gives these figures for property placed in service in tax years beginning in 2026:

• Maximum deduction: $2,560,000.
• Phase-out: the maximum is reduced dollar for dollar by the amount by which the cost of qualifying property placed in service during the year exceeds $4,090,000.
• Sport utility vehicles: the Section 179 deduction for certain SUVs is limited to $32,000.

For most self-employed people, the dollar limits are far above their purchases. The limits that matter in practice are business use and business income.

What property qualifies

Publication 946 describes qualifying property that generally includes:

• tangible personal property used in business, such as machinery, equipment, computers and furniture
• off-the-shelf computer software
• certain improvements to nonresidential real property

Property must be acquired by purchase for use in the active conduct of your business. Property acquired from certain related persons does not qualify.

The business-use test

To qualify, the property must be used more than 50% for business in the year you place it in service. If you use an item partly for personal purposes, only the business percentage of its cost counts.

Keep a record of how you use mixed-use items, such as a log for a vehicle or notes for a computer. If business use later drops to 50% or less, you may have to recapture some of the deduction as income.

The business income limit

The total Section 179 deduction cannot exceed your taxable income from the active conduct of any trade or business during the year. Wages from a job can count as business income for this purpose. Any amount not allowed because of this limit can generally be carried forward to later years.

This means Section 179 cannot create a loss from your business. If your profit is small, the deduction is limited.

Vehicles

Vehicles are a common Section 179 question. Passenger automobiles have annual depreciation limits that also cap Section 179, and heavier SUVs have their own cap. If you use the standard mileage rate for a vehicle, you generally cannot also claim depreciation or Section 179 on it. The guide to vehicle expenses explains the choice.

How to claim it

Make the election on Form 4562, Depreciation and Amortization, filed with your return. The deduction then flows to Schedule C, where the 2025 form's line 13 is labelled "depreciation and section 179 expense". The guide to Schedule C shows where it fits.

Is it always the best choice?

Not necessarily. Expensing everything now:

• reduces income tax and self-employment tax this year
• leaves no depreciation for future years
• may be less valuable if your income is low this year and expected to rise

Some businesses spread the deduction by electing Section 179 on part of the cost and depreciating the rest. A tax professional can model both.

Record keeping

Keep:

• invoices and proof of payment
• the date placed in service, which may differ from the purchase date
• business-use records
• Form 4562 copies

Track equipment as an asset in your chart of accounts rather than lumping it into supplies.

Section 179 and bonus depreciation

Section 179 is not the only way to deduct property quickly. Publication 946 also describes a special depreciation allowance, often called bonus depreciation, for qualified property. The two work differently: Section 179 is limited by business income and has dollar limits, while the special allowance has its own rules and percentages that depend on when property was acquired and placed in service. Many businesses use one, the other, or a combination, and the order in which they apply matters. Because these rules change and interact, have your tax software or preparer compare the options for your specific purchases before you file.

For the 2026 tax year, Section 179 can let you deduct qualifying equipment and software right away, up to $2,560,000, if business use exceeds 50% and you have enough business income. Claim it on Form 4562 and keep good records.