How much can you deduct with Section 179 in 2026?

Up to $1.16 million of qualifying equipment purchases can be expensed in year one under Section 179 in 2026. The deduction phases out dollar-for-dollar above $2.89M in total equipment purchases (large businesses lose the benefit; designed for small business). On top of Section 179, bonus depreciation at 60% applies to remaining cost not expensed under 179.

Can you take Section 179 on financed equipment?

Yes — the financing does not reduce the deduction. Section 179 is based on equipment cost, not how you paid for it. A business that finances $500K of equipment with a 5-year loan still expenses up to $500K (subject to limits) in year one. The interest expense on the loan is separately deductible. This is one of the most powerful tax-and-finance combinations available to small businesses.

What equipment qualifies for Section 179?

Most tangible business equipment qualifies: machinery, computers, software, office furniture, vehicles (with some passenger-vehicle limits), HVAC, security systems, and certain leasehold improvements . Equipment must be used 50%+ for business and placed in service before year-end. Real estate and inventory don't qualify. Off-the-shelf software qualifies; custom software typically doesn't.

When should I close my equipment purchase to maximize Section 179?

Equipment must be placed in service before December 31 to qualify for that year's Section 179. "Placed in service" means delivered and ready for use, not just ordered or paid. Order by mid-November to be safe; major equipment purchases in late December are tight against year-end delivery. Talk to your CPA about timing if you're close to a tax-year boundary.

Section 179 Tax Strategy for Equipment Financing 2026

Q: Is Section 179 the same as bonus depreciation?

No. Section 179 lets you expense up to $1.16M in year one with a phase-out at $2.89M total purchases. Bonus depreciation (60% in 2026, phasing down 20% per year) applies to remaining cost not expensed under 179 and has no purchase phase-out. Most businesses use Section 179 first, then bonus depreciation on the remainder. CPA coordinates the ordering.

Quick answer

Section 179 lets businesses expense up to $1.16 million of qualifying equipment purchases in year one in 2026 (with a phase-out starting at $2.89M total purchases). Bonus depreciation at 60% in 2026 (phasing down 20% per year) applies to remaining cost not expensed under 179. Financed equipment qualifies the same as cash purchases — the loan does not reduce the deduction. Combined with deductible loan interest, the financed-plus-179 strategy is one of the highest-leverage tax tools available to small business. Equipment must be placed in service before December 31 to qualify for that tax year.

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Section 179 and bonus depreciation together are the single most-important tax consideration in equipment financing. A business that finances $500K of equipment in December can deduct the entire $500K against current-year income (if profitable), saving $125K in federal taxes at a 25% effective rate — while only paying 0–20% down on the financing. This is the rare "have your cake and eat it too" combination in small business tax planning. This guide walks through the 2026 limits, what qualifies, and how to coordinate the timing with your CPA to capture maximum benefit. For the broader hub see equipment financing.

How Section 179 Works in 2026

Maximum deduction: $1,160,000 (2026 limit; indexed for inflation)
Phase-out threshold: $2,890,000 in total equipment purchases (deduction reduces dollar-for-dollar above this; eliminated entirely at $4,050,000)
Qualifying property: Tangible business equipment used >50% for business, placed in service during the tax year
Bonus depreciation: 60% in 2026 on remaining cost, phasing down 20%/yr through 2028

The phase-out is what makes Section 179 a small-business tool. A business buying $3M of equipment loses the 179 deduction; a business buying $200K captures it in full.

Why Financing Doesn't Reduce the Deduction

The most common misunderstanding: business owners think paying cash captures more tax benefit than financing. It doesn't. Section 179 is based on equipment cost, not payment method:

Cash purchase $500K: Deduct up to $500K under Section 179. Tax savings at 25%: $125K.
Financed $500K (10% down): Deduct up to $500K under Section 179. Tax savings at 25%: $125K. Plus deductible loan interest going forward.

The financed-with-179 path actually wins: same $125K tax savings, plus $450K of cash stays in the business for working capital, plus the loan interest is itself deductible. The cash purchaser drained $500K to save $125K.

Worked Example: $500K Equipment Purchase

Manufacturing business buys $500K of CNC equipment in November 2026. Profitable, 25% effective tax rate.

Path A: Pay cash

Cash out: $500K
Section 179 deduction: $500K
Tax savings: $125K (refund or offset against current-year liability)
Net cost year one: $500K − $125K = $375K
Cash remaining for working capital: $0 from the equipment purchase

Path B: Finance with $50K (10%) down, 5-year loan at 10%

Cash out at close: $50K
Section 179 deduction: $500K (same as cash)
Tax savings: $125K (same as cash)
Net out-of-pocket year one: $50K − $125K = net $75K refund
Cash remaining for working capital: $450K (vs $0 if paid cash)
Future interest expense: ~$33K over loan life, also deductible (additional ~$8K tax savings)

Financing is dramatically better when Section 179 is available. The business comes out with a net tax refund in year one and keeps $450K available for operations.

What Qualifies (and What Doesn't)

Qualifies

Machinery and production equipment
Office equipment (computers, printers, copiers, furniture)
Off-the-shelf software
Business vehicles (with passenger-vehicle limits: $20,200 first-year for 4–6,000 lb GVWR; full deduction for >6,000 lb GVWR like work vans and Class-8 trucks)
HVAC, fire/security, roof improvements (under TCJA expansion)
Certain leasehold improvements (TI in restaurants, retail)
Tangible personal property used in business

Doesn't Qualify

Real estate (buildings, land)
Inventory
Custom-developed software
Equipment used <50% for business
Equipment received as a gift or inherited

True Lease vs $1 Buyout Lease vs Loan: Tax Treatment

Equipment loan: You own. Section 179 + bonus depreciation apply. Interest deductible separately. Best Section 179 path.
$1 buyout lease (capital lease): IRS treats this as a financed purchase. Section 179 + bonus depreciation apply same as loan. Lease payments split into principal (not deductible) and interest (deductible).
True (operating) lease: Lessor owns. No Section 179 to lessee. Lessee deducts lease payments as operating expense (typically more deductible spread but less front-loaded).

For Section 179 strategy, loans and $1 buyout leases are equivalent; true leases are not. If you want the front-loaded year-one deduction, finance with a loan (or $1 buyout lease).

CPA Coordination & Timing

Equipment must be placed in service by Dec 31. "Placed in service" = delivered and ready for use. Talk to your CPA in October about year-end equipment planning.
Confirm taxable income. Section 179 cannot create a net operating loss — you can't use it to deduct more than your taxable income. If you'll be break-even or loss in the tax year, bonus depreciation may be the better tool (no income limit).
State tax conformity varies. Some states conform to federal Section 179; some have lower limits; some don't conform at all. Your CPA checks state-by-state.
Mid-year planning. If you have a big tax year, accelerate equipment purchases into Q4. If you're in a low year, defer to next year when income is higher.

Next Step

Get matched with equipment lenders for fast close before December 31 cutoff. See also equipment lease vs loan vs cash, down payment for equipment financing, and typical equipment financing rates. Always coordinate Section 179 strategy with your CPA — tax law changes and individual situations vary.