For tax years beginning in 2026, you can deduct up to $2,560,000 of qualifying equipment under Section 179. That amount shrinks dollar for dollar once you place more than $4,090,000 of property in service, and it reaches zero at $6,650,000, according to IRS Revenue Procedure 2025-32. Those are federal numbers. If your business files in California, a second, much smaller set of limits applies, and that gap catches many Kern County owners off guard.
Below we walk through each limit, the income cap that trips up small businesses, the heavy vehicle rule, how Section 179 compares with bonus depreciation, and what changes on your California return.
TL;DR
- The 2026 federal Section 179 maximum is $2,560,000. The phase-out starts at $4,090,000 of qualifying purchases, and the deduction is gone at $6,650,000.
- The deduction cannot exceed your taxable income from active business activity. Any excess carries forward.
- Heavy SUVs and similar vehicles (6,000 to 14,000 pounds GVWR) are capped at $32,000 for 2026.
- California does not follow the federal figures. It allows $25,000, phasing out above $200,000 of purchases.
- Section 179 is an election made on Form 4562. You choose it asset by asset, and you can choose not to use it.
Table of Contents
- The 2026 federal dollar limits
- The limit that actually binds small businesses: taxable income
- What qualifies, and the heavy vehicle rule
- Section 179 vs. bonus depreciation
- Section 179 is a choice, not a default
- What changes for California returns
- Perspective: how we handle it for clients
- A pre-purchase checklist
- When to bring in a professional
- FAQ
- Sources
The 2026 federal dollar limits
Section 179 lets you deduct the cost of qualifying property in the year you place it in service, instead of spreading it over several years of depreciation. Two numbers control how much you can take, and both are adjusted for inflation each year.
| 2026 tax year (federal) | Amount |
|---|---|
| Maximum Section 179 deduction | $2,560,000 |
| Phase-out begins when qualifying purchases exceed | $4,090,000 |
| Deduction fully phased out at | $6,650,000 |
| Heavy SUV cap | $32,000 |
All four figures come from Revenue Procedure 2025-32. The 2025 maximum was $2,500,000, per IRS Publication 946, so the 2026 cap is a modest inflation step up. If you see $1,250,000 or $1,220,000 on older pages, those are earlier years from before the 2025 law change that raised the cap.
The word to watch is “placed in service.” The limits count property that is ready and available for use in the tax year, not property you merely ordered or paid a deposit on. A machine that arrives on January 3 belongs to next year’s limit, however early you paid.
How the phase-out works, with numbers
The phase-out is a straight subtraction. For every dollar your qualifying purchases exceed $4,090,000, the $2,560,000 maximum drops by one dollar.
- You buy $500,000 of equipment. You are far below the threshold, so the full $500,000 can be expensed, if your income supports it (see below).
- You buy $4,590,000 of equipment. That is $500,000 over the threshold, so your maximum becomes $2,560,000 minus $500,000, or $2,060,000.
- You buy $6,650,000 or more. The maximum is zero.
Most of the businesses we serve in Kern County, such as service shops, clinics, restaurants, laundromats and pet businesses, never come close to the phase-out. For them the binding limit is not the dollar cap at all. It is the income limit that follows.
The limit that actually binds small businesses: taxable income
The Section 179 deduction cannot exceed the taxable income from your active trades or businesses for the year. Publication 946 explains that this income is figured before the Section 179 deduction itself, before the deduction for half of self-employment tax, and before net operating loss carrybacks or carryforwards.
That has a practical consequence. Suppose your business earns $80,000 of taxable income before the deduction and you buy $150,000 of equipment. You cannot use Section 179 to create a loss. You can deduct $80,000 under Section 179 this year. The other $70,000 is not lost: it carries forward to future years indefinitely, and you can use it when income allows.
Two cautions apply to carryovers:
- If you sell or dispose of the asset before the carryover is used up, the new owner cannot take the leftover amount. It is added back to the asset’s adjusted basis instead.
- The carryover has to be tracked and reported on Form 4562 every year. A missed carryover is easy to lose and tedious to repair later.
The income calculation also happens after your other business deductions, which can make the math circular when those deductions themselves depend on taxable income. This is a good reason to run the numbers before a large purchase, not after year-end. Our tax planning work starts exactly there: forecasting income and equipment needs together.
If you own a pass-through business, the limit applies at the owner level too, and it combines income from all your active businesses. That is one more reason the figure belongs on a planner’s desk and not on a guess.
What qualifies, and the heavy vehicle rule
Section 179 generally covers tangible personal property used in your business: machinery, equipment, office furniture, and certain software and qualifying improvements. Real estate itself does not qualify. The business-use percentage matters too, since property used less than half the time for business generally does not qualify.
Vehicles are where the surprises happen. For 2026, the Section 179 deduction for heavy SUVs and certain other heavy vehicles is capped at $32,000. It applies to four-wheeled passenger vehicles rated between 6,000 and 14,000 pounds gross vehicle weight. The same revenue procedure excludes some vehicles from that cap:
- vehicles designed to seat more than nine passengers behind the driver’s seat,
- vehicles with a cargo area of at least six feet of interior length, and
- vehicles with a fully enclosed driver compartment and load-carrying area and no seating behind the driver.
A truck bed under six feet, a crossover under 6,000 pounds, and a cargo van each land in a different category. A standard passenger car, meanwhile, falls under separate luxury auto depreciation limits rather than the SUV cap. These criteria are enforced strictly, so check the manufacturer’s GVWR and the cargo dimensions before you sign a purchase order. We cover the decision in detail in our vehicle deduction guide.
Section 179 vs. bonus depreciation
People search for these two together because both let you write off equipment quickly. They work differently.
| Section 179 | Bonus depreciation | |
|---|---|---|
| Type | Election, asset by asset | Applies automatically to a whole asset class unless you opt out |
| Dollar cap | $2,560,000 for 2026, with phase-out | No dollar cap |
| Income limit | Yes, limited to active business taxable income | No, can create or increase a loss |
| Carryforward of unused amount | Yes | Not applicable, a loss follows normal loss rules |
| Vehicle limits | $32,000 cap on heavy SUVs | Separate rules for the vehicle type |
| California | Allowed up to $25,000 | Not allowed |
The practical difference: Section 179 is precise but capped by your income, while bonus depreciation has no income limit but also no flexibility to pick a single asset and leave the rest alone. When a business has a profit of $60,000 and buys $200,000 of equipment, bonus depreciation can push the federal result into a loss, while Section 179 stops at the income line. The right choice depends on your expected income in coming years, not just this one. We lay out the current bonus rules in our bonus depreciation guide.
If you want a refresher on how a deduction taken in one year differs from spreading cost over time, this walkthrough of amortization versus depreciation with worked examples shows the arithmetic side by side and offers free calculators.
Section 179 is a choice, not a default
The election is not automatic. You make it on Form 4562, attached to your return, and Publication 946 is clear that you may instead depreciate the asset under MACRS. That flexibility is valuable.
Taking the full deduction in a low-income year can waste it, or at least park it in a carryover. A multi-year view often does better. The Congressional Research Service describes the provision as a small business investment subsidy that phases out as spending rises, and notes the value of managing it within a multi-year strategy rather than bunching deductions into a year when income is already low.
A simple example. A landscaping company expects $40,000 of taxable income in 2026 and $180,000 in 2027. It buys a $90,000 piece of equipment in 2026. Expensing everything now uses only $40,000 of the deduction and carries the rest forward. Electing less, or none, and depreciating the asset might leave more deduction value for 2027, when the tax rate on the income is higher. We would model both before anyone writes a check.
What changes for California returns
This is the part many national guides skip. California does not conform to the federal Section 179 amounts. The Franchise Tax Board’s 2024 Publication 1001 says California allows an expense election of up to $25,000, with the phase-out beginning at $200,000 of purchases. Check the FTB’s current-year forms before you file, since California can change its position.
In practice, with the phase-out running dollar for dollar, the California deduction reaches zero once purchases hit $225,000.
Here is what that looks like for a Bakersfield business that buys $120,000 of equipment in 2026:
- Federal return: the full $120,000 can be expensed under Section 179, provided taxable income supports it.
- California return: the Section 179 election is limited to $25,000. The remaining $95,000 is depreciated over its regular recovery period.
The result is two sets of depreciation records, and a difference between federal and California taxable income that reverses over the following years. If your books do not track both, the numbers on the California return are wrong the next year and every year after. Our California Section 179 steps for bookkeepers go through the tracking in detail, and our laundromat depreciation guide shows how it works with machines, one of the larger purchases in that trade.
Perspective: how we handle it for clients
We keep bookkeeping and tax under one roof, and equipment purchases show why. The tax return can only deduct what the books recorded correctly. A $14,000 dryer coded to repairs gets deducted, but as the wrong item and with no depreciation record. An asset capitalized properly but with no placed-in-service date is a Form 4562 problem waiting to happen.
Our approach has three habits. First, we ask about large purchases before they happen, not in March. Second, we compare Section 179, bonus depreciation and plain MACRS against the owner’s income forecast for the next two or three years, and we keep separate federal and California schedules. Third, we record the asset, the date it was placed in service, the business-use percentage and any carryover in Xero as the purchase is booked, so nothing has to be reconstructed at year-end.
The headline number, $2,560,000, is rarely the one that decides a small business’s outcome. Income, vehicle weight ratings and California’s $25,000 cap usually do.
— Tolliver Team
A pre-purchase checklist
Before you buy equipment this year, run through these steps:
- Confirm the asset qualifies. Tangible business property, used more than half the time for business.
- Check the in-service date. It must be ready for use by December 31 for a calendar-year business, not just ordered.
- Forecast your taxable income. The Section 179 deduction cannot exceed it.
- Check the vehicle. Look up its GVWR, seating and cargo bed length against the heavy vehicle rules.
- Run federal and California separately. Expect a gap.
- Decide on the election. Section 179, bonus depreciation or MACRS, ideally with next year’s income in view.
- Document it. Keep the invoice, in-service date and use log, and confirm Form 4562 is prepared with the return.
With about two months left in 2026 as we write this, the in-service date is the item that most often decides the year.
When to bring in a professional
If you are buying one laptop, you may not need help. If you are financing equipment, buying a heavy truck, running a pass-through with several owners, or expecting a loss year, the order of decisions matters, and a mistake can be expensive to fix on an amended return.
We work with small and medium-sized businesses across Kern County. Our business tax preparation and bookkeeping teams work from the same Xero file, so the purchase, the asset record and the election line up. If you are weighing a purchase before December 31, contact us through our site and we will walk through the numbers with you. For a wider look at deductions, see our small business tax deductions guide.
FAQ
What is the Section 179 limit for 2026?
The maximum federal deduction is $2,560,000 for tax years beginning in 2026. It is reduced dollar for dollar once qualifying purchases exceed $4,090,000, per IRS Revenue Procedure 2025-32. It is also capped by your taxable business income.
Can Section 179 create a business loss?
No. The deduction is limited to taxable income from your active trades or businesses. Anything above that carries forward to later years, as described in Publication 946. Bonus depreciation does not have this income limit.
Does California follow the federal Section 179 limit?
No. California allows up to $25,000 and starts phasing the deduction out at $200,000 of purchases, according to the Franchise Tax Board. You will usually keep separate federal and California depreciation schedules.
Can I deduct a whole vehicle under Section 179?
Usually not if it is a heavy SUV. For 2026 the cap on vehicles rated 6,000 to 14,000 pounds GVWR is $32,000, with exceptions for some cargo vans, long-bed trucks and vehicles seating more than nine. Check the specific vehicle before you buy.
Do I have to take Section 179?
No. It is an election made on Form 4562, and you can depreciate the asset under MACRS instead. Many owners deliberately take less in a low-income year to save deductions for a higher-income one.
Sources
- IRS Revenue Procedure 2025-32 (2026 inflation-adjusted amounts)
- IRS Publication 946 (2025), How to Depreciate Property
- IRS Publication 946, current edition
- Congressional Research Service: The Section 179 and Section 168(k) Expensing Allowances
- California Franchise Tax Board, 2024 Publication 1001
- Amortization vs Depreciation: Calculate Each with Worked Examples