If your shop floor is due for a new CNC machine, a press brake, or an automated line, the rules for writing off section 179 manufacturing equipment changed meaningfully under the One Big Beautiful Bill Act (OBBBA). For 2026, manufacturers can pair a larger Section 179 deduction with restored 100% bonus depreciation, which together can let an equipment buyer expense the full cost of qualifying purchases in the year the asset is placed in service. This article lays out the current limits, the dates that matter, and how the two provisions interact so your capital plan reflects the law as it stands.
Quick answer: For tax years beginning in 2026, Section 179 lets a business expense up to $2,560,000 of qualifying equipment, with the deduction phasing out dollar for dollar once total purchases exceed $4,090,000. Separately, the OBBBA permanently restored 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025. Most manufacturers use Section 179 first up to the taxable income limit, then apply 100% bonus depreciation to the remaining basis, which can produce a full first-year write-off on eligible equipment.
Section 179 Limits for 2026
Section 179 of the Internal Revenue Code lets a business elect to expense the cost of qualifying property in the year it is placed in service rather than depreciating it over several years. The OBBBA increased the dollar caps and made the higher figures a permanent, inflation-adjusted part of the code.
For tax years beginning in 2026, the maximum Section 179 deduction is $2,560,000. That amount is reduced dollar for dollar once the total cost of Section 179 property placed in service during the year exceeds $4,090,000, and it reaches zero once purchases hit $6,650,000. These figures come from Rev. Proc. 2025-32, the IRS revenue procedure that sets the 2026 inflation-adjusted amounts.
The 2026 numbers reflect inflation indexing on top of the OBBBA baseline. For tax years beginning in 2025, the OBBBA had already raised the cap to $2,500,000 with a phaseout threshold of $4,000,000, up from the $1,250,000 limit and $3,130,000 threshold that would otherwise have applied for 2025. The increases apply to property placed in service in tax years beginning after December 31, 2024.
Two limits constrain Section 179 for manufacturers. The first is the phaseout described above, which targets the provision toward small and midsize buyers and reduces the benefit for high-volume capital spenders. The second is the taxable income limitation: the Section 179 deduction cannot exceed the aggregate taxable income from the active conduct of your trades or businesses for the year. Any amount disallowed by the income limit carries forward to future years.
A practical consequence follows from the phaseout math. A manufacturer that places $5,090,000 of qualifying property in service in 2026 sits $1,000,000 over the threshold, so the maximum Section 179 deduction drops by that same $1,000,000 to $1,560,000. Buyers near the threshold sometimes stage purchases across two tax years to preserve more of the deduction, and that timing decision is easier to make before contracts are signed than after delivery.
What Qualifies as Section 179 Manufacturing Equipment
For most plants, the core of a Section 179 election is tangible personal property used in the business. That includes production machinery, material-handling equipment, tooling, computers and software that runs the line, office furniture, and many other depreciable assets with a recovery period of 20 years or less. Both new and used equipment can qualify, provided the property is new to your business.
Section 179 also reaches certain improvements to nonresidential real property. Qualified improvement property, plus roofs, HVAC systems, fire protection and alarm systems, and security systems placed in service after the building was first placed in service, can be expensed under Section 179. That matters for a manufacturer adding rooftop units or upgrading plant ventilation alongside a machinery purchase.
Property must be used more than 50% in your trade or business to qualify, and the deduction is based on the business-use percentage. Equipment used partly for personal purposes is expensed only to the extent of its business use. Real property held for the production of income, such as buildings themselves, and most land improvements remain outside Section 179 and follow standard depreciation rules.
If you operate across multiple sites or entities, planning the election matters because the dollar caps apply at the taxpayer level and partnerships and S corporations apply the limits both at the entity level and the owner level. Our manufacturing accounting team regularly models these elections so that a multi-entity equipment purchase captures the deduction without tripping the phaseout or the income limit.
It also helps to separate the asset itself from the costs of getting it running. Freight, rigging, installation labor, and the wiring or foundation work needed to operate a heavy machine are generally capitalized into the cost of the equipment and can be part of the Section 179 basis. Tracking those line items at the time of purchase, rather than reconstructing them at filing, gives you a defensible figure and a larger first-year deduction.
Bonus Depreciation After the OBBBA
Bonus depreciation is a separate first-year deduction under Section 168(k). Before the OBBBA, the TCJA phasedown had dropped the bonus rate to 40% for property placed in service in 2025, with a scheduled decline to 20% in 2026 and elimination after 2026.
The OBBBA reversed that schedule. It permanently restored a 100% bonus depreciation deduction for qualified property acquired and placed in service after January 19, 2025. The IRS issued interim guidance in Notice 2026-11 on how the restored rate applies, including the acquisition and placed-in-service tests.
The acquisition date is the pivot. Property is treated as acquired when a written binding contract is entered into, and both the acquisition and the placed-in-service date generally must fall after January 19, 2025, for the 100% rate to apply. Equipment under a binding contract signed on or before that date is subject to the older phasedown percentages even if it is delivered later, so the contract paper trail on a long-lead machine order can change the deduction.
Qualified property covers most tangible property with a recovery period of 20 years or less, and, as with Section 179, used equipment can qualify as long as it is new to the buyer and not acquired from a related party. Unlike Section 179, bonus depreciation has no dollar cap and no phaseout, and it can create or increase a net operating loss because it is not limited to business income.
That last difference drives much of the planning for capital-intensive shops. A manufacturer buying well above the $4,090,000 phaseout threshold may find that Section 179 alone reaches its limit quickly, while bonus depreciation continues to apply to the full remaining basis. For a single large line installation, bonus depreciation often does the heavy lifting and Section 179 fills a narrower role.
Combining the Two for a Full Write-Off
Section 179 and bonus depreciation are commonly used together. The standard sequence is to apply Section 179 first, up to the income and dollar limits, then claim bonus depreciation on the remaining basis, and finally apply regular MACRS depreciation to anything left. Because bonus depreciation now sits at 100%, that remaining basis on qualifying equipment is typically deducted in full in year one.
The order is not just mechanical. Section 179 is limited to taxable income and cannot create a loss, while bonus depreciation can. A profitable manufacturer might lean on Section 179 to fine-tune the deduction to a target income level, while a business in a growth or loss year may favor bonus depreciation to maximize the current deduction and generate a carryforward.
State conformity is the most common surprise. Many states do not conform to federal bonus depreciation, and some cap or decouple from Section 179, so a purchase that is fully deductible federally may be only partly deductible on the state return. Manufacturers operating in multiple states should model the state impact before committing to a large purchase, and our tax advisory team builds that state-by-state analysis into capital planning.
Interest expense limitation under Section 163(j) can also affect the choice. In some structures, claiming bonus depreciation rather than Section 179 produces a better result when interest deductibility is constrained, because the two provisions feed into the adjusted taxable income calculation differently. The right answer depends on your debt load, profitability, and entity type.
A full first-year write-off is not always the goal either. Expensing everything now lowers basis to zero, which raises the taxable gain if the equipment is sold before the end of its recovery period and removes deductions from future years when income might be taxed at a higher effective rate. Weighing the current deduction against expected future income is part of the decision, not an afterthought.
Documentation and Timing
The deduction depends on the property being placed in service, not merely purchased or paid for. Equipment is placed in service when it is ready and available for its intended use, so a machine delivered in December but not installed, calibrated, and operable until January generally falls into the later year. Build installation lead times into year-end purchasing decisions.
Keep clear records of the binding contract date, the delivery date, the in-service date, invoices, and the business-use percentage. For mixed-use assets and vehicles, contemporaneous usage logs support the business-use figure if the deduction is examined. Section 179 elections are made on Form 4562, and the election can be revoked only with limited relief, so the year-one decision should be deliberate.
Recapture is the final planning point. If business use of Section 179 property drops to 50% or less before the end of its recovery period, part of the deduction is recaptured as ordinary income. The same exposure applies on an early sale or disposition, which is worth weighing when equipment is likely to be replaced quickly.
Frequently Asked Questions
What is the Section 179 limit for 2026?
For tax years beginning in 2026, a business can expense up to $2,560,000 of qualifying property under Section 179. That maximum is reduced dollar for dollar once total Section 179 property placed in service during the year exceeds $4,090,000, per Rev. Proc. 2025-32.
Is bonus depreciation 100% in 2026?
Yes. The OBBBA permanently restored 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025, which includes property placed in service in 2026. Property under a binding contract signed on or before January 19, 2025, is subject to the older phasedown rates instead.
Can I use both Section 179 and bonus depreciation on the same equipment?
You can apply both to the same purchase, but not to the same dollars. The common approach is to claim Section 179 first up to the income and dollar limits, then take 100% bonus depreciation on any remaining basis, which often results in a full first-year deduction on eligible equipment.
Does used manufacturing equipment qualify?
Yes. Both Section 179 and bonus depreciation allow used equipment, provided it is new to your business and, for bonus depreciation, not acquired from a related party. The asset must still be used more than 50% in your business and placed in service during the tax year.
This article is general information, not tax advice. Equipment purchases interact with your entity structure, state filings, and overall tax position, so confirm the treatment for your facts before filing. For help modeling a Section 179 and bonus depreciation strategy around a planned equipment purchase, the Pease Bell tax advisory team can run the numbers with you.
