Bonus Depreciation for Equipment Purchases: What Small Businesses Need to Know in 2026
When your business buys equipment, the IRS generally requires you to depreciate it — spreading the deduction over the asset's "useful life" (5–7 years for most equipment, longer for some). That means buying a $50,000 piece of machinery today only gives you a fraction of the deduction this year.
Bonus depreciation changes that math significantly. If you purchased equipment, machinery, vehicles, or other qualifying property, you may be able to deduct a substantial portion in the year you placed the asset in service — not stretched across years of returns.
Here's where things stand in 2026.
What Bonus Depreciation Is
Bonus depreciation (formally the "Additional First Year Depreciation Deduction" under Section 168(k) of the Internal Revenue Code) allows businesses to immediately expense a percentage of the cost of qualifying assets in the year placed in service, rather than depreciating them over a standard schedule.
The Tax Cuts and Jobs Act of 2017 bumped bonus depreciation to 100% for qualifying property placed in service from September 27, 2017 through December 31, 2022. That full write-off has been phasing down since:
| Year Placed in Service | Bonus Depreciation % |
|---|---|
| 2022 | 100% |
| 2023 | 80% |
| 2024 | 60% |
| 2025 | 40% |
| 2026 | 40% |
| 2027 | 20% |
| 2028+ | 0% (unless Congress acts) |
At 40% in 2026, a $100,000 equipment purchase generates a $40,000 first-year deduction via bonus depreciation alone — before you've even applied standard MACRS depreciation on the remaining basis.
What Qualifies
Qualifying property for bonus depreciation includes:
- Machinery and manufacturing equipment
- Computers and technology hardware
- Vehicles (subject to luxury auto limits for passenger vehicles)
- Qualified improvement property (interior improvements to nonresidential buildings)
- Certain film, television, and live theatrical productions
Property must have a MACRS recovery period of 20 years or less. Real property (buildings themselves) generally does not qualify — though components identified through a cost segregation study often do.
Used property qualifies too. Since 2017, bonus depreciation applies to used property acquired at arm's length, not just new equipment. If you bought a used piece of machinery in 2026, it's eligible.
Section 179: The Other Immediate Expensing Option
Section 179 is a separate (but complementary) provision that allows businesses to expense qualifying assets immediately. For 2026, the Section 179 deduction limit is $1,220,000, with a phase-out beginning at $3,050,000 of total qualifying property placed in service.
Key differences from bonus depreciation:
- Section 179 is limited to your taxable business income — you can't use it to create or increase a net operating loss. Bonus depreciation can.
- Section 179 is elective per-asset. You choose which assets to apply it to. Bonus depreciation applies automatically unless you elect out.
- Most businesses use both. Apply Section 179 first to maximize the immediate deduction, then layer bonus depreciation on top.
How This Works With Second Look Capital
If you're weighing whether to purchase equipment now (to capture 2026's 40% bonus rate before the phasedown continues) or need capital to make that purchase, Second Look Capital can review your situation. They specialize in equipment financing and sale-leaseback arrangements that can optimize your cash position while still qualifying for the depreciation benefits.
The economics matter: financing equipment at a reasonable rate while capturing tens of thousands in first-year tax deductions often makes the purchase cash-flow-positive in Year 1 when you factor in the tax savings.
Look-Back Opportunity: Prior Year Purchases
If you placed qualifying equipment in service in 2023 or 2024 and didn't claim full bonus depreciation, you may be able to file an amended return (Form 1040-X, 1120-X, or 1120S-X) to capture missed deductions. The window is generally 3 years from the original filing date.
This is one of the most overlooked recovery opportunities for capital-intensive businesses — and one of the highest-ROI fixes a CPA can find in your prior returns.
The Bottom Line
Bonus depreciation is real money, and with the phasedown continuing through 2028, the window to capture higher rates is shrinking. If your business has made significant equipment purchases in the last few years and hasn't fully analyzed the depreciation picture, there's a meaningful chance you've left deductions on the table.
Find out what you qualify for. RevenueSweep's free assessment covers bonus depreciation, Section 179, cost segregation, and 6+ other programs — in about 60 seconds.
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