How Much You Can Deduct for New Equipment in 2026 (Section 179 and Bonus Depreciation, Explained)
By Yan Payments
How much equipment can you deduct in 2026?
On your federal return, you can deduct up to $2,560,000 in qualifying business equipment placed in service in 2026 under Section 179, per the IRS’s annual inflation adjustment (Revenue Procedure 2025-32), and 100% bonus depreciation covers most of what’s left beyond that cap. California doesn’t follow either number: its own Section 179 limit is capped at just $25,000, so what you deduct on your state return can look very different from your federal one.
What changed under the One Big Beautiful Bill Act?
The One Big Beautiful Bill Act, signed into law in 2025, made 100% bonus depreciation permanent for qualifying property acquired after January 19, 2025. Before that law passed, bonus depreciation was on a scheduled decline, headed toward 40% in 2025 and 20% in 2026 before disappearing. That step-down is gone. The same law also raised the base Section 179 cap to $2.5 million with a $4 million phase-out threshold, and both figures get adjusted for inflation each year. For 2026, the IRS set those at $2,560,000 and $4,090,000.
Practically, this means the “use it or lose it by December 31” pressure that used to come from a shrinking bonus depreciation percentage isn’t really there anymore on the federal side. What still matters is simpler: equipment has to be placed in service this year to count on this year’s return.
Section 179 or bonus depreciation: what’s the actual difference?
Both let you write off the full cost of equipment in the year you start using it instead of spreading it over several years, but they work differently. Section 179 lets you pick which specific assets to expense, and the deduction can’t exceed your business’s taxable income for the year; it can’t create a loss. Bonus depreciation applies automatically to all qualifying property in a category, unless you elect out, and isn’t limited by your income, so it can push you into a loss.
Most small businesses apply Section 179 first, up to their income limit, then let bonus depreciation cover anything left over. Your accountant will usually decide the exact split based on what your income looks like for the year.
What actually counts as “placed in service”?
It has to be delivered, installed, and ready to use in your business, not just ordered, invoiced, or sitting in a box in the back room. A new POS terminal still in its shipping package on December 28th doesn’t qualify for 2026. The same terminal installed, configured, and running transactions by December 31st does.
A worked example: replacing a POS and kitchen display system
Say a restaurant buys new terminals and kitchen display screens for $18,000 and gets them installed and taking orders by December 15, 2026.
If installed and running by Dec 31, 2026: federal treatment is the full $18,000 deductible this year under Section 179 (assuming sufficient taxable income); California treatment allows up to $25,000 under its own Section 179 limit, so the full $18,000 can still be deducted this year on the state return too.
If installation slips to January 2027: on both federal and state returns, the same $18,000 deduction simply moves to the 2027 return instead. It isn’t lost, just delayed a year.
In this example the $18,000 purchase actually fits under California’s $25,000 cap, so the state deduction matches the federal one. The gap shows up on larger purchases. Buy $100,000 in equipment and your federal return can expense all of it, while California still limits you to $25,000 through Section 179, with the remaining $75,000 depreciated over several years under the state’s standard MACRS schedule instead. California also doesn’t conform to federal bonus depreciation at all, so there’s no state-side equivalent to cover that gap the way bonus depreciation does federally.
What should you ask your accountant before you buy?
- Will your business show enough taxable income this year to actually use a Section 179 deduction, federal or state? If you’re not profitable this year, the deduction may be more useful next year.
- How big is the purchase relative to California’s $25,000 cap? Above that, expect a real difference between your federal and state write-off, not just a smaller version of the same number.
- Can the equipment realistically be installed and operating by December 31st, given your vendor’s lead time? A deduction tied to a date that slips by two weeks moves to next year’s return.
This is general tax information, not advice for your specific situation. Equipment purchases, income timing, and entity type all affect the actual numbers, so run your specific purchase by your accountant before you commit to a timeline based on it.
If you’re weighing new terminals or other hardware before year-end and want to know what a realistic installation timeline looks like, reach out and we can walk through it with you.
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