Section 179
Section 179 Deduction Guide for 2026: What Equipment Buyers Need to Know
The Section 179 deduction is one of the most valuable tax tools available to businesses financing equipment. It allows you to deduct the full purchase price of qualifying equipment or software in the same year it’s placed in service — instead of depreciating that cost over several years. For businesses financing equipment through EFS, this means you can capture the entire tax deduction upfront, even though you’re paying for the equipment over time.
How It Works For Financing
- Deduct now, pay later. You can write off 100% of the equipment’s cost in the year it’s put into service, regardless of how much you’ve actually paid toward your loan or lease.
- Improves cash flow. Financing lets you avoid a large upfront cash outlay while still capturing the full tax deduction in year one. The resulting tax savings can help offset your monthly payments, effectively lowering your true cost of financing.
- Works with capital leases. Section 179 applies to equipment purchases, most equipment financing agreements, and capital leases (often structured as $1 buyout or rent-to-own agreements). It generally does not apply to true operating leases (equipment rentals), since you don’t own the asset.
2026 Section 179 Limits
Following the One Big Beautiful Bill Act (OBBBA), the Section 179 limits are now permanent and adjusted annually for inflation. For the 2026 tax year:
| Limit | Amount |
|---|---|
| Maximum Section 179 deduction | $2,560,000 |
| Phase-out threshold begins | $4,090,000 |
| Deduction fully phased out | $6,650,000 |
Equipment generally must be purchased (or financed) and placed in service between January 1 and December 31, 2026 to qualify for the deduction on your 2026 return.
Section 179 + Bonus Depreciation
Many businesses pair Section 179 with bonus depreciation, which is also set at 100% for qualifying equipment placed in service in 2026. In practice, IRS rules require Section 179 to be applied first; bonus depreciation can then cover additional costs above the Section 179 limit, or losses that would otherwise exceed your taxable income. Together, the two provisions let many businesses write off the entire cost of new and used equipment in a single tax year.
What Equipment Typically Qualifies
- New and used equipment (machinery, tools, technology)
- Business vehicles over 6,000 lbs GVWR (special caps apply for SUVs between 6,000–14,000 lbs)
- Off-the-shelf business software
- Equipment financed or leased under a qualifying capital lease
To qualify, equipment must be used more than 50% for business purposes, and the deduction is limited to that business-use percentage.
How to Claim the Deduction
Businesses claim Section 179 by filing IRS Form 4562 with their tax return, along with documentation showing when the equipment was placed in service and how it’s used in the business.
Section 179 Deduction FAQs
How much can I deduct under Section 179 in 2026?
The Section 179 deduction limit for 2026 is $2,560,000, with the deduction phasing out once qualifying equipment purchases exceed $4,090,000.
Does Section 179 apply to financed equipment?
Yes. The Section 179 deduction applies whether you pay cash, finance the purchase, or use a capital lease — you don’t need to own the equipment outright to claim the full deduction.
What’s the difference between Section 179 and bonus depreciation?
Section 179 is applied first and lets you choose which qualifying assets to deduct, up to the annual limit. Bonus depreciation (100% in 2026) then applies automatically to remaining eligible costs, with no dollar cap.
Can I claim Section 179 on used equipment?
Yes, used equipment qualifies for the Section 179 deduction as long as it’s new to your business and meets the business-use requirement.
When do I need to place equipment in service to qualify?
Equipment must be purchased or financed and placed in service by December 31, 2026 to qualify for the Section 179 deduction on your 2026 tax return.
Ready to put Section 179 to work for your business? EFS works with a nationwide network of 100+ private lenders to structure equipment financing that fits your tax strategy. Click the Call button or the Get Prequalifed button below and we will be happy to assist.