When your shop buys capital equipment, the IRS normally spreads your deduction over several years. But right now, federal law lets most manufacturers deduct the full purchase price in Year 1—as long as the equipment is placed in service by year-end—thanks to two provisions dramatically expanded in 2025. Here's what changed, what it means in real dollars, and how to capture the benefit.
What Changed in 2025: The OBBBA
The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025,[1] made two landmark changes for equipment buyers:
- Restored 100% bonus depreciation for qualifying property acquired and placed in service after January 19, 2025—reversing a phase-down that had dropped to 60% in 2024
- Doubled the Section 179 limit to $2,500,000 for 2025 ($2,560,000 for 2026), with the phase-out threshold raised to $4,000,000 ($4,090,000 for 2026)[2]
The result: for most manufacturers buying equipment today, full first-year expensing is back.
Timing matters: to claim the deduction for 2026, equipment must be purchased and placed in service (installed and ready for use) by December 31, 2026 for calendar-year businesses. Ordering or paying for it is not enough. Financed equipment can qualify for the full deduction.
Bonus Depreciation Rate by Year
*100% applies to qualified property acquired and placed in service after January 19, 2025. Property acquired on or before that date is limited to 40% for 2025.
Source: IRC § 168(k); One Big Beautiful Bill Act, July 4, 2025[1]
The Normal Rule: Why This Matters
Without these provisions, a $70,000 CNC machine with a 7-year MACRS life generates about $10,000 of deductions in Year 1, about $17,100 in Year 2, and smaller amounts through Year 8. At an assumed 25% tax rate, that's ~$2,500 in tax savings in Year 1 and ~$4,300 in Year 2—spread across eight tax years.
Section 179 and bonus depreciation collapse that slow drip into a single Year 1 deduction—accelerating cash that would otherwise be locked up for the better part of a decade.
Section 179 vs. Bonus Depreciation
Both provisions achieve similar results, but they work differently. Understanding the distinction helps you (and your tax advisor) sequence them correctly.
| Section 179 | Bonus Depreciation | |
|---|---|---|
| 2026 Rate | 100% (up to $2,560,000 limit) | 100% (no limit) |
| Dollar Cap | $2,560,000 max deduction | No cap |
| Phase-out | Starts at $4,090,000 in purchases; fully phased out at $6,650,000 | No phase-out |
| Can Create NOL? | ✗ No — limited to business taxable income (unused amounts generally carry forward) | ✓ Yes |
| New Equipment | ✓ Yes | ✓ Yes |
| Used Equipment | ✓ Yes | ✓ Yes (first use by buyer) |
| Qualified Improvements | ✓ Yes | ✓ Yes (15-year property) |
| Best For | Profitable businesses; selective asset expensing | Larger purchases; businesses with NOL flexibility |
What This Means in Real Dollars
Example A: Job Shop Buys $400K in Machine Tools
Assumed tax rate: 25% (illustrative—your actual rate will vary). Equipment: new CNC machines, 7-year MACRS life. Assumes the shop has at least $400K of taxable income to absorb the deduction.
Without Section 179 or Bonus (Standard 7-Year MACRS)
Section 179 (2026)
Both methods produce the same total tax savings (assuming the same tax rate every year)—Section 179 accelerates about $85,710 of savings into Year 1 versus waiting up to 8 tax years. Tax savings reduce your tax bill; they don't reduce the machine's price. After-tax, the $400K purchase still costs about $300K.
Year 1 Tax Deduction: $400K Equipment Purchase
Illustrative comparison at an assumed 25% tax rate
Depreciation
(Year 1 only)
Full Expensing
(Year 1)
Full Expensing
(Year 1)
Both Section 179 and Bonus Depreciation achieve 100% first-year expensing under current 2026 law. The tax savings are identical in total—but front-loaded vs. spread over 8 tax years under standard MACRS. Section 179 is limited to your business taxable income; bonus depreciation can create a net operating loss that is carried forward rather than refunded.
Example B: Heavy Investor — $5M Equipment Year
2026 limits. Purchases exceed the Section 179 phase-out threshold, so both provisions work together. Assumes enough taxable income to use the Section 179 deduction.[4]
What Qualifies
☑ Machine tools, CNC equipment, lathes, grinders, presses, fabrication machinery
Core qualifying property under both provisions. Explore Travers’ machinery, including production lathes and milling machines.
☑ Computers & off-the-shelf software
Qualifying tangible and intangible property.
☑ Used equipment
Qualifies under both provisions, provided it is the purchaser's first use of that property.
☑ Qualified Production Property (new under OBBBA)
New nonresidential real property used as an integral part of manufacturing—eligible for a separate 100% special depreciation allowance (IRC § 168(n)) when elected. Construction must begin after January 19, 2025 and before January 1, 2029, and the property must be placed in service after July 4, 2025 and before January 1, 2031. Office, sales, research and similar space is excluded, and a 10-year recapture rule applies. Significant for facility investments.[1]
☑ Qualified Improvement Property
Section 179 covers certain building improvements (roofs, HVAC, fire protection, security systems) when elected. QIP is also generally eligible for bonus depreciation as 15-year property.
⚠ Vehicles
Must be used more than 50% for business. Work vehicles and vans designed for non-personal use may qualify for the full deduction. SUVs rated 6,001–14,000 lbs GVWR have a $32,000 Section 179 cap for 2026 (prorated by business use), and passenger cars and light trucks (6,000 lbs GVWR or less) are subject to annual luxury depreciation limits.
✖ Land & buildings generally
Real property generally doesn't qualify, except QIP and other qualified building improvements (Sec. 179) and new Qualified Production Property (§ 168(n), OBBBA).
✖ Intangibles (other than off-the-shelf software)
Goodwill, patents, etc. do not qualify.
⚠ State Tax Conformity Varies
These are federal income tax provisions—states don't always follow federal rules. Some states impose lower Section 179 caps, disallow bonus depreciation entirely, or require separate multi-year depreciation schedules.
| State Treatment | Examples |
|---|---|
| Full conformity | Many states follow federal Sec. 179 and bonus depreciation |
| Capped Sec. 179 | Some states limit Sec. 179 to amounts well below the $2,560,000 federal limit |
| Bonus depreciation disallowed | Some states (for example, California) do not conform to federal bonus depreciation |
| Addback required | Some states require adding back federal bonus depreciation and depreciating separately |
Always confirm state income tax treatment with a qualified tax professional. The federal benefit is real and significant—just don't assume the state mirrors it.[5]
For Sales Teams
Section 179 and bonus depreciation are legitimate closing tools, especially for larger capital purchases. The ability to write off a $200,000 machining center in Year 1 changes the ROI conversation—and the urgency calculus in Q4, when finance teams are actively managing taxable income.
"Your $200,000 machining center could be fully expensed this tax year—if it's placed in service by December 31, 2026" is a concrete, verifiable statement worth having in your pocket.
Keep it accurate: the deduction lowers taxable income, so actual savings equal the deduction times the customer's tax rate—not the purchase price. Section 179 is also limited to business taxable income. Always refer customers to their tax professional.
Footnotes
All provisions are Federal (IRC §§ 168, 179) and apply for federal income tax in all 50 states. State conformity varies — see Footnote 5.
[1] FEDERAL: One Big Beautiful Bill Act (OBBBA), signed July 4, 2025. IRC § 168(k). Restored 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025. Introduced Qualified Production Property provision (IRC § 168(n)) for new manufacturing facilities. Sources: Wiss.com; FirstCitizens.com; section179.org (June 2026).
[2] FEDERAL: IRC § 179. Section 179 deduction limit $2,500,000 (2025); $2,560,000 (2026). Phase-out begins at $4,000,000 ($4,090,000 in 2026); complete phase-out at $6,500,000 in qualifying purchases for 2025 and $6,650,000 for 2026. Sources: Rev. Proc. 2025-32; section179.org (June 2026); sdocpa.com (February 2026).
[3] FEDERAL: Unlike Section 179, bonus depreciation (IRC § 168(k)) can create or increase a net operating loss, making it advantageous for larger businesses or high-investment years. Source: DHJJ, "OBBBA 2025: Changes to Bonus Depreciation & 179."
[4] FEDERAL: Optimal sequencing is Section 179 first, then bonus depreciation on remaining eligible basis. A $5M equipment year illustration using 2026 limits: Section 179 deduction reduced to $1.65M (due to $910,000 phase-out reduction); remaining $3.35M fully expensed via 100% bonus depreciation. Total Year 1 deduction: $5M. Sources: section179.org (June 2026); DHJJ; U.S. Bank Commercial Banking, 2025–2026.
[5] STATE CONFORMITY VARIES: Section 179 and bonus depreciation are federal income tax provisions. Some states, such as California, do not conform to federal bonus depreciation rules and may require addbacks. Confirm current state income tax treatment with a qualified advisor. Source: section179.org (June 2026).
