Is it better to take section 179 or bonus depreciation on equipment in 2026?

For most small businesses the result is the same: both can deduct 100% of the cost in the year the equipment is placed in service. Section 179 is limited to taxable income from active trades or businesses under §179(b)(3) and is elected asset by asset, which is useful when you want to expense some purchases and not others. Bonus depreciation under §168(k) applies automatically to every asset in a class unless you elect out, and it can create a loss.

Does buying equipment in December raise my audit risk?

Not by itself. What draws scrutiny is a deduction claimed for equipment that was not in service by December 31, or a personal-use item expensed as business property. Keep the invoice, the delivery or installation date, and a short note of what the equipment is used for. Those three documents answer the question an examiner would ask.

Can I deduct equipment I financed but have not paid off?

Yes. Depreciation and section 179 are based on your cost basis, which includes the financed portion, so a $50,000 machine bought with $10,000 down is still a $50,000 deduction in the year it is placed in service. The interest is deducted separately as you pay it. That is also why financing a December purchase can produce a tax benefit larger than the cash spent that year.

What happens if I sell the equipment a few years later?

The depreciation you claimed is recaptured as ordinary income under IRC §1245, up to the amount of gain. A $50,000 machine fully expensed and sold for $30,000 produces $30,000 of ordinary income in the year of sale. If you trade it in, the trade is a sale too, because like-kind exchanges have been limited to real property since 2018.

The Journal / Business Tax

Should I buy equipment before year end to save taxes? Only if you were buying it anyway.

By Ewan Morkel, EANovember 12, 20266 min read

A December equipment purchase is a timing move, not a discount. On $50,000 of equipment an S corp owner in the 24% bracket saves $9,600 of federal tax and is still out $40,400, and the deduction only counts if the machine is in service by December 31.

Small business owner using a laptop at his desk

An excavation contractor runs his S corporation books in November, sees a strong year, and gets the same advice from his equipment dealer and his brother-in-law: buy the new skid steer before December 31 and write it off. Whether you should buy equipment before year end to save taxes has a simpler answer than either of them gives. A deduction never costs less than the cash that bought it. The only question worth asking is whether you were going to buy the machine in the next few months anyway.

The real number

What a $50,000 machine actually saves.

Here is the contractor's year. He and his wife file jointly, and their 2026 taxable income before the purchase is about $300,000, all of it from the S corporation after his salary. That puts them in the 24% bracket, which for 2026 runs from $211,400 to $403,550 of taxable income on a joint return. The business qualifies for the 20% qualified business income deduction under §199A, and at $300,000 they are under the $403,500 threshold where the wage and property limits start to apply.

The step most people skip is that depreciation lowers qualified business income too. A $50,000 deduction cuts QBI by $50,000, which cuts the §199A deduction by $10,000. Taxable income drops by $40,000, not $50,000.

A $50,000 skid steer placed in service December 2026

Equipment cost, deducted 100% in 2026: $50,000
Lost §199A deduction (20% of $50,000): -$10,000
Net drop in taxable income: $40,000
Federal tax saved at 24%: $9,600
Cash left the business: $50,000
Net cost of the machine after tax: $40,400

Tax year 2026, married filing jointly, taxable income about $300,000 from an S corporation with no other §199A limitation in play. Federal income tax only; state income tax adds a few points of savings, and an S corporation owner's pass-through profit is not subject to self-employment tax, so there is no payroll tax effect. A sole proprietor would also save self-employment tax.

If he was going to buy the skid steer in March anyway, buying it in December moves that $9,600 of savings from April 2028 to April 2027. That is worth about $384 at a 4% return on cash, plus whatever difference there is between his 2026 and 2027 brackets. That is a fine reason to sign the purchase order in December. If he would not have bought it at all, he just spent $40,400 to own something he did not need.

The deadline

Paid for is not the same as placed in service.

Both write-offs key off the year the property is placed in service, not the year you pay for it. Section 179(a) allows the deduction "for the taxable year in which the section 179 property is placed in service," and bonus depreciation under §168(k)(1)(A) is claimed in the same year. Placed in service means ready and available for its intended use. A deposit on a machine that arrives January 8 is a 2027 deduction, whatever the invoice date says. Get it delivered, set up, and capable of working before December 31, and keep the delivery ticket.

The limits themselves will not stop most owners. The One Big Beautiful Bill Act made 100% bonus depreciation permanent for property acquired after January 19, 2025, and the 2026 section 179 limit is $2,560,000, phasing out once total qualifying purchases pass $4,090,000. The bigger constraint on §179 is that it cannot exceed taxable income from active trades or businesses (§179(b)(3)). Bonus depreciation has no such limit and can create a loss. Vehicles carry their own caps, covered in the section 179 post for vehicles over 6,000 pounds.

When December is wrong

Three cases where I would wait.

A low-income year. If 2026 was soft and 2027 looks better, a deduction in the 12% bracket now trades away one worth 24% or 32% later. Buy the machine when you need it, and if it lands in 2026 anyway, consider electing out of bonus depreciation for that class of property under §168(k)(7) and spreading the deduction over its normal life.

A machine you will sell in two or three years. Every dollar expensed comes back as ordinary income under §1245 when you sell, up to the price you get. A $50,000 machine fully deducted and sold for $30,000 puts $30,000 of ordinary income on the return in the year of sale. The deduction is a loan from the Treasury, and it comes due when the machine goes.

Thin cash in January. The tax savings show up when you file. The payment to the dealer shows up now. A business that buys a $50,000 machine with its last $50,000 of cash to save $9,600 in April has a liquidity problem that the tax return will not solve.

Where I land

When to buy equipment before year end to save taxes.

Make the equipment decision first and the tax decision second. If the purchase is already on the 2027 plan, pull it forward, get it in service before New Year's, and take the deduction in the year it is worth the most. If it is not on the plan, the tax savings are not a reason to put it there. I have never seen a business save its way to profit by buying things it did not need in the last week of December.