Section 179 on financed equipment: the complete guide

The short answer

Yes. Financing equipment does not reduce your Section 179 deduction.

If your business finances a qualifying piece of equipment, you may generally deduct the full capitalized cost of that equipment in the year it is placed in service, even if you put nothing down and have made only one or two payments by December 31.

The reason is structural, not a loophole. Neither §179 nor the bonus depreciation rules in §168(k) contain a payment requirement. The two things that actually trigger the deduction are:

1. The property was placed in service during the tax year, and
2. You are the tax owner of the property.

Cash paid is not a third condition. A business that buys a $200,000 machine with a $200,000 loan and a business that buys the same machine with $200,000 of cash are, for §179 purposes, in the same position on the deduction, assuming both machines are installed and operational by year end and both businesses have enough taxable income to absorb it.

Two things immediately qualify that answer, and we would rather you hear them from us than find out in April:

• The structure has to be a purchase for tax purposes. A loan, a $1-buyout lease, or an Equipment Finance Agreement (EFA) makes you the tax owner. A true fair-market-value operating lease does not: the lessor owns the asset, and you deduct rent instead. See which financing structures qualify.
• A deduction is worth your marginal tax rate, not the purchase price. Deducting $200,000 does not put $200,000 back in your pocket. It reduces the income you are taxed on. See the honest counterweights.

Everything below is the long version.

1. The TY2026 numbers

Section 179 is governed by IRC §179 and, for the current amounts, by Rev. Proc. 2025-32. The provision was substantially expanded by the One Big Beautiful Bill Act (OBBBA), P.L. 119-21, enacted July 4, 2025, at §70306.

Tax year 2026 amounts per Rev. Proc. 2025-32 §4.24. Federal amounts. Several states allow far less. See the state section.

What OBBBA changed: §70306 raised the cap from $1,000,000 to $2,500,000 and the phase-out threshold from $2,500,000 to $4,000,000, effective for property placed in service in tax years beginning after December 31, 2024, so retroactive to all of TY2025. Inflation indexing resumes after 2025 from a 2024 base year.

The phase-out is dollar for dollar, and it is not graduated

This is the single most misunderstood mechanic in the provision.

Once your total qualifying property placed in service during the year exceeds $4,090,000, every additional dollar of qualifying property reduces your maximum §179 deduction by one dollar. Not a percentage. Not a sliding scale. One for one.

Illustration only, not tax advice. Assumes all property is qualifying §179 property placed in service during TY2026, the business is above the taxable-income limitation, and no state adjustment. Actual results vary. Consult your tax advisor.

The trap inside the trap: the phase-out keys to the total qualifying property you placed in service, not to the amount you elect to expense. You cannot dodge the phase-out by electing a smaller number. If you placed $5,000,000 of qualifying equipment in service, your ceiling is computed off $5,000,000 regardless of what you put on the election.

For buyers above roughly $4M of annual capital spend, this is where the §179-versus-bonus conversation stops being academic. See section 5.

What qualifies

Qualifies (§179(d)(1), §179(e), Pub. 946):

• Tangible personal property under §1245: machinery, production equipment, furniture, fixtures, computers, tools
• New and used property. The requirement is that it be new to you, not newly manufactured. A used CNC machine is fully eligible.
• Off-the-shelf software
• By election under §179(e): qualified improvement property, plus roofs, HVAC, fire protection and alarm systems, and security systems on nonresidential real property

Does not qualify:

• Land and land improvements
• Buildings and structural components, except the §179(e) carve-out above
• Property used 50% or less for business. The test is more than 50%, so exactly 50% fails.
• Property acquired from a related person under §267 or §707(b)
• Property used for lodging (with hotel and motel exceptions)
• Property held merely for the production of income
• Property used predominantly outside the United States

A note for anyone working from an older planning memo: HVAC was excluded from §179 before the Tax Cuts and Jobs Act. It has been eligible for taxable years beginning after December 31, 2017. Memos and blog posts still saying "HVAC never qualifies" are out of date. Confirm with your CPA if you are relying on it.

2. Placed in service: why December 31 is not your real deadline

This is the most commercially consequential rule on this page, and it is the one most likely to cost a real business a real deduction.

Property is placed in service "when it is ready and available for a specific use," regardless of when it was ordered, contracted for, invoiced, or paid for (Pub. 946).

Read that again with a financing transaction in mind. It means:

• Ordering in December gets you nothing. Signing in December gets you nothing. Paying in December gets you nothing. A machine sitting crated on your loading dock on December 31 has not been placed in service.
• Equipment that is ready and available for use on December 31 gets the full first-year deduction. There is no proration for a December 31 in-service date. (The half-year and mid-quarter conventions apply to the MACRS remainder, not to §179 or bonus.)
• Therefore: your real deadline is not December 31. It is lead time plus install time before December 31.

Working the deadline backward

For a piece of equipment with a 10-week manufacturing lead time, a 3-week freight window, and a 2-week install-and-commission process, the last responsible order date is roughly 15 weeks before December 31: mid-September. For long-lead capital equipment, custom fabrication, or anything requiring an electrical or facility modification, the decision belongs in Q3, not Q4.

Add financing to the picture and the clock starts earlier still: credit review, documentation, and vendor funding all sit in front of the manufacturing lead time, not after it.

Week counts are from the worked example above and are illustrative only. Your lead times belong on the worksheet below.

We think this is the most useful thing an equipment finance desk can tell a Q4 buyer, and almost nobody says it.

The evidence that the year-end crush is real

We do not publish search-volume statistics, because we have no verified source for one. What we do have is transaction data.

ELFA's Monthly Leasing and Finance Index (MLFI-25) reported new business volume of $12.9 billion in December 2022, against $8.6 billion in November 2022: an increase of roughly 50% month over month. ELFA described it as "a typical end-of-quarter, end-of-year spike."

Source: ELFA Monthly Leasing and Finance Index (MLFI-25). ELFA's releases show the same year-end pattern repeating in 2023 and 2024.

This is actual booked transaction volume from a named trade association, and the year-end spike repeats across consecutive years. It is not a marketing statistic.

What it means for you practically: in December, you are competing for the same manufacturing slots, the same freight capacity, the same installation crews, and the same credit-review bandwidth as everybody else who waited. Lead times stretch precisely when you can least afford it. The businesses that get the deduction are the ones that started in Q3.

3. Which financing structures qualify

Here is where a large share of published guidance in this category is simply wrong.

You will read, on a lot of equipment finance websites, that "leases qualify for Section 179." Stated without qualification, that is incorrect, and a business that relies on it while holding a true fair-market-value operating lease has an exposed tax position.

The correct framing: some financing structures make you the tax owner of the equipment and some do not. Only the ones that make you the tax owner produce a §179 deduction.

Note that an FMV lease is not a bad outcome. Rent is fully deductible under §162, and for a business that wants to stay under the §179 phase-out, avoid recapture exposure, or refresh technology on a cycle, a true lease can be the right answer. It is simply not a §179 answer, and it should never be sold as one.

The controlling authority: Rev. Rul. 55-540

The IRS's leading pronouncement on when a document labeled a "lease" is in substance a conditional sale is Rev. Rul. 55-540, 1955-2 C.B. 39. It is seventy years old and it is still the framework.

The ruling's core: the test is the intent of the parties as evidenced by the agreement, read against the facts and circumstances existing at the time the agreement was executed. And, in the ruling's own words:

"No single test, or any special combination of tests, is absolutely determinative."

The most important passage for anyone comparing a $1-buyout against a true lease is the ruling's presumption of conditional sale:

"…it will be presumed that a conditional sales contract was intended if the total of the rental payments and any option price payable in addition thereto approximates the price at which the equipment could have been acquired by purchase at the time of entering into the agreement, plus interest and/or carrying charges."

That is a precise description of the $1-buyout fact pattern: total payments plus a $1 option approximate the purchase price plus finance charges. Hence: conditional sale, lessee is tax owner, full cost is §179-eligible.

Conversely, the ruling indicates a true lease where payments are set at an hourly, daily, production, or mileage rate untied to the purchase price, provided the option price reasonably approximates the anticipated fair market value at the option date.

Two things that do not control

1. The label on the document does not control. Calling an agreement a "lease" does not make it one for tax purposes, and calling it a "finance agreement" does not automatically make it a purchase. Substance governs. This is exactly what Rev. Rul. 55-540 is for, and it is why we would rather look at the actual document than take the vendor's word for the category.

2. ASC 842 book classification is not the tax test. An agreement can be a finance lease for GAAP purposes under ASC 842 and a true lease for federal income tax purposes. The two regimes ask different questions. Your controller classifying something as a finance lease on the balance sheet tells you nothing definitive about whether §179 is available.

Competitor content in this category asserts the conclusions with no citation at all and never explains that the label does not control. If you take one thing from this section: send the actual document to your CPA before you count on the deduction.

Where we fit: we are a commercial finance brokerage. Part of what we do is tell you which structure you are actually being offered, because it changes the tax answer, and because more than one buyer has discovered the difference after the fact.

4. The interest side: what else you deduct

A financed purchase produces two distinct deductions, and people routinely miss the second or double-count the first.

You deduct both:

1. §179 (and/or depreciation) on the full capitalized cost of the asset: the whole purchase price, in year one if you elect §179, regardless of how little of it you have paid in cash.
2. The interest portion of your payments as an ordinary and necessary business expense under §162/§163.

You do not deduct principal. Only the interest portion of each payment is deductible. Deducting principal on top of the §179 deduction would be counting the same cost twice. You have already deducted the entire asset cost in step 1.

What makes interest deductible

Interest on debt used for business purposes is deductible where there is a genuine debtor-creditor relationship, legal liability on the borrower, a true intent to repay, and, critically, the funds are actually used for business. Use is traced under Temp. Reg. §1.163-8T.

The related items people get wrong

§163(j), and why it probably does not apply to you

You may run into scare content about the §163(j) business interest limitation, which caps deductible business interest at 30% of adjusted taxable income.

For most of the businesses we work with, the honest answer is: §163(j) almost certainly does not apply to you. There is a small-business exemption for taxpayers meeting the §448(c) gross receipts test: $31 million for 2025, $32 million for 2026. If your average annual gross receipts are anywhere near that line, confirm the current figure with your CPA. The main disqualifier is the tax-shelter/syndicate exception under §448(d)(3).

Two things worth knowing even if you are exempt:

• OBBBA permanently restored the EBITDA-based definition of adjusted taxable income (depreciation, amortization, and depletion are added back) for tax years beginning after December 31, 2024. For capital-intensive borrowers, this materially increases the amount of deductible interest.
• Disallowed interest carries forward.

If you see a page citing a $29 million threshold, it is running on 2023 figures. Check the date on any tax content you rely on, including ours.

5. §179 vs. bonus depreciation: the real decision

For a lot of financed equipment purchases, §179 is not the only route to a first-year deduction, and it is not always the better one.

Bonus depreciation under §168(k) is 100% and permanent for qualified property acquired after January 19, 2025 AND placed in service after January 19, 2025. There is no scheduled phase-down.

Note that this is a two-pronged test. Both dates must clear. Property under a written binding contract before January 20, 2025 stays on the old TCJA phasedown schedule regardless of when it is placed in service, and that legacy track is at 20% for 2026.

On the acquisition date, IRS Notice 2026-11 (released January 14, 2026) provides that the acquisition date is generally the date of a written binding contract, refined to the later of contract execution, enforceability, expiration of any cancellation period, or satisfaction of contingencies. Self-constructed property is acquired when construction begins, with a 10%-of-total-cost safe harbor.

When §179 is the better tool

• You need surgical control over the number. §179 is elected asset by asset and can be partial on a single asset. Bonus is all-or-nothing by class of property. If you want exactly $180,000 of deduction to land you in a particular bracket, §179 is the only tool that does it.
• State conformity. Many states that decouple entirely from bonus depreciation still allow §179 up to a state cap. §179 travels better across state lines. See section 9.
• The asset is §179(e) real property. Roofs, HVAC, fire protection, and security systems on nonresidential real property are §179-eligible by election but are generally 39-year §1250 property and therefore not bonus-eligible. This is the most common situation where §179 is your only option. (Qualified improvement property itself is 15-year and is bonus-eligible.)

When bonus is the better tool

• You need a loss. This is the biggest structural difference in the entire comparison: bonus depreciation can create or increase a net operating loss. §179 cannot. §179 is hard-capped at your active business taxable income (see section 6). If you are at or near break-even and want the deduction to generate an NOL that carries forward, §179 will not do it and bonus will.
• The purchase is large. Bonus has no dollar cap and no phase-out. A business placing $12,000,000 of equipment in service gets $0 of §179 (it is fully phased out above $6,650,000) but 100% bonus on the entire amount.
• Simpler compliance. No taxable-income limitation, no carryforward tracking.

The ordering rule

Per Pub. 946, the sequence is fixed: §179 first, then bonus depreciation on the remaining basis, then MACRS on whatever is left.

The common optimal play

For many mixed-asset years the best answer is a combination: elect §179 on the assets that are not bonus-eligible (the §179(e) building improvements) and in states that conform to §179 but not bonus, and let 100% bonus sweep everything else. That is a conversation for your CPA with your actual asset list in front of them.

One deliberate omission: there is a special bonus rate for certain long-production-period property. Published sources currently conflict on the 2026 figure, so we are not printing one. If long-production-period property is relevant to your purchase, confirm the rate with your tax professional.

6. The taxable-income limitation and carryforward

This is the limit most likely to make an optimistic §179 estimate wrong for a real business.

§179(b)(3): your §179 deduction cannot exceed your aggregate taxable income from the active conduct of a trade or business, and it cannot create or increase a net operating loss. Amounts disallowed by this limitation carry forward indefinitely.

In plain terms: §179 can take your taxable income to zero. It cannot take it below zero.

The part that helps you

For individuals, the "active business income" pool is broader than most people assume. It includes W-2 wages under Treas. Reg. §1.179-2(c)(6), in addition to Schedule C net income and K-1 ordinary income.

Practical consequence: an owner whose entity is thin on profit but who draws a substantial W-2, from that business or, in the right fact pattern, from other employment, can often still absorb a meaningful §179 election. Worth raising with your CPA if you assumed you were capped out.

The trap, and it is a real one

The carryforward relieves only the taxable-income limitation. It does not relieve the dollar cap or the phase-out.

The $2,560,000 cap and the $4,090,000 phase-out lock in permanently in the year the property is placed in service. They are computed once, in that year, off the property placed in service in that year. They do not travel with the carryforward.

So a business that places $5,000,000 of equipment in service in a loss year takes a permanent phase-out haircut. The deduction ceiling for that year's property is reduced to $1,650,000 and stays reduced, even though the unused portion carries forward to a profitable year. The carryforward preserves the amount that survived the phase-out. It does not restore the amount the phase-out removed.

Planning implication: for large purchases, which tax year the equipment is placed in service is a first-order decision, not a scheduling detail. This is one of the strongest reasons to have the placed-in-service conversation in Q3.

7. Vehicles

Vehicles have their own regime, and it is the area where marketing claims and actual rules diverge the most.

The three tiers

Business-use percentage is the rule that undoes the most vehicle claims. See below.

Why the line is 6,000 lbs

§280F(d)(5) defines a "passenger automobile" as a vehicle rated at 6,000 lbs or less, substituting gross vehicle weight for unloaded weight in the case of a truck or van. That substitution is why the practical test everyone uses is GVWR greater than 6,000 lbs. Above that line, the §280F luxury caps simply do not apply.

Check the GVWR on the manufacturer's door-jamb sticker, not a blog post's model list. Trim levels and configurations move the number.

The $32,000 SUV cap and its exceptions

For SUVs between 6,001 and 14,000 lbs GVWR, §179(b)(5)(A) caps the §179 deduction at $32,000 for TY2026.

§179(b)(5)(B) provides three exceptions. A vehicle meeting any of these is not subject to the SUV cap:

• A vehicle seating more than nine passengers behind the driver
• A vehicle with a cargo area of at least six feet of interior length, not readily accessible from the passenger compartment. This covers most full-size pickups with a 6-foot bed.
• A vehicle with an integral enclosed driver compartment and no seating behind the driver: cargo vans

Confirm the specific vehicle's configuration with your CPA before relying on an exception.

Note the structure of the rule: the $32,000 cap limits §179 only. Basis above the cap remains eligible for 100% bonus depreciation, which has no vehicle-specific dollar cap for vehicles over 6,000 lbs GVWR. That interaction is where most of the real first-year deduction on a heavy vehicle comes from, and it is a bonus depreciation story, not a §179 story.

Passenger autos: the §280F caps

For passenger automobiles (6,000 lbs GVWR or less) placed in service in 2026, Rev. Proc. 2026-15 sets the depreciation caps at $20,300 in year one with bonus, or $12,300 without; $19,800 in year two; $11,900 in year three; and $7,160 for each succeeding year. Confirm the current figures with your CPA.

Electing §179 on a passenger auto does not get you around these. §280F(d)(1) applies the cap to the §179 deduction as well.

Business use: the rule that undoes the most claims

Vehicles are listed property. Two consequences:

1. Business use must be more than 50% to claim §179 at all. Exactly 50% fails.
2. The deduction is prorated by business-use percentage. A $60,000 qualifying vehicle used 70% for business supports §179 on $42,000 of basis, not $60,000.

At 50% or less business use in the placed-in-service year: no §179, no bonus, and the vehicle is forced onto ADS straight-line depreciation (§280F).

Contemporaneous mileage records are not optional here. The business-use percentage is a factual question you have to be able to substantiate, and it is the first thing examined.

8. The honest counterweights

Most content in this category stops at the deduction. This section is the part your CPA actually wants you to read, and we would rather publish it than have you learn it the expensive way.

8.1 Recapture: what happens when business use drops

§179(d)(10) and Treas. Reg. §1.179-1(e): if business use of §179 property drops to 50% or less at any point during the property's recovery period, you must recapture the excess of the §179 deduction taken over what regular MACRS depreciation would have allowed.

The recaptured amount is ordinary income, reported on Form 4797, Part IV, in the year the use drops.

The recaptured amount is added back to the property's basis, so this is a timing reversal rather than a permanent penalty. But it lands as ordinary income in a year you did not plan for it, at whatever your marginal rate is that year. It also triggers on early disposition, gift, or conversion to personal use.

A distinction most content conflates: a business-use drop is recaptured under §179(d)(10) on Form 4797 Part IV. A sale or disposition is a §1245 recapture question (Pub. 544, ch. 3). Different rules, different mechanics. Do not assume advice about one applies to the other.

Applied to the pitch you have probably seen: a heavy SUV expensed at 90% business use in year one, dropping to 40% business use in year three, produces a real ordinary-income pickup in year three. The "buy the vehicle, write it off" framing never mentions this. It should.

8.2 The §179 and QBI tradeoff, including the UBIA point nobody covers

If your business is a passthrough and you claim the §199A qualified business income deduction (made permanent by OBBBA §70105, still 20%), then a §179 election pulls in three directions at once.

1. §179 reduces QBI itself. It is a trade-or-business deduction allocable to the business, so it lowers the 20%-of-QBI component dollar for dollar. The practical effect: for a QBI-eligible passthrough, the marginal value of a §179 dollar is roughly 80 cents, not a full dollar.

2. §179 also reduces taxable income, which lowers the overall cap. The QBI deduction cannot exceed 20% of taxable income computed before the QBI deduction and before net capital gain. So the ceiling drops as well as the base.

3. §179 does NOT reduce UBIA. This is the counterintuitive one, and it cuts the other way. UBIA, the unadjusted basis immediately after acquisition, is determined without regard to §179, bonus depreciation, or regular depreciation. Property you expensed in full still counts toward the 2.5%-of-UBIA limitation, for the later of ten years after the placed-in-service date or the end of the MACRS recovery period.

Why this matters: a business above the §199A threshold with weak W-2 wages can improve its wage-and-UBIA limitation by buying equipment, while simultaneously hurting its QBI base and its taxable-income cap. Whether §179 is net-positive genuinely depends on where the owner sits relative to the threshold.

The TY2026 §199A thresholds (Rev. Proc. 2025-32):

The phase-in ranges widened from $50,000/$100,000 to $75,000 single / $150,000 MFJ, which meaningfully softens the SSTB cliff. And §199A(i) adds a new minimum deduction of $400 for taxpayers with at least $1,000 of QBI from a business in which they materially participate.

One more: if §179 pushes QBI negative, the loss carries forward mandatorily and reduces next year's positive QBI before any deduction is computed. Aggressive expensing can strand a QBI deduction into a future year entirely.

Modeling this requires your actual return. This is squarely a CPA conversation, and it is the reason we route tax questions out rather than answering them on a sales call.

8.3 The de minimis safe harbor: often the better tool

For a business making many small equipment purchases, §179 may be the wrong default, and most content in this category never mentions the alternative.

The de minimis safe harbor election under Treas. Reg. §1.263(a)-1(f) lets you expense items at $5,000 per item or invoice if you have an applicable financial statement, or $2,500 per item or invoice if you do not. Unchanged for 2026.

The strongest small-business point on this page: for a business with many sub-$2,500 purchases and thin or negative taxable income, the de minimis safe harbor is the better tool. No income cap, no phase-out, no recapture, and it generally survives state decoupling, which §179 frequently does not.

Two requirements that catch people: you need accounting procedures in place at the beginning of the tax year (written, if you have an applicable financial statement), plus an annual election statement on a timely filed return. There is no permanent version of this election. If you do not have the policy in place before January 1, you cannot use it for that year. Which makes this a December conversation for next year, every year.

8.4 A deduction is worth your marginal rate, not the purchase price

This is the plainest point on the page and the one the category works hardest to blur.

Section 179 reduces the income you are taxed on. It is not a credit and it is not a rebate. Deducting $200,000 does not return $200,000. It returns $200,000 multiplied by your marginal tax rate: federal, plus state to whatever extent your state actually allows the deduction (see section 9).

The blue share is illustrative, not a rate. The point is the shape: a deduction reduces the income you are taxed on. It is never cash back equal to the purchase price.

Three consequences worth sitting with:

• You still owe the full financed amount, with interest, on the lender's schedule. The deduction changes your tax bill. It does not change your obligation.
• If your taxable income is low, the deduction is worth less. And §179 is hard-capped at that income anyway.
• Buying equipment you do not need in order to get a deduction is a losing trade at any tax rate, because you are spending a full dollar to save a fraction of one.

The right sequence is: decide whether the equipment earns its keep on operating grounds first. If it does, then the tax treatment and the financing structure are worth optimizing carefully, and that is a conversation we are genuinely useful in. If it does not, no deduction makes it a good purchase.

Related, and worth flagging for anyone near break-even: the §461(l) excess business loss limitation was made permanent by OBBBA, and the inflation base was reset to the original TCJA amounts. So the 2026 thresholds went down, to $256,000 single / $512,000 MFJ from $313,000 / $626,000 in 2025. An inflation-adjusted figure that decreased. Disallowed excess business losses convert to NOL carryforwards. Confirm with your CPA if you are in loss territory.

And on NOLs generally: post-2017 NOLs carry forward indefinitely, with no carryback for most taxpayers, and the deduction is limited to 80% of taxable income. Unchanged by OBBBA. Which is the real shape of the §179-versus-bonus decision for a marginally profitable borrower: it is less "which deduction is bigger" and more which limitation would you rather be trapped by.

9. State decoupling: your federal write-off is not your state write-off

Everything above is federal. Your state may not follow any of it, and national content that ignores this is materially wrong for readers in a lot of large states.

The headline: a California business that federally expenses $500,000 under §179 gets a state §179 allowance of $25,000. Nearly all of it is added back for California purposes.

Notably, the top-ranking incumbent page in this category explicitly declines to give state-by-state detail and tells readers to contact their state department of revenue. A page ranking first for the question while declining to answer it is why this section exists.

The states we can speak to, covered in detail below. State figures come from secondary analyses, not primary state revenue-department sources. Confirm your state with your CPA.

The states we can speak to

California: the hardest cap in the country.

• Bonus depreciation: never allowed. California has no §168(k) conformity and never has. OBBBA changes nothing.
• §179: capped at $25,000, with the phase-out beginning at $200,000. Static. There is no indexing mechanism.
• A separate California depreciation schedule is required (FTB 3885 / 3885A).

New Jersey. Bonus depreciation disallowed since 2002. §179 is computed under the IRC as in effect December 31, 2002, which produces the $25,000 cap. We are deliberately not printing a New Jersey phase-out threshold: New Jersey's own instructions do not print one, and sources conflict on how the phase-out is computed. Confirm the current application with your CPA.

New York. Bonus depreciation has been decoupled for tax years beginning after December 31, 2002; New York substitutes depreciation computed as if the property were acquired September 10, 2001. On §179: we did not find a New York-specific dollar cap (the decoupling statute targets §168(k), not §179), but we have not verified this and are not going to assert it. Confirm New York §179 treatment with your CPA. Separately, the FY 2026-27 budget decoupled New York from §168(n) qualified production property and from federal R&E, retroactive to tax years beginning on or after January 1, 2025.

Pennsylvania. Bonus depreciation is disallowed for corporate net income tax purposes, but Act 72 of 2018 permits normal MACRS recovery. The old "3/7 rule" is obsolete. It applied to the 30% bonus era and was replaced for property placed in service after September 27, 2017. Applying 3/7 to current assets is a common error in older content and older planning memos. Act 145 of 2025 requires addback of §168(n) QPP. We could not verify a Pennsylvania §179 cap. Confirm with your CPA.

North Carolina. Add back 85% of federal bonus depreciation, deducted over five years. For §179: add back 85% of the excess over $25,000 / $200,000. Static since 2013.

Florida: newly decoupled. HB 7031, signed June 11, 2026, adopts the IRC as of January 1, 2026 but holds OBBBA provisions at their January 1, 2025 treatment. Bonus depreciation is added back and recovered one-seventh per year over seven years. §179 is therefore frozen at pre-OBBBA limits: $1,250,000 / $3,130,000, by inference from the conformity freeze; no Florida source prints §179 dollar figures. Full decoupling from §168(n) and §174A. Business interest stays on the less favorable EBIT basis.

Indiana. §179 capped at $25,000 (Information Bulletin #118).

States we are deliberately not covering

We could not verify §179 treatment for Illinois, Minnesota, Maryland, Massachusetts, Connecticut, Virginia, Georgia, Ohio, or Wisconsin to a standard we are willing to publish. Sources actively conflict on Georgia and Wisconsin. If you operate in one of these states, ask your CPA rather than trusting any national page, including this one. We would rather have a gap than a wrong number.

Four cross-cutting rules

1. Static caps are the norm. California and North Carolina sit at $25,000 / $200,000, and New Jersey caps §179 at $25,000, all with no indexing. Never assume a 2026 inflation bump at the state level. Most states do not have one.
2. The standard mechanic is: compute federal with bonus, compute state on regular MACRS, add the difference back in year one, then reverse it over the recovery period. You get the deduction eventually at the state level; you just do not get it now.
3. §168(n) qualified production property is the new decoupling frontier. New York, Pennsylvania, Illinois, and Florida each decoupled from QPP separately from their §168(k) rules. It has to be checked on its own.
4. 2026 is an active legislative year. Any state list has a short shelf life. Re-verify at least annually. This one is dated July 29, 2026.

This is also a reason §179 is often preferable to bonus at the margin: many states that disallow bonus entirely still permit §179 up to a state cap. §179 travels better.

10. FAQ

Authority cited on this page