Introduction For US business owners and Indian entrepreneurs with US operations, two of the most powerful tools for reducing taxable income are Section 179 expensing and Bonus Depreciation. Both allow you to deduct the cost of business assets immediately rather than over multiple years — but they work differently and have different limitations. In […]
For US business owners and Indian entrepreneurs with US operations, two of the most powerful tools for reducing taxable income are Section 179 expensing and Bonus Depreciation. Both allow you to deduct the cost of business assets immediately rather than over multiple years — but they work differently and have different limitations.
In Day 6, we explain how each works, compare their advantages, and provide a strategic framework for choosing the right approach in 2026.
Normally, when a business buys a tangible asset (equipment, machinery, vehicles, computers), the cost is deducted over the asset’s useful life as defined by the IRS MACRS (Modified Accelerated Cost Recovery System) schedule. This spreads the deduction over 5, 7, 15, or more years.
Section 179 and Bonus Depreciation both allow businesses to accelerate these deductions — taking a much larger deduction in the year the asset is placed in service.
Section 179 of the Internal Revenue Code allows a business to immediately deduct the full cost of qualifying property placed in service during the tax year.
2026 Section 179 Limits:
– Maximum deduction: $1,220,000 (indexed for inflation)
– Phase-out threshold: $3,050,000 (deduction reduces dollar-for-dollar above this amount)
– Cannot create a tax loss: Section 179 deduction is limited to the taxable income from active business
– Machinery and equipment
– Business vehicles (with limitations for SUVs)
– Computer hardware and software
– Office furniture and fixtures
– Qualified improvement property (interior improvements to non-residential buildings)
– Certain listed property
– Real property (land and buildings)
– Property held for investment
– Property used outside the US
Bonus Depreciation (IRC Section 168(k)) allows businesses to deduct a percentage of the cost of qualifying property in the first year.
Bonus Depreciation Schedule:
– 2022: 100%
– 2023: 80%
– 2024: 60%
– 2025: 40%
– 2026: 20%
– 2027 onwards: 0% (unless Congress extends)
Key Difference: Bonus Depreciation CAN create a tax loss (which can be carried back or forward), while Section 179 cannot.
– Most tangible property with a MACRS recovery period of 20 years or less
– Qualified improvement property
– Computer software
– New AND used property (since 2017)
Section 179 vs Bonus Depreciation: Key Comparisons
| Deduction Rate | Up to 100% | 20% in 2026 |
| Dollar Limit | $1.22M cap | No cap |
| Can Create Loss | No | Yes |
| Property Required | New or used | New or used |
| State Conformity | Varies | Varies |
| Applies to Vehicles | Yes (with limits) | Yes |
Given Bonus Depreciation drops to only 20% in 2026 (down from 100% in 2022), Section 179 becomes more valuable for most small and mid-size businesses.
1. Use Section 179 first for qualifying assets up to the taxable income limit
2. Apply Bonus Depreciation on remaining asset cost or assets not eligible for Section 179
3. For assets that would create losses, evaluate whether a Net Operating Loss (NOL) carryforward is useful
4. Consider accelerating asset purchases into 2026 to capture remaining Bonus Depreciation before it expires
In India, Section 32 of the Income Tax Act allows accelerated depreciation on new plant and machinery at an additional 20% in the first year under Section 32AC/32AD. This incentivises manufacturing investment similarly to US Bonus Depreciation.
With Bonus Depreciation declining to 20% in 2026, businesses must be more strategic about asset purchases and depreciation choices. Section 179 remains a powerful tool but has income limitations. The optimal approach depends on your expected taxable income, the types of assets purchased, and your multi-year tax planning horizon.
In Day 7, we explore Corporate Inversion Structures — how companies re-domicile to lower-tax jurisdictions, the legal frameworks, and why post-TCJA inversions are much harder to execute.
Moiz Ezzi is a Certified Public Accountant (CPA) and Chartered Accountant (CA) specialising in cross-border tax advisory for multinationals, NRIs, and non-US founders with India-US and India-global operations. He advises clients across transfer pricing, international holding structures, DTAA planning, and entity structuring.
Connect with Moiz Ezzi on LinkedIn for weekly cross-border tax insights.
