Every November, someone tells a business owner to buy a truck before December 31 and write the whole thing off. The advice is half right. Current law does let most small businesses deduct the full cost of equipment in the year they start using it. But a deduction is not a discount, the timing rules are stricter than people assume, and a purchase that lowers this year's tax bill can raise next year's. This guide explains how the rules work in 2026 and how to decide, then shows how the purchase should be recorded so your books, your fixed asset list, and your tax return all say the same thing.
Two ways to deduct the whole cost in year one
Normally a piece of equipment is depreciated over several years: five for computers and vehicles, seven for most machinery, furniture, and tools. Two provisions let you skip the wait. Section 179 is an election you make asset by asset to expense the cost immediately, up to an annual limit of about $2.5 million that is adjusted each year for inflation and that phases out for businesses placing more than roughly $4 million of property in service. It covers new and used equipment, off-the-shelf software, and certain improvements to nonresidential buildings such as roofs, HVAC, and security systems. Its main constraint is that the deduction cannot exceed your business taxable income for the year; anything above that carries forward instead of creating a loss. Bonus depreciation does something similar, and legislation enacted in July 2025 restored it to 100 percent on a permanent basis for qualifying property acquired and placed in service after January 19, 2025. Bonus has no income limit, so it can create or deepen a loss, and it applies automatically to every asset in a class unless you elect out for that class.
Most small businesses can use either, and the practical differences are these. Section 179 is more flexible because you choose which assets and how much. Bonus is broader because it is not capped by income. States do not all follow federal law: some cap Section 179 at a far lower figure or disallow bonus entirely, so the state return can look very different from the federal one. Vehicles have their own ceilings. Passenger cars and light SUVs under 6,000 pounds gross vehicle weight are limited to roughly $20,000 of first-year depreciation including bonus. Heavier SUVs and trucks escape that cap, though a separate Section 179 limit of a little over $31,000 applies to heavy SUVs; pickups with a six-foot bed and cargo vans generally do not face it. Any vehicle has to be used more than 50 percent for business to qualify, and the deduction is reduced to the business-use percentage.
The rules that trip owners up
Placed in service is the test, not paid for and not ordered. The asset has to be delivered and ready for its intended use by December 31. A machine on backorder, a truck at the dealer waiting for an upfit, or software you have licensed but not installed does not count for this year. Financing does not matter the other way: a $60,000 skid steer bought with $5,000 down and a five-year loan is fully deductible in year one if it is working before year end, because the deduction follows ownership, not cash. That mismatch between deduction and cash is the entire reason this strategy exists, and it is also why owners get surprised later, since the loan payments in future years are not deductible except for the interest.
A deduction saves tax at your marginal rate and no more. If you are in a combined federal and state bracket of 30 percent, a $50,000 purchase saves about $15,000 of tax and costs $50,000 of cash or debt. Buying something you do not need to save tax is spending a dollar to get thirty cents back. The question to ask is whether you would buy the asset in the first quarter anyway; if so, pulling it into December is a free timing benefit. If not, it is just a purchase. There is also a case for not taking the deduction now. If this year's income is unusually low, or you expect to be in a higher bracket next year, electing out of bonus and depreciating normally, or taking only part of the cost under Section 179, spreads the deduction into years where it is worth more. Owners of S corporations and partnerships should remember the deduction flows to their personal return, where the Section 179 income limit is tested again, and that a large loss can be limited by basis. This is a conversation to have with your tax preparer in November, with a current profit and loss in hand, not in April.
What happens when you sell it
Writing an asset down to zero in year one does not make it free forever. When you later sell or trade in equipment that was fully expensed, the proceeds are taxable, generally as ordinary income up to the amount you deducted. Sell the $60,000 skid steer for $35,000 in three years and that $35,000 is income in that year. If business use of a vehicle drops to 50 percent or below before the normal depreciation period ends, part of the deduction is recaptured as well. None of this makes the deduction a bad idea; it means the deduction is a deferral, and the books have to carry enough information to compute the recapture when the time comes.
How to record the purchase in your books
On the books, equipment is an asset, not an expense, regardless of how it is treated on the tax return. Record the full purchase price, including sales tax, freight, and installation, to a fixed asset account on the balance sheet. If part was financed, the loan goes to a liability account and only the down payment comes out of the bank. The one exception is the de minimis safe harbor: if you have a written policy to expense items under a threshold, generally $2,500 per item or invoice, those small purchases can be expensed directly in the books and on the return, which keeps laptops and hand tools off the depreciation schedule. Depreciation itself is a monthly or year-end entry that reduces the asset through accumulated depreciation and posts to depreciation expense. Many small businesses simply book the same depreciation their tax return uses, which means a large Section 179 or bonus deduction shows up as a large expense on the year-end profit and loss. That is acceptable, but it makes December look dramatically worse than November, and lenders know to look through it.
Keep a fixed asset register whether or not your software has one: a list of every asset with the date placed in service, cost, business-use percentage for vehicles, the method and amount deducted, and the date and proceeds when it is disposed of. That register is what your preparer needs to elect Section 179 correctly and what you need to compute recapture years later. It is also exactly the kind of record that gets lost when bookkeeping happens once a year. Evolv Bookkeeping maintains it as part of a normal month-end close, for $199 per month flat, with your profit and loss and balance sheet delivered by day 2 of the following month, 1099 prep for your contractors at year end, and no contracts. If the books are behind heading into this decision, catch-up is $199 for each month behind, done within 2 days and guaranteed in writing, and you can get an instant quote on our homepage.