If you’ve been putting off a new excavator, a CNC machine, a fleet truck or a software upgrade, 2026 may be the year to stop waiting. Federal law now allows most businesses to deduct the full cost of qualifying equipment in the year it’s placed in service. But the details, especially timing and state rules, determine whether that deduction actually helps you.
Bonus depreciation is back at 100%, permanently
Under the 2025 federal tax law, qualifying property acquired after January 19, 2025 is eligible for 100% bonus depreciation, and that rate no longer phases down. Bonus depreciation generally applies to new and used tangible property with a recovery period of 20 years or less, such as machinery, equipment, vehicles, furniture and certain software.
Section 179 limits are higher too
Section 179 lets you elect to expense qualifying property up to an annual dollar limit, which the 2025 law raised to $2.5 million, with a phase-out beginning at $4 million of qualifying purchases. Both amounts are indexed for inflation, so 2026 limits are slightly higher. Section 179 can be useful when you want to expense some assets but not others, or for certain improvements to nonresidential buildings such as roofs, HVAC, fire protection and security systems.
New for manufacturers: qualified production property
The 2025 law also created a temporary 100% deduction for certain nonresidential buildings used in manufacturing, production or refining. Construction generally must begin after January 19, 2025 and before 2029. This is a narrow provision with specific requirements, so talk with us before assuming a building qualifies.
“Placed in service” is the deadline that matters
Paying for equipment in December doesn’t create a 2026 deduction on its own. The asset must be delivered, installed and ready for its intended use by December 31. With supplier lead times still unpredictable in some industries, orders placed in late November may not arrive in time. If a year-end purchase is part of your plan, confirm the delivery date now.
Don’t let the deduction drive the decision
A large deduction is valuable, but it’s not free money. A few questions to consider:
- Do you actually need the asset? Spending $100,000 to save roughly $25,000 to $37,000 in federal tax still costs $63,000 or more in cash.
- Is your income high enough to use the deduction? Deductions are worth more in high-income years. If 2026 is a down year, spreading depreciation out may produce more value over time.
- How will you finance it? Equipment loans and leases are treated differently. A true lease may not give you the depreciation at all.
- What about Connecticut? Connecticut generally does not follow federal bonus depreciation, and its 2026 budget legislation also decoupled from the new qualified production property deduction. Your state deduction will usually be spread over several years, so state taxable income may be higher than federal.
Construction contractors: watch your bonding and WIP
A large depreciation deduction lowers taxable income, but your sureties look at your financial statements, not your tax return. Make sure your book and tax depreciation policies are coordinated so a tax strategy doesn’t create surprises on your work-in-progress schedule or bonding capacity.
Next steps
Before committing to a year-end purchase, ask us to run a quick projection that compares buying now versus in January. It takes less time than you’d think, and it can prevent an expensive surprise.
