Every fall, business owners hear some version of the same advice: buy that truck or new equipment before December 31 and write it off. Thanks to bonus depreciation and Section 179, the deduction for many 2026 purchases can be generous. But the rules have real conditions, and a purchase that does not make business sense is still a bad deal, even with a tax break attached.
Starting in early November gives you time to decide, order, and take delivery before the year closes. Here is what to know first.
Two ways to deduct the full cost in year one
Normally, the cost of business equipment is deducted gradually over several years through depreciation. Two provisions let many businesses deduct much more, often the entire cost, in the year the asset is placed in service.
Bonus depreciation. The 2025 federal tax law restored 100% bonus depreciation for qualifying property acquired after January 19, 2025, and made it permanent. Machinery, computers, furniture, many vehicles, and other equipment with a recovery period of 20 years or less generally qualify. Used property can qualify too, as long as you did not use it before and did not buy it from a related party.
Section 179 expensing. Section 179 lets you elect to expense qualifying property up to an annual limit, which is $2,560,000 for 2026. That limit starts shrinking once you place more than $4,090,000 of qualifying property in service during the year, so very large buyers can lose it.
Two differences matter for most small businesses:
- Income limit. Section 179 is limited to your taxable income from actively conducted businesses, which can include wages, and any excess carries forward. S corporations and partnerships apply the limit at both the business and owner level. Bonus depreciation has no income limit and can create a loss.
- Flexibility. Section 179 is elected asset by asset and in any amount you choose. Bonus depreciation applies automatically to an entire class of property unless you elect out of that class.
Your accountant will usually decide which tool to use, and in what order, when preparing your return. Your job before December 31 is to make sure the purchase qualifies at all.
“Placed in service” is the deadline that counts
To deduct an asset on your 2026 return, it must be placed in service in 2026. That means it is ready and available for its intended use in your business. Paying for it is not enough, and neither is a signed order. It has to be delivered, set up, and ready to work.
That is why November matters. If a dealer is quoting six weeks for delivery, or the equipment needs installation, a December decision may push the deduction into 2027.
The good news cuts the other way, too. Financing generally does not reduce the deduction. An asset bought with a loan can be deducted in the year it is placed in service, just like one paid for in cash. Interest on the loan is handled separately.
Vehicles have their own rules
Vehicles are the most common year-end purchase and come with the most fine print.
- More than 50% business use is required. Section 179 and bonus depreciation are generally unavailable for a vehicle used 50% or less for business. If business use drops to 50% or below during the vehicle’s recovery period, part of the deduction you took can be recaptured as income.
- Weight matters. Passenger cars and lighter trucks and SUVs are subject to annual dollar caps on depreciation, which limit the first-year deduction even with bonus depreciation. Heavier SUVs (rated over 6,000 and up to 14,000 pounds gross vehicle weight) are not subject to those caps. Most have their own Section 179 limit of $32,000 for 2026, with bonus depreciation available on the remaining business-use cost. Some configurations, such as certain pickups and cargo vans, follow different rules.
- Records still apply. A big first-year deduction on a vehicle draws attention. You need a mileage log that supports the business-use percentage you claim, just as you would with the standard mileage rate.
If you plan to deduct actual vehicle costs, including depreciation, talk with your accountant about how that choice affects the standard mileage rate in later years.
Why “buy it for the write-off” can backfire
A deduction reduces your taxes by a fraction of what you spend. If you are in the 24% federal bracket and spend $50,000 on equipment you do not need, you might save around $12,000 in federal income tax. You are still out $38,000 in cash.
Other things to weigh before buying:
- Next year’s income. Taking the whole deduction in 2026 leaves nothing to depreciate in later years. If you expect higher income ahead, spreading the deduction out may be worth more.
- Selling later. When you sell an asset you expensed, the gain up to the amount you deducted is generally taxed as ordinary income.
- Cash flow. A large purchase in December can leave you short for January payroll, estimated taxes, and the slow season.
- Other deductions tied to income. A larger depreciation deduction lowers business income, which can also reduce the qualified business income deduction for some owners.
The best year-end purchase is one you would make anyway, timed to land in the year where the deduction helps most.
A note for Colorado and Hawaii businesses
State rules do not always match federal rules. Colorado generally follows federal depreciation, but Hawaii does not adopt federal bonus depreciation, and its own Section 179 limit is far lower than the federal amount. Hawaii businesses can see a large federal deduction alongside a much smaller state deduction for the same purchase, so plan for both.
Bring your numbers before you buy
Before committing to a major purchase, bring the price, expected delivery date, financing terms, and your year-to-date profit to a planning conversation. We can estimate what the deduction is actually worth, whether this year or next is the better year to take it, and what the purchase means for your cash flow.
Contact Key2 Accounting to schedule year-end tax planning. We help small businesses across Colorado and Hawaii make equipment decisions that make sense for the business first and the tax return second.