OBBBA Section 179 Deduction 2026: Small-Business Tax Reset Guide

Last updated: September 4, 2026

Key Takeaways

How much did the Section 179 cap increase under OBBBA?
The cap rose from $1 million to $2.5 million for property placed in service in tax years beginning in 2025, and it is now indexed for inflation — reaching roughly $2.56 million for 2026, with the phase-out threshold at about $4.09 million.

Is 100% bonus depreciation really back?
Yes. Qualifying property acquired and placed in service after January 19, 2025, and before January 1, 2030, qualifies for a full 100% first-year bonus depreciation deduction, replacing the phase-down schedule that had reduced bonus depreciation to 40% in 2025 under prior law.

What changed for the QBI deduction in 2026?
The 20% Qualified Business Income deduction is now permanent, a new $400 minimum deduction applies to anyone with at least $1,000 in qualified business income, and the income phase-out range widened to $394,600–$544,600 for joint filers.

How Much Can a Small Business Deduct Under the New OBBBA Section 179 Cap?

The OBBBA Section 179 deduction 2026 limit allows businesses to immediately expense up to $2.5 million of qualifying equipment, machinery, and certain property placed in service in tax years beginning in 2025, rather than depreciating it over several years.

This is a two-and-a-half-fold jump from the prior $1 million cap under the Tax Cuts and Jobs Act, and Congress built inflation indexing directly into the statute this time. For tax years beginning in 2026, the IRS’s inflation adjustments (Revenue Procedure 2025-32) push the practical limit to approximately $2.56 million, according to guidance summarized by multiple CPA firms tracking the 2026 filing season. A small business that outfits a workshop, upgrades a delivery fleet, or buys point-of-sale hardware can now write off nearly all of that spending in the year it is placed in service, freeing up cash instead of waiting years for depreciation to catch up. Businesses can review how straight-line depreciation works for property that does not qualify for immediate expensing.

What Is the Section 179 Phase-Out Threshold for 2026?

The phase-out threshold defines the point at which a business’s total qualifying purchases start reducing its available Section 179 deduction dollar-for-dollar, and it now sits near $4 million.

Under OBBBA, the phase-out begins at $4 million for property placed in service in 2025, rising to roughly $4.09 million for 2026 after inflation adjustment. According to analysis from Doeren Mayhew on the law’s business provisions, the phase-out is dollar-for-dollar: every dollar of qualifying purchases above the threshold reduces the maximum deduction by one dollar. A company that places $4.5 million of equipment in service in 2026 would see its $2.56 million cap reduced by the $410,000 excess over $4.09 million, leaving about $2.15 million of Section 179 expensing available. This structure targets the deduction at small and mid-sized businesses rather than large capital-intensive corporations, since companies with very high annual capital spending lose the benefit entirely once purchases exceed roughly $6.65 million.

How Does 100% Bonus Depreciation Work for Property Placed in Service in 2026?

Bonus depreciation lets a business deduct the full cost of eligible new or used property in the first year it is used, and OBBBA restored the rate to 100% after it had been scheduled to phase down toward zero.

Before OBBBA, bonus depreciation was on a legislated glide path down from 100% in 2022 to 80%, 60%, 40%, and eventually 0% by 2027. OBBBA reset that clock: eligible property acquired and placed in service after January 19, 2025, and before January 1, 2030, again qualifies for a full 100% deduction, according to Thomson Reuters Tax and BDO’s analysis of the law. The provision also expands to cover certain qualified production property, including some nonresidential real property used in manufacturing. Unlike Section 179, bonus depreciation has no dollar cap and is not limited by taxable income, so it can create or deepen a net operating loss — a meaningful planning lever for capital-intensive small businesses. In January 2026, the IRS issued Notice 2026-11 with interim guidance clarifying how the restored rate applies to assets spanning the January 19, 2025 transition date.

How Do Section 179 and Bonus Depreciation Work Together on One Purchase?

The following worked example covers a hypothetical small manufacturing business placing $3,000,000 of qualifying equipment in service during 2026, showing how the two deductions stack.

Because the $3,000,000 purchase stays under the roughly $4.09 million phase-out threshold, the business keeps its full $2.56 million Section 179 cap. The remaining $440,000 of basis, which in prior years would have been depreciated over five or seven years under MACRS, is instead fully expensed through 100% bonus depreciation. The combined effect is a 100% first-year write-off of the entire purchase — a result that was not possible before OBBBA restored full bonus depreciation. This tax savings figure is illustrative only and depends on the business’s actual entity type, marginal rate, and state tax treatment.

What Is the New $400 Minimum QBI Deduction and Who Qualifies?

The minimum QBI deduction guarantees a $400 write-off for any taxpayer with at least $1,000 in aggregate qualified business income from an active trade or business in which they materially participate.

Previously, the Qualified Business Income deduction was strictly 20% of QBI, which meant very small or part-time businesses with modest profit received a negligible benefit — 20% of $1,000 is only $200. Under OBBBA, taxpayers with QBI of $1,000 or more now receive the greater of their standard 20% calculation or a flat $400 minimum, according to Warren Averett’s breakdown of the provisions. The $400 floor is scheduled to adjust for inflation in future years. This change primarily benefits sole proprietors, gig workers, and side-business owners whose pass-through income is small enough that the standard percentage calculation would otherwise produce a marginal deduction.

How Has the QBI Phase-Out Band Changed for 2026?

The phase-out band is the income range over which the QBI deduction gradually shrinks for owners of specified service trades or businesses, and OBBBA widened it from $100,000 to $150,000 for joint filers.

For tax years beginning in 2026, the phase-out range for married couples filing jointly runs from roughly $394,600 to $544,600 of taxable income, up from the previous $394,600–$494,600 band, per Warren Averett’s analysis of the statute. Single filers see a proportional widening, from a $50,000 range to $75,000. A wider band means specified service business owners — consultants, accountants, attorneys — retain at least a partial deduction over a larger income range rather than losing it abruptly. Combined with the 20% base rate, this can reduce the effective top marginal rate on qualifying pass-through income to about 29.6% instead of 37% for owners under the full phase-out ceiling.

What Records Should a Business Keep to Support These Deductions?

Substantiation requirements did not change under OBBBA, so businesses claiming larger Section 179 and bonus depreciation deductions still need documentation tying each asset to its placed-in-service date and business-use percentage.

Supporting records for these purchases typically include invoices, delivery or installation dates, Form 4562 calculations, and a business-use log for mixed-use property such as vehicles or computers. Because Section 179 requires property to be used more than 50% for business, and because the deduction can be recaptured if business use later drops below that threshold, maintaining a placed-in-service date and usage percentage for each asset protects the deduction during an IRS inquiry. Reviewing how unadjusted basis is calculated is a useful starting point, since both deductions apply against an asset’s original cost basis.

What Should a Small Business Do Before Filing Its 2026 Return?

Before filing, a small business should model its expected equipment purchases and pass-through income against the new thresholds to decide how much Section 179 to elect versus relying on bonus depreciation.

Because Section 179 is limited to a business’s taxable income while bonus depreciation is not, a business projecting a loss year may prefer to lean more heavily on bonus depreciation and preserve Section 179 capacity for a profitable year, since Section 179 amounts disallowed by the income limitation can only be carried forward, not accelerated. Owners near the $394,600–$544,600 QBI phase-out band should also model whether additional retirement contributions, timing of income, or entity restructuring could keep taxable income under the ceiling. For a broader view of how these provisions fit into overall tax and compliance planning, the Kurums Accounting Department Hub provides additional guides on depreciation methods, tax management, and compliance topics relevant to small business owners.

Frequently Asked Questions

What is the OBBBA Section 179 deduction limit for 2026?

For tax years beginning in 2026, the inflation-adjusted Section 179 expensing limit is approximately $2.56 million, with a phase-out threshold of roughly $4.09 million, up from the original OBBBA figures of $2.5 million and $4 million set for 2025.

Does bonus depreciation still phase down after 2026?

No. OBBBA restored 100% bonus depreciation for qualifying property acquired and placed in service after January 19, 2025, and before January 1, 2030, replacing the prior law’s scheduled reduction toward 0% by 2027.

Who benefits from the new $400 minimum QBI deduction?

Taxpayers with at least $1,000 in aggregate qualified business income from an active trade or business they materially participate in benefit most, particularly small or part-time business owners whose 20% calculation would otherwise fall below $400.

Did the QBI deduction rate increase to 23% under OBBBA?

No. The final law kept the QBI deduction rate at 20% and made it permanent. A 23% rate appeared only in an earlier House version of the bill and was not included in the enacted legislation.

Can a business claim both Section 179 and bonus depreciation on the same purchase?

Yes. Most tax professionals apply Section 179 first up to the annual cap, then apply 100% bonus depreciation to any remaining qualifying basis, often resulting in a full first-year write-off of the entire purchase.

Written by the Kurums Accounting & Tax Editorial Team, based on IRS guidance, Revenue Procedure 2025-32, and CPA-firm analysis of the OBBBA provisions. This article is educational in nature and is not a substitute for advice from a licensed CPA or tax attorney regarding your specific situation.