Act before Dec. 31 on equipment

November is one of the most productive months of the year for year-end tax planning—not because it’s the last chance, but because it’s the last comfortable chance. Decisions made in November can still be implemented cleanly. Decisions made December 29 often can’t.

Strategy: If you are considering purchasing equipment, machinery, vehicles, or other depreciable business property, place it in service before December 31, 2026. The full deduction—whether through bonus depreciation, Section 179, or both— requires that the asset be placed in service during the tax year, not merely purchased or ordered.

Here’s the whole story: For 2026, 100% bonus depreciation is permanently available for qualified property placed in service during the year. That means a qualifying asset purchased and put to use before December 31 can be fully deducted in the current year, regardless of its cost. The OBBBA made this permanent, eliminating the phase-down schedule that had been reducing the bonus depreciation percentage each year. Section 179 expensing is also available in 2026, with a limit of $1,220,000 and a phase-out threshold of $3,050,000. Unlike bonus depreciation, Section 179 can be applied selectively—you can choose which assets to expense and which to depreciate normally, allowing more precise control over taxable income. The Section 179 deduction cannot exceed business taxable income, so it cannot create a loss; bonus depreciation can.

The placed-in-service requirement. Both bonus depreciation and Section 179 require the asset to be placed in service—actually ready and available for use in the business—before the end of the tax year. Ordering an asset, signing a purchase agreement, or making a deposit does not satisfy this requirement. If equipment ordered in November isn’t delivered and operational until January, the deduction moves to 2027. Plan your procurement timeline with this deadline in mind.

Qualified improvement property. Improvements made to the interior of a nonresidential building—qualified improvement property, or QIP—also qualifies for 100% bonus depreciation. This is significant for business owners who rent commercial space and make improvements to it. Landlord-funded improvements may or may not qualify depending on who owns the improvements—review this carefully with your tax advisor.

Vehicles and luxury auto limits. Business vehicles placed in service in 2026 are subject to luxury auto depreciation caps under IRC §280F. For passenger automobiles, the first-year cap is $20,400 (including bonus depreciation). Heavier vehicles—SUVs over 6,000 pounds gross vehicle weight—are not subject to the passenger auto caps and may qualify for full Section 179 or bonus depreciation.

Caution: Placing property in service creates a depreciable asset subject to recapture rules. If the property is later sold or converted to personal use, previously deducted amounts may be recaptured as ordinary income under §1245 or §1250, depending on the asset type.

Tip: If you are undecided about a major equipment purchase, calculate the after-tax cost with and without the year-end deduction. At a 25% combined federal rate, a $100,000 deduction reduces your net cost by $25,000—making the economics of acting before December 31 much clearer.

2026 key income thresholds

• QBI deduction phase-out: $197,300 single / $394,600 joint
• Medicare surtax (3.8% NII): $200,000 single / $250,000 joint
• Senior deduction phase-out begins: $75,000 single / $150,000 joint
• Social Security: 50% taxable above 25,000/32,000; 85% above 34,000/44,000
• Long-term capital gains 0% rate: up to $47,025 single / $94,050 joint

Most thresholds above are not indexed for inflation.