Bonus Depreciation and Section 179: What to Know Before You Buy Equipment

Year-end is a great time to think about equipment purchases, and two tax rules shape that decision more than any others: bonus depreciation and Section 179. Understanding how they work and how they differ helps you plan ahead instead of scrambling in December.

Plan Your Timeline for Bonus Depreciation and Section 179

Before you decide whether to buy new equipment, get your books in order. That gives you a clear picture to work from. Keep in mind that equipment has to be placed in service, meaning up and running by year-end. Simply ordering it is not enough. That means you need to plan ahead for the time it takes to purchase the equipment, receive it, install it, and train your team on how to use it.

Don’t Let the Tax Tail Wag the Dog

Before making a purchase for tax reasons alone, ask whether you actually need the equipment or whether you are just spending money to avoid paying taxes. If you were planning to buy a piece of equipment in the next six months anyway, moving the purchase up may make sense. But if you will not need it for another 18 months, there is little reason to spend that cash now.

How Illinois Treats Bonus Depreciation and Section 179 Differently

At the federal level, bonus depreciation currently allows businesses to deduct 100 percent of the cost of qualifying equipment in the year it is placed in service. Illinois handles this differently. In Illinois, bonus depreciation is not deductible. Instead, you add it back to income and recover 20 percent of that amount each year over the next five years.

Section 179 works differently in Illinois. It is fully deductible, with no add-back required. In short, Illinois decouples from the federal bonus depreciation rules but not from Section 179.

Which Property Qualifies for Bonus Depreciation?

Not all property qualifies for bonus depreciation. Section 1245 property, generally equipment with a shorter useful life such as vehicles, machinery, and other business equipment, is eligible. Section 1250 property, which covers structural components of real estate such as roofs, walls, and HVAC systems, is not eligible. These assets typically depreciate over much longer periods, often 27.5 to 39 years, compared to 15 years or less for qualifying equipment. That also means you cannot simply buy a building and write off the full cost in the first year.

Section 179 Requires Taxable Income

One more distinction matters when you are weighing these two options. Section 179 only helps if you have taxable income to offset. Without it, the deduction does you no good. Bonus depreciation works differently. You can still take the deduction even if your business has a loss for the year. The one catch: if you own a pass-through entity, your deduction can’t exceed what you actually have invested in the business.

Bonus depreciation and Section 179 both offer real tax benefits, but the right choice depends on your specific situation, your timeline, and whether the purchase makes sense for your business regardless of the tax impact. Talk with your accountant before year-end so you have time to plan both the purchase and the deduction.

If you are weighing an equipment purchase before year-end, we would be happy to walk through the options with you. Reach out to our team at CJG Partners so we can help you plan both the purchase and the deduction with confidence.