Tax strategy and equipment investment collide every time a manufacturer buys a new machine — and getting the depreciation decision wrong can cost you tens of thousands of dollars in missed deductions. The IRS provides two powerful tools to accelerate equipment write-offs: Section 179 expensing and bonus depreciation. According to IRS Publication 946, both allow manufacturers to deduct a significant portion of equipment costs in the year of purchase rather than spreading them over the asset's useful life — but they work differently, have different limits, and serve different strategic purposes. Choosing between them (or combining them) is a decision that should be made with a CFO or CPA in the room, not discovered at tax time. This blog breaks down how each works, where they differ, and how to think about which is right for your manufacturing business.
Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment placed in service during the tax year, up to an annual spending limit. For 2024, the deduction limit is $1,220,000, with a phase-out beginning at $3,050,000 in total asset purchases. Once your total equipment purchases exceed the phase-out threshold, your Section 179 deduction decreases dollar-for-dollar.
One important constraint: Section 179 cannot create a net operating loss (NOL). Your deduction is limited to your taxable income from active business operations. If you're having a low-income year or posting a loss, Section 179 may not deliver the full benefit — any unused deduction carries forward to future tax years, but it doesn't reduce your current-year tax below zero.
Section 179 applies to most tangible personal property used in business, including machinery, equipment, computers, software, and some improvements to commercial buildings. For manufacturers, this typically covers CNC machines, presses, conveyors, inspection equipment, and other production assets.
Bonus depreciation (also called the special depreciation allowance) lets businesses immediately deduct a percentage of the cost of qualifying property in the year it's placed in service, with the remaining basis depreciated on a normal MACRS schedule. Unlike Section 179, bonus depreciation can create or increase a net operating loss — making it more useful for businesses with lower profitability or significant capital investment in a given year.
The bonus depreciation percentage has been changing. The Tax Cuts and Jobs Act (TCJA) of 2017 expanded it to 100% for property placed in service through 2022. Starting in 2023, it began phasing down: 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026 before phasing out entirely (barring Congressional action). This phase-down is a critical planning factor — the sooner you place qualifying assets in service, the larger your bonus depreciation deduction.
Bonus depreciation also has no per-taxpayer spending cap, which makes it more useful for larger equipment purchases or for manufacturers acquiring multiple assets in a single year.
Tax strategy for equipment purchases isn't a year-end conversation — it should be built into your capital planning process. Accounovation helps manufacturing owners model the depreciation implications of major purchases before they happen. Contact us to align your equipment strategy with your tax position.
Section 179 tends to be the better choice when you have sufficient taxable income to absorb the deduction and you want to precisely manage which assets you expense versus depreciate normally. Because you can apply Section 179 selectively — choosing the specific assets and amounts — it gives your tax strategy more surgical control.
It's also particularly valuable when you want to zero out taxable income to a specific target without creating an NOL. If your manufacturing business earned $800,000 before depreciation and you want to bring taxable income to $200,000, Section 179 lets you expense exactly $600,000 of qualified equipment to hit that target — with precision bonus depreciation can't match.
For smaller manufacturers with total equipment purchases well under the phase-out threshold, Section 179 is often cleaner and simpler to administer. Pair it with sound depreciation decisions across your asset base and you have a coherent, defensible tax position.
Bonus depreciation shines when your capital investment is large relative to your taxable income, or when you're in a year where creating an NOL is acceptable or even strategically useful. If you're investing heavily in new production capacity while managing a transitional year with lower margins, bonus depreciation lets you write off a large portion of those assets regardless of your income position.
It's also the right tool when your total equipment purchases exceed the Section 179 spending cap, or when you need simplicity — applying one percentage to all qualifying new assets rather than making asset-by-asset decisions.
The time pressure is real. With bonus depreciation at 60% in 2024 and continuing to decline, manufacturers planning major equipment acquisitions in 2025 or 2026 should be running the numbers now. An asset placed in service this year captures a larger deduction than the same asset placed in service next year under current law.
Yes — and in many cases, the optimal tax strategy combines Section 179 and bonus depreciation. Here's how it works in practice: you apply Section 179 first, up to the amount needed to reduce taxable income to your target level. Then you apply bonus depreciation to remaining qualifying assets to capture additional deductions, even if it creates an NOL.
The combined approach gives you the precision of Section 179 with the uncapped power of bonus depreciation as a backstop. For manufacturers making large capital investments, this is often the most powerful structure — but it requires careful modeling upfront. The specific sequencing and asset allocation decisions should be made with your CPA and CFO reviewing your full income picture for the year.
This is exactly the kind of analysis that benefits from integrated financial planning — connecting your capital expenditure decisions to your tax strategy before year-end, not after. If you haven't yet connected your capital expenditure planning to your tax position, that's a gap worth closing.
At Accounovation, we help manufacturing owners integrate tax strategy into capital planning so depreciation decisions are deliberate, not reactive. Through our Fractional CFO services and Ongoing Financial Consultation, we model the Section 179 vs. bonus depreciation tradeoffs for your specific income position, asset acquisition plans, and multi-year tax strategy. Contact us today to make sure your next equipment purchase is working as hard on your tax return as it is on your shop floor.
Does Section 179 or bonus depreciation apply to used equipment? Section 179 has always applied to both new and used equipment, as long as the asset is new to your business and placed in service during the tax year. Bonus depreciation was expanded to include used property under the TCJA, but the asset must be new to you — you cannot have previously used or owned it. Both provisions allow manufacturers to capture accelerated deductions on the secondary equipment market, which is particularly relevant given the cost of new industrial machinery.
What happens to Section 179 if my business has a loss this year? If your business has a loss — or if the Section 179 deduction would create a loss — the deduction is limited to your taxable income from active business operations. Any unused Section 179 deduction carries forward indefinitely and can be claimed in a future year when you have sufficient taxable income. This is different from bonus depreciation, which can create or deepen an NOL and then be carried forward as part of that NOL under applicable tax rules.
Should I wait until year-end to decide on Section 179 vs. bonus depreciation? No — and this is one of the most common mistakes manufacturers make. The best depreciation strategy requires knowing your full-year income picture, planned capital purchases, and multi-year tax outlook before you make asset acquisition decisions. Waiting until December means you may miss opportunities to time purchases for maximum benefit, or you may inadvertently create tax outcomes you didn't anticipate. The right time to plan is before the purchase, not at tax preparation time.