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Equipment and research costs: what a small business can deduct right away

Buying equipment or paying for product development? Three rules decide how soon the cost comes off your taxes: bonus depreciation, section 179 and the research rule in new section 174A.

Prepared by Prem Tax and Accounting Corp. Last reviewed November 6, 2026. Figures as of November 6, 2026.

Equipment, vehicles and software work all have a tax life, and three rules decide how fast the cost comes off. Bonus depreciation and section 179 cover things you buy; section 174A covers research or experimental (R&E) costs. We use the Receipt-Box Asset Tour below.

The short version

Settled law: bonus depreciation stays at 100 percent, with no end date, for qualified property you acquire after January 19, 2025.
Section 179 for 2026: a $2,560,000 limit that shrinks once purchases pass $4,090,000.
Domestic research costs are deductible again from tax year 2025; foreign research still takes 15 years.

Section 179 by year

Section 179	2025	2026	2027
Limit	$2,500,000	$2,560,000	$2,640,000
Phase-out begins at	$4,000,000	$4,090,000	$4,230,000
SUV cap	$31,300	$32,000	$33,100
Source	Rev. Proc. 2025-32	Rev. Proc. 2025-32	Rev. Proc. 2026-35

The SUV cap (2025: Form 4562 instructions) covers four-wheeled vehicles rated over 6,000 and up to 14,000 pounds, with some exceptions. Passenger cars have separate caps: $20,300 for the first year with bonus in 2026 (Rev. Proc. 2026-15).

An invented example

A tool-and-die shop places $4,590,000 of qualifying equipment in service in 2026. Because that is $500,000 over the $4,090,000 start, its limit falls from $2,560,000 to $2,060,000 and vanishes at $6,650,000.

Buildings and research

Older purchases: equipment acquired earlier (before January 20, 2025) and placed in service during 2025 earns 40 percent bonus, or 60 percent for certain aircraft and property with a long production period.
Factory buildings (temporary): an optional 100 percent write-off covers the manufacturing part of new buildings. Construction must start between January 20, 2025 and December 31, 2028, and the building must be placed in service between July 5, 2025 and December 31, 2030. Offices, lodging, parking, sales, research and engineering space are out.
Research choice: a business may instead elect to spread domestic costs over at least 60 months, by the extended due date, binding later years.
Old balances: the election to deduct leftover 2022 to 2024 costs belonged on the original return for the first tax year beginning after 2024, with extensions.
Illinois: it adds back bonus depreciation (from 2026 the factory-building deduction too) and subtracts it over the asset's life on Form IL-4562. It has no section 179 adjustment and has announced no 174A decoupling.

Guidance pending Regulations on bonus depreciation, factory buildings and research costs are on the IRS 2026 to 2027 priority plan; we found none proposed.

The Receipt-Box Asset Tour

People in this situation often consider these steps; ask your adviser.

Sort receipts by the date a binding contract was signed, not delivery.
Mark each item as equipment, vehicle, software work or building.
For vehicles, check business use; bonus and section 179 need more than 50 percent.
For research, ask whether a research credit also applies; it can reduce the deduction.

See the pass-through group, the 199A guide, our year-end checklist and small business compliance.

Common questions

Does all equipment placed in service in 2025 get 100 percent bonus?

No. Only purchases after January 19, 2025 get the full 100 percent; earlier ones get 40 or 60 percent. A one-time first-year election can also pick 40 or 60 percent for newer property.

Can I still catch up on past research costs?

Mostly no. The small-business amended-return option ended July 6, 2026, and the old-balance deadline has passed for most calendar-year filers; some fiscal-year filers may still have time.

Does Illinois follow the new section 179 limits?

Yes. Illinois has no section 179 adjustment in its statute or on Form IL-4562.

Official sources

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This page gives general information and education about current federal and state tax topics, including recent legislation, planning ideas, retirement and annuity rules, and court decisions. It is not tax, legal, accounting, investment, insurance or other professional advice, and it is not a substitute for advice from a qualified CPA, attorney or other adviser who knows your facts. Reading it does not create a CPA-client or any other professional relationship with Prem Tax and Accounting Corp. Prem Tax and Accounting Corp is a CPA firm, not a law firm. It does not sell insurance or investment products, and it does not recommend, rate or sell any annuity, fund or other product. A planning idea, a strategy name or an example here is not a recommendation to take or avoid any action.

Tax rules, thresholds, rates and deadlines change often, and Congress, the IRS, the courts and the states change how they apply them. Guidance on recent legislation is still being issued. We checked the figures against the official sources named on the page on the date shown (last reviewed November 6, 2026), but we do not promise that this page is complete, current or free of errors, and we do not update it the moment a rule changes. Where the rules are unsettled or guidance is still pending we say so. Amounts for a future year are labelled planning figures until the IRS or another agency publishes them. Examples use invented numbers and are for illustration only.

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Questions about how the new tax law or your year-end moves apply to you? Keshav Agrawal is a U.S. CPA and a Chartered Accountant (CA) from India. We prepare U.S. and Illinois returns, plan with you, and work alongside your financial adviser, insurance agent or attorney. We sell no investment or insurance products. Book a 10-minute call or send us a message.

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