Section 179 Deduction 2026: Farmers looking to reduce tax liability in 2026 have a powerful opportunity through Section 179 deductions and bonus depreciation. These provisions allow businesses to deduct the cost of qualifying equipment in the same year it is placed in service, improving cash flow and encouraging reinvestment in operations.
With updated limits and continued availability of 100% bonus depreciation, farm owners can potentially write off the full cost of machinery purchases. Understanding how these rules work together is essential for maximizing tax savings while staying compliant with IRS regulations.
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Section 179 Deduction Limits for 2026
Section 179 allows farmers to deduct the full purchase price of qualifying equipment instead of depreciating it over several years. For 2026, the maximum deduction is approximately $2,560,000, making it highly beneficial for large-scale investments in machinery.
This deduction applies to both new and used equipment, provided it is used primarily for business. The goal is to encourage businesses, including farms, to invest in productivity-enhancing assets without long-term tax burdens.
Phase-Out Threshold and Spending Caps
The deduction begins to phase out once total equipment purchases exceed $4,090,000 in 2026. This means that higher spending reduces the total deduction available.
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If purchases reach around $6,650,000, the Section 179 deduction is completely eliminated. Farmers planning major investments should carefully time purchases to stay within optimal limits.
Section 179 Deduction 2026 Overview
| Category | 2026 Value |
|---|---|
| Maximum Section 179 Deduction | $2,560,000 |
| Phase-Out Threshold Begins | $4,090,000 |
| Deduction Eliminated At | $6,650,000 |
| Bonus Depreciation | 100% |
| Applies To | New & Used Equipment |
| Business Use Requirement | More than 50% |
| Income Limitation | Yes (Section 179 only) |
How 100% Bonus Depreciation Works for Farm Equipment
Bonus depreciation allows farmers to deduct 100% of the remaining equipment cost after applying Section 179. This makes it possible to fully expense large purchases in a single year.
Unlike Section 179, bonus depreciation is not limited by taxable income. This means it can create a net operating loss, which may be used to offset income in other years.
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Qualifying Farm Equipment for Full Write-Off
Eligible equipment includes tractors, harvesters, irrigation systems, and other machinery used in farming operations. Both new and used equipment qualify if they are new to the business.
The equipment must be placed in service during the tax year. Simply purchasing equipment is not enough; it must be ready and actively used in farm operations.
Business Use Requirements and Eligibility Rules
To qualify for Section 179, equipment must be used more than 50% for business purposes. If usage drops below this threshold, part of the deduction may be recaptured.
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Accurate records of usage are essential. Farmers should maintain logs or documentation to prove business use in case of an audit.
Income Limitations and Carryforward Benefits
Section 179 deductions cannot exceed the farm’s taxable income for the year. If the deduction is higher than income, the unused portion can be carried forward to future years.
This ensures that farmers still benefit from the deduction even if their income is lower in a particular year. Proper planning helps maximize long-term tax advantages.
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Step-by-Step Process to Claim Section 179
Farmers must purchase and place equipment in service within the tax year. Timing is important to ensure eligibility for deductions.
The deduction is claimed using IRS Form 4562. After applying Section 179, any remaining cost can be deducted using bonus depreciation.
Real Example of Farm Equipment Tax Savings
If a farmer purchases $3,000,000 worth of equipment in 2026, they can deduct $2,560,000 using Section 179. The remaining $440,000 can be deducted through bonus depreciation.
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This results in a full $3,000,000 write-off in one year. Such savings can significantly reduce taxable income and improve cash flow for the business.
Differences Between Section 179 and Bonus Depreciation
Section 179 is limited by income and has a maximum deduction cap. It also allows selective application to specific assets.
Bonus depreciation, on the other hand, has no income limit and applies broadly to qualifying assets. It is often used after maximizing Section 179 benefits.
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Important Considerations for Farmers in 2026
State tax laws may differ from federal rules, meaning not all deductions apply equally at the state level. Farmers should review local regulations before filing.
Planning purchases strategically is key to maximizing deductions. Consulting a tax professional can help ensure compliance and optimize overall tax savings.
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Dr Linda Steele is a Senior Lecturer at the Faculty of Law, University of Technology Sydney, and a member of the Law Health Justice Research Centre. She is also a Visiting Senior Fellow at the Faculty of Law, Humanities and the Arts, University of Wollongong.