Key Takeaways

  • Section 179 allows businesses to deduct the full purchase price of qualifying equipment and software in the year placed in service, rather than depreciating over time.
  • The 179 expense phase out begins once purchases exceed a set threshold ($2.5M in 2025), reducing the deduction dollar-for-dollar.
  • Section 179 is designed to benefit small and mid-sized businesses, while larger businesses often rely more heavily on bonus depreciation.
  • Annual limits and phase-out rules ensure the deduction primarily supports smaller businesses rather than large corporations.
  • With bonus depreciation phasing out through 2027, Section 179 expensing is increasingly important for tax planning.
  • Recent tax law updates, including the 2025 “One Big Beautiful Bill Act,” adjusted expensing rules and are expected to shape future small business deductions.

Section 179

Section 179 is a tax deduction that allows businesses to reduce the purchase price of certain equipment and software bought or financed during the tax year.

Do you own a small or medium sized business? If so, you need to know about the section 179 tax deduction. With this deduction, you can potentially save hundreds of thousands of dollars on your business equipment expenses.

What is the Section 179 Deduction?

Many people believe that the section 179 deduction is some strange piece of tax code that no one knows about. The section 179 deduction of the IRS tax code lets businesses deduct the entire purchase price of qualified equipment that was purchased during that tax year.

If you buy or lease any type of equipment that is qualified under the deduction, you were allowed to deduct the entire purchase price from your taxes. This incentive was created by the government to encourage a business to purchase equipment and invest in their business growth.

Section 179 is a very usefulincentive that was included in recent stimulus bills. It has proven very helpful for small business. Big businesses can benefit from section 179 and bonus depreciation. However, the main target of this legislation was tax relief for those smaller businesses that needed a boost. Millions of small businesses are benefiting from this deduction.

The deduction is an immediate expense deduction for business owners to take for any purchase of a depreciable asset rather than capitalizing and depreciating asset over time. The expensing method is provided as a way for a small business to grow by purchasing new equipment.

Treatment as Expenses

Taxpayers can choose to treat the cost of section 179 property as an expense that is not charged to a capital account. Those costs are treated for deductions over the taxable year where the section 179 purchases are placed in service.

Dollar Limitation

Under subsection A for any taxable year, the aggregate cost that can be taken into account cannot be more than $500,000.

Reduction in Limitation

Limitations under paragraph one for any taxable year is to be reduced, but cannot be below zero by the amount by which the section 179 property cost and used if the taxable year is greater than $2 million.

Understanding the 179 Expense Phase Out

The Section 179 deduction begins to phase out once a business’s equipment and software purchases exceed a set annual threshold. For 2025, the maximum deduction is $1,290,000, but this begins to reduce dollar-for-dollar once total qualifying purchases exceed $2,580,000. This is known as the 179 expense phase out.

For example, if a business purchases $2,680,000 in qualifying property, the available Section 179 deduction would be reduced by $100,000, leaving a maximum deduction of $1,190,000. Once total purchases exceed the upper threshold (currently $4,170,000 in 2025), the deduction is fully phased out, making the provision primarily a small business tax benefit.

Carryover of Disallowed Deduction

The amount that you were allowed to use as a deduction under subsection A for the taxable year can be increased by the least of the following:

  • The aggregate amount not allowed under subparagraph a for the previous text about years
  • The excess of the limitation of paragraphs 1 and 2 over the amount allowable as a deduction with in subsection A for the taxable year

What Sort of Equipment Qualifies in 2017?

Typically, any tangible equipment that you used to conduct your business each day will qualify for the deduction. It will depend on the amount of equipment and software that you buy and use on a regular basis during the workday.

When Do I Have to Do This By?

The section 179 deduction for the year 2017 will expire at midnight on Dec. 31, 2017. If you want to take advantage of the deduction to deduct the entire price of your equipment for the 2017 tax year, you must purchase and use your property by that date.

A lot of businesses are finding that the section 179 Qualified Financing is a very useful option for 2017. Thisis especially true because the anticipated federal discount rate increases do not leave any time for action.

2016 Section 179 Tax Information (Last Year)

The PATH Act was passed in late 2015 and went into effect on 2016 and beyond. This act made the section 179 deduction for 2016 $500,000. Also, the 50 percent bonus depreciation was brought back into play.

Essentially, Section 179 Works Like This:

Once a business purchases a certain type of item or equipment, the business will get to write off the depreciation of that item each year. If your company spends $50,000 on a piece of machinery, it will be allowed for a write off of $10,000 each year for five years.

Although this option is better than no write offs at all, most business owners would prefer to have the option to write off the entire balance of the equipment purchase price when they actually purchase it. If a business is allowed to write off the entire amount of a purchase, it is possible that they will then be able to purchase more equipment in that year rather than waiting a few years down the road.

Is the just of the section 179 deduction: to encourage the American business owner and increase the economy in a more positive direction. For many small businesses, the cost of all purchases can be written off in the year 2017 as the cap is up to $500,000.

Are limitations for expenses under the section 179 deduction that all business owners must adhere to. It is limited to items including cars, machinery, computer equipment, and office equipment. This is a fast deduction that can provide a lot of relief on taxes for business owners who are starting a business with the purchase of equipment. It can help save hundreds of thousands of dollars.

For instance, in 2007, the section 179 expense would provide a deduction of at least $125,000, or $225,000 for all equipment that was used in the golf opportunity zone. It also included $3060 for vehicles.

Annual Limits on Section 179 deductions

In 2015, the United States Congress increased limits for section 179 deductions. This increased the limit to $500,000 permanently. There are currently annual limits on the amount of section 179 deductions for 2016.

There is a $500,000 maximum on each individual item that is new or used and purchased for business purposes. You can spend up to $2 million on section 179 equipment. This deduction will be then reduced above that amount.

Should you choose to do that only part of the cost of any qualified property as a section 179 deduction, you can then depreciate any costs that you do not deduct.

Impact of Bonus Depreciation Phase-Out

Bonus depreciation has historically worked alongside Section 179 to maximize tax savings. However, under the Tax Cuts and Jobs Act (TCJA), bonus depreciation is phasing down:

  • 100% through 2022
  • 80% in 2023
  • 60% in 2024
  • 40% in 2025
  • 20% in 2026
  • Fully phased out after 2026

As bonus depreciation decreases, Section 179 expensing becomes even more valuable. Businesses that once relied on 100% bonus depreciation will increasingly need to consider Section 179 planning strategies to maintain upfront deductions.

Limits of Section 179

There are limits and caps with section 179 for the amount that can be written off. In 2017, that amount is $500,000. It also limits the amount of equipment that you can purchase. In 2017, this amount was $2 million.

The deduction will start to phase out dollar for dollar after $2 million is spent by a business. This ensures that it remains a true small size business deduction.

Who Qualifies for Section 179?

Any business that makes purchases, finances, or leases less than $2 million and used or new business purchases in the 2017 tax year will qualify for the section 179 deduction.

Just about any tangible item, including software and vehicles used for business, with restrictions, will qualify for the deduction.

Recent Legislative Updates Affecting Section 179

Tax law changes frequently affect the Section 179 deduction. For example, the One Big Beautiful Bill Act (OBBB), signed into law in 2025, included provisions that adjusted deduction limits and reaffirmed the importance of expensing for small businesses.

Key points from recent legislation include:

  • Maintaining high deduction limits indexed for inflation.
  • Preserving the phase-out structure to restrict benefits for very large businesses.
  • Aligning Section 179 with other provisions like bonus depreciation to ensure smooth transition planning.

Business owners should monitor future legislation closely, as Section 179 limits and phase-out thresholds may change annually based on inflation adjustments and congressional updates.

Do you fully qualify for the deduction?

All equipment and software purchased our finance has to be used in your business between Jan. 1, 2017 and Dec. 31, 2017. The deduction will start to phase out if more than $2 million in equipment is purchased. The deduction will decrease after that point making section 179 deduction only beneficial for small and medium size businesses.

What's the Difference Between Section 179 and Bonus Depreciation?

A bonus depreciation is only offered some years. In 2017, it is being offered at a 50 percent right. The biggest difference in between section 179 and bonus depreciation is both new and used equipment will qualify in section 179.

Bonus depreciation is very helpful for larger businesses that will spend more than the section 179 depreciation cap, which is currently set at $2 million. A business with a loss can still qualify to deduct some of the cost. They can then carry the loss forward.

When you apply any provision, section 179 is used. First, it is then followed by the bonus depreciation unless the business had no taxable profit. Unprofitable businesses are allowed to carry forward a loss to future years.

Strategic Planning with Section 179

Choosing how to maximize deductions requires careful planning:

  • Use Section 179 first: It allows full deduction of eligible property up to the annual limit and is subject to the 179 expense phase out.
  • Apply bonus depreciation second: This can be applied to remaining qualifying purchases, though it is phasing out over the next few years.
  • Consider taxable income: Section 179 cannot create a loss, while bonus depreciation can. Businesses expecting higher profits may favor Section 179, while those with fluctuating income may leverage bonus depreciation carryforwards.

Many tax professionals recommend combining the two methods strategically, especially during the bonus depreciation phase-out years.

Section 179 Deductions

Taking a deduction for any asset used in the first year is called a 179 deduction. The IRS has two general requirements for the deduction. The qualified property has to be depreciable and tangible while used in a business or trade. No land or buildings will qualify for the deduction.

All property has to be bought and placed into the business for use within the first year of the deduction. This means that you have it in your business, up, and used by your employees. You may not purchase any piece of property and allow it to sit and then claim it in that tax year. It has to be in active use in the current tax year.

How Section 179 Deductions - How They Work

The first thing you will do is buy any piece of qualified property and use it within that year. You will then talk to your tax preparer when it is time to file. It is important that you have all your records for the purchase. They will need to know the date you bought the item and when you started using it in your business. You also need to include any and all costs that are associated with the purchase. This can include freight, shipping, and setup of the property.

Next, you will need to add up each item of property that is qualified for the deduction. You can then take the section 179 deduction by electing it.

The total amount of election will be the total cost of any property purchased, up to $500,000 for each item. All deductions for the property cannot exceed the $2 million cap.

All purchases of equipment for your business, no matter the type, has to be in use over 50 percent of the time in order to qualify for the section 179 deduction. To find this figure, multiply the cost of the equipment by the percentage of business use. You will then have a figure that you can use in your taxes as the amount eligible for the deduction.

How to Elect a Section 179 Deduction

You will need the IRS form 45622 elect a section 179 deduction. This document will collect your information of business property acquired and used that year.

Frequently Asked Questions

  1. What is the Section 179 expense phase out?
    The phase-out reduces Section 179 deductions dollar-for-dollar once qualifying purchases exceed $2.5M (2025 limit), eliminating the deduction entirely above $4.17M.
  2. Does Section 179 apply to both new and used equipment?
    Yes. Unlike bonus depreciation, Section 179 covers both new and used business equipment, provided it is used more than 50% for business purposes.
  3. How is Section 179 different from bonus depreciation?
    Section 179 has annual dollar limits and phase-out thresholds, while bonus depreciation applies to unlimited amounts but is currently phasing out through 2027.
  4. Can Section 179 create a net operating loss?
    No. Section 179 deductions are limited to taxable income. Excess deductions can be carried forward to future years.
  5. What types of property qualify for Section 179?
    Most tangible business equipment, computers, certain vehicles, and off-the-shelf software qualify, but land, buildings, and intangible assets do not.

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