Section 179 Deduction Guide for Business Owners
- Greg Pacioli
- 5 hours ago
- 8 min read
When you reinvest into your business for equipment upgrades, you might think you can write off the entire cost right away.
However, the IRS typically wants you to spread out those deductions over several years, which means your tax benefits are divided over the asset's "useful life."
The Section 179 deduction changes that equation entirely.
This tax code provision allows eligible businesses to deduct the full purchase price of qualifying assets in the year they're placed in service. For many business owners, it's one of the most powerful immediate tax reduction tools available.
This guide explains the 2025 Section 179 limits, what qualifies, how to claim the deduction, and when Section 179 is better (or worse) than bonus depreciation or cost segregation.
What Is the Section 179 Deduction?
Section 179 of the Internal Revenue Code allows eligible businesses to deduct the full purchase price of qualifying property in the year it is placed in service, rather than depreciating over decades.
2025 Section 179 Deduction Limits
Category | 2025 Amount |
|---|---|
Maximum Section 179 Deduction | $2,500,000 |
Phase-Out Threshold | $4,000,000 |
Full Phase-Out | $6,500,000 |
SUV Limit | $30,500 |
How the Phase-Out Works
Section 179 begins to phase out dollar-for-dollar once total qualifying purchases exceed $4,000,000. By the time purchases reach $6,500,000, the deduction is fully eliminated.
Phase-Out Example (Below the Threshold)
If a business purchases $3,500,000 in qualifying equipment:
Purchases: $3,500,000
Phase-out threshold: $4,000,000
Result: No reduction applies.
Allowable Section 179 deduction: $2,500,000
Phase-Out Example (Above the Threshold)
If a business purchases $5,000,000 in qualifying equipment:
$5,000,000 – $4,000,000 = $1,000,000 phase-out amount
$2,500,000 – $1,000,000 = $1,500,000 allowable deduction
How to Claim Section 179 on Form 4562
The election happens on Form 4562 (Depreciation and Amortization), which you file with your business tax return. You will complete Part I of the form, listing each asset you're expensing under Section 179 along with its cost and the amount you're electing to deduct.
Strategic Asset Selection
Smart 179 deduction planning means choosing which assets to expense based on your specific tax situation. Consider these factors:
Your current income level: If you're having an exceptionally profitable year, maximizing Section 179 makes sense. If income is lower, you might preserve some depreciation for future years.
Asset depreciation schedules: 5-year property (most equipment and vehicles) might be better candidates than 7 or 15-year property, depending on your long-term tax strategy.
Business income limitations: Since Section 179 can't create a loss, assets should be selected with your taxable business income in mind.
Common Filing Mistakes
The most frequent errors include failing to complete Form 4562 entirely, not maintaining adequate records proving business use percentage, electing more than your business income allows, and forgetting to reduce basis before calculating bonus depreciation on the same asset.
Qualifying Property for the 179 Deduction
To qualify, property must be:
✔ Tangible
✔ Purchased (not leased)
✔ Used >50% for business
✔ Placed in service during the tax year
Eligible Assets
1. Equipment & Machinery
Manufacturing machinery
Construction equipment
Tools, fabrication equipment, shop equipment
2. Office & Technology
Computers, servers, printers
Office furniture
POS systems
3. Vehicles
SUVs (subject to $30,500 cap for 2025)
Heavy trucks/vans over 6,000 lbs GVWR
Vehicles over 14,000 lbs (full 179 permitted)
4. Off-the-Shelf Software
Accounting tools (QuickBooks)
CRMs
Scheduling software
Industry-specific software
(Subscription SaaS typically does not qualify.)
5. Qualified Improvement Property (QIP)
Interior improvements to nonresidential buildings, such as:
Office renovations
Restaurant/retail interior build-outs
Interior lighting upgrades
Excludes: building expansions, elevators, structural framework
Property That Does NOT Qualify
❌ Land & land improvements (parking lots, landscaping)
❌ Building structure (roof, HVAC, electrical, plumbing)
❌ Property used ≤50% for business
❌ Leased property (unless a true lease-to-own)
❌ Custom-built software
Section 179 vs Bonus Depreciation vs Cost Segregation
Traditional rental real estate(residential and commercial properties leased to tenants) doesn't qualify for Section 179 for several reasons:
Feature | Section 179 | Bonus Depreciation | Cost Segregation |
Dollar limit | Yes ($2.5M) | No limit | No limit |
Income limit | Yes | No | No |
Creates NOL | No | Yes | Yes |
Eligible assets | Tangible Property & QIP | Same | 5, 7, 15-year assets |
Rental property | QIP only | Yes | Yes |
When to Use Each Strategy
Use Section 179 when:
Having a high-income year
Purchasing equipment under $2.5M
Operating an active business with regular income
Buying qualifying tangible personal property
Use Bonus Depreciation when:
Making very large equipment purchases (no dollar limit)
Having limited business income (bonus can create NOLs)
Wanting simplified compliance
Managing pass-through entities with complex allocations
Use Cost Segregation when:
Investing in rental property of any type
Not qualifying as a Real Estate Professional
Wanting massive depreciation acceleration ($100k+)
Needing to apply benefits retroactively
179 Vehicle Deduction Rules
The SUV Limitation
For SUVs with a Gross Vehicle Weight Rating(GVWR) between 6,000 and 14,000 pounds, Section 179 is capped at $31,300 (2025 limit). This restriction was added to prevent business owners from avoiding luxury auto limits by purchasing large SUVs.
Vehicle deduction limits:
SUVs 6,000–14,000 lbs GVWR: $31,300 cap
Vehicles over 14,000 lbs: Full Section 179 (no cap)
Passenger cars under 6,000 lbs: Luxury auto limits ($12,200 max yr 1)
Business use must exceed 50%. Recapture applies if business use drops to 50% or below later.
Understanding GVWR
Gross Vehicle Weight Rating is the maximum weight a vehicle is designed to carry, including the vehicle itself, passengers, and cargo. It's determined by the manufacturer and listed on a sticker inside the driver's door jamb.
This creates a strategic sweet spot: vehicles between 6,000 and 14,000 pounds GVWR can claim the $30,500 Section 179 deduction, while vehicles over 14,000 pounds can potentially be fully expensed without limitation.
Business Income & Carryforward Limits
Deduction cannot exceed taxable business income (calculated after expenses, before the Section 179 deduction).
What counts as business income:
Wages and salaries from W-2 employment
Schedule C net income
K-1 pass-through income from partnerships and S corporations
What doesn't count:
Investment income (interest, dividends, capital gains)
Passive rental income
Excess carries forward indefinitely as Section 179 (not converted to regular depreciation).
Example Scenario
Your business has made $400,000 in taxable income before considering Section 179.
You decide to invest in $750,000 worth of qualifying equipment.
While that amount is below the dollar limit, you can only deduct $400,000 under Section 179.
The leftover $350,000 will need to be carried over to future years or depreciated using other methods.
Carryforward Rules
When your Section 179 deduction exceeds your business income limitation, the excess carries forward indefinitely to future tax years. These carryforwards remain Section 179 deductions, they don't convert into regular depreciation.
In future years, your Section 179 deduction becomes the lesser of:
The current year dollar limit ($1,220,000 for 2025)
Your current year business income
Minus any new Section 179 elections you make that year
Entity-Specific Rules
Partnerships
Partnerships calculate Section 179 at the partnership level first. However, the business income limitation applies twice... once at the partnership level and again at each partner's individual level.
Example: A partnership with two equal partners has $300,000 in taxable income and purchases $500,000 in equipment. The partnership elects the full $300,000 in Section 179 (limited by its income). Each partner receives a $150,000 Section 179 allocation.
Partner A has $200,000 in individual business income, she can claim her entire $150,000 allocation.
Partner B only has $80,000 in business income, he can claim $80,000 in Section 179 this year and carries forward the remaining $70,000.
S Corporations
S corporations follow similar rules to partnerships. The corporation makes the Section 179 election and applies the dollar limit. The business income limitation applies at both the corporate level and the shareholder level.
C Corporations
C corporations apply Section 179 at the corporate level only. The corporation claims the deduction directly on its corporate return, reducing corporate taxable income. Shareholders don't separately report or limit the deduction.
Single-Member LLCs and Sole Proprietors
Single-member LLCs (disregarded for tax purposes) and sole proprietors report Section 179 directly on Schedule C of Form 1040. The dollar limit applies at the individual level across all businesses they own.
Common Mistakes & IRS Recapture
Claiming personal-use vehicles without proper documentation
Expensing building structure or land that doesn't qualify
Ignoring the income limit and creating improper carryforwards
Poor record-keeping (no mileage logs or business-use documentation)
Forgetting recapture on reduced business use
Recapture Rules
If property stops being used more than 50% for business during its recovery period, you'll face recapture of excess depreciation. This means reporting some of your previous deductions as ordinary income in the year business use drops.
Client Example
Dr. Smith (dental practice): Bought $220,000 in dental chairs, X-ray equipment, and computers. Elected full Section 179 deduction → $68,400 federal tax savings (31% bracket) in year 1, rather than spreading deductions over 5-7 years.
A construction company buying a $75,000 excavator can expense the full amount under Section 179, assuming sufficient business income.
The same company renovating its office interior for $50,000 could also expense those improvements as QIP.
Frequently Asked Questions
Can I use Section 179 for an Airbnb?
When it comes to using Section 179 for an Airbnb, the answer is usually no. The building itself doesn't qualify, no matter how you use it. However, if you’re a Real Estate Professional who actively participates in the short-term rental, you might be able to claim some interior improvements, but that’s a pretty high bar for most hosts to meet. For short-term rental hosts looking to speed up depreciation, cost segregation is typically a much better approach.
What if I buy a vehicle in December?
The timing of when you place the vehicle in service matters, not just when you purchase it. "Placed in service" means ready and available for business use.
If you buy a vehicle on December 28th and immediately start using it for business, you can claim Section 179 for that tax year. However, if you purchase it in December but don't start using it for business until January, the deduction moves to the following year.
Can I use both Section 179 and bonus depreciation on the same assets?
Yes, but they're applied in sequence, not simultaneously. Section 179 applies first to the assets you elect. Any remaining basis in those assets after your Section 179 deduction then qualifies for bonus depreciation.
For instance, let’s say you buy $200,000 worth of equipment but only have $150,000 in business income. You can take a Section 179 deduction of $150,000, which leaves you with a $50,000 basis. That remaining $50,000 can then be written off using bonus depreciation (if it applies) or through standard depreciation methods.
Does leased equipment qualify?
Generally, no. As the lessee, you don't own the property, so you don't get depreciation deductions... the lessor does. You deduct your lease payments as ordinary business expenses instead.
The exception involves lease/purchase arrangements that are structured more like financed purchases than true leases.
Taking the Next Step
Getting a grip on Section 179 can help you make smart choices about buying equipment and figuring out depreciation. But to get it right, you need to plan carefully and keep good records.
For business owners looking to buy equipment, vehicles, and other assets, Section 179 can provide some immediate tax relief that might significantly lower your yearly tax bill. It’s a good idea to team up with your tax advisor to figure out the best election amounts based on your business income and overall tax situation.
If you’re a real estate investor, though, the best way to maximize your depreciation benefits often involves cost segregation rather than Section 179.
Are you curious about how cost segregation could help you speed up your real estate depreciation and cut down on your tax bill?
Look for qualified cost segregation providers who can analyze your properties and help you figure out potential tax savings.
Whether you’re expensing equipment through Section 179 or speeding up real estate depreciation with cost seg, the aim is the same:
Keep more of your money working for you instead of handing it over to Uncle Sam.