Section 179 vs Bonus Depreciation - Which Is Right for You?
- Greg Pacioli
- Sep 13
- 4 min read
Updated: Sep 14
When it comes to getting the most out of your tax deductions, business owners and real estate investors can find themselves weighing the pros and cons of Section 179 versus Bonus Depreciation.
Both options allow for accelerated deductions on qualifying assets, but they function in very distinct ways and lead to different results based on your income, the type of entity you have, and your investment objectives.
This article will help you navigate the differences in Section 179 vs Bonus Depreciation, the benefits and the limitations of each option. By the time you finish reading, you should have a clear idea of which choice fits best with your tax strategy.
🥊 Table of Contents:
Comparing Section 179 vs Bonus Depreciation
Feature | Section 179 | Bonus Depreciation |
Deduction Limit | $1.25M in 2025, phased out after $3.2M | Unlimited |
Income Restriction | Cannot create a loss | Can create or increase a loss |
Applies To | Tangible business property, certain real estate improvements | Most tangible property with ≤20-year life, new or used |
Flexibility | Can pick and choose assets to expense | Must apply to all assets in same class unless elected out |
Best For | Small to midsize businesses with taxable income | Larger businesses, real estate investors, high-capital purchases |
What Is Section 179?
Section 179 of the Internal Revenue Code allows businesses to immediately expense the cost of qualifying property in the year it’s placed in service. Instead of spreading deductions over several years, you can write off the purchase right away, up to an annual dollar limit.
2025 Section 179 Deduction Limit: $1.25 million (indexed annually for inflation).
Phase-Out Threshold: Begins at $3.2 million of qualifying property.
Income Restriction: You cannot use Section 179 to create a net operating loss. The deduction is limited to your taxable income from active trade or business.
Common Section 179 property includes machinery, equipment, computers, furniture, and certain improvements to nonresidential real estate (like roofs, HVAC, fire protection systems).
What Is Bonus Depreciation?
Bonus Depreciation allows taxpayers to deduct a percentage of the cost of qualifying property in the year it’s placed in service. Unlike Section 179, bonus depreciation can create or increase a net operating loss, making it more flexible for high-capital businesses and investors.
Bonus Depreciation in 2025: Thanks to the “One Big Beautiful Bill,” Congress restored 100% bonus depreciation for property placed in service in 2025.
Applies to both new and used property (as long as it’s “first use” by the taxpayer).
No income limitations or dollar caps.
Common Bonus Depreciation property includes machinery, vehicles, computers, furniture, and short-life assets identified in a cost segregation study (such as carpeting, appliances, lighting, and land improvements).
How Real Estate Investors Use Each
Section 179
Rarely the main driver for real estate since it excludes most buildings. However, improvements to commercial property may qualify.
Bonus Depreciation
Property owners use cost segregation study to reclassify 20–40% of a building’s cost, then immediately expense it using 100% bonus depreciation.
FAQs on Section 179 vs Bonus Depreciation
Can you use Section 179 and Bonus Depreciation together?
Yes. Taxpayers can elect Section 179 first, then apply bonus depreciation to the remaining basis. This allows fine-tuned planning.
Which is better for small businesses?
Section 179 may be more practical for smaller businesses that want to pick specific assets and avoid creating losses.
Which is better for real estate investors?
Bonus depreciation is typically more valuable, especially when paired with a cost segregation study, since there are no income limits and large losses can offset other income.
Do vehicles qualify for Section 179 or bonus depreciation?
Yes. Both Section 179 and bonus depreciation can apply to business vehicles, with special rules for SUVs and luxury auto limits.
Does bonus depreciation phase out again?
Under current law, 100% bonus depreciation is restored in 2025, but future legislation could change the percentage. Always confirm with your tax advisor.
What is the difference between Section 179 and Cost Segregation?
Section 179 is a tax code provision that lets businesses immediately expense qualifying purchases like equipment, vehicles, and certain building improvements. Cost segregation, on the other hand, is an engineering-based study that breaks down a building into its individual components. Those items can be depreciated faster and can be paired with bonus depreciation.
And the Winner Is...
When comparing Section 179 vs Bonus Depreciation, the right choice totally depends on your income, type of investment, and whether you want flexibility or maximum write-offs.
Choose Section 179 if you run a profitable small business and want to control which assets you expense.
Choose Bonus Depreciation if you’re a real estate investor or high-capital business looking to generate large deductions.
A cost segregation study is essential for real estate investors looking to tap into bonus depreciation, often leading to impressive deductions that can reach six or even seven figures in the first year.
🧐 Curious about how much you could save with bonus depreciation or Section 179?
Find a tax advisor and get an estimate to uncover your potential tax savings!
Comments