SECTION 179
Section 179 deduction
Section 179 of the Internal Revenue Code allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year, rather than depreciating it over several years. This can significantly reduce a business's taxable income and tax liability in the year of the deduction.
Here's a breakdown of key aspects of the Section 179 deduction:
Qualifying property
Most tangible depreciable business assets are eligible, including:
- Equipment and machinery.
- Business vehicles (with special limits).
- Computers and off-the-shelf software.
- Office furniture and equipment.
- Certain improvements to nonresidential real property (e.g., roofs, HVAC systems).
- Used equipment qualifies if it's new to your business.
- The property must be used for business purposes more than 50% of the time and placed in service during the tax year.
Deduction limits
- For 2025, the maximum Section 179 deduction is $1,250,000.
- This limit begins to phase out when the cost of qualifying property placed in service during the tax year exceeds $3,130,000.
- The deduction is also limited by your business's taxable income, meaning you can't use it to create a net operating loss.
Special rules for vehicles
- SUVs over 6,000 pounds Gross Vehicle Weight Rating (GVWR) but under 14,000 pounds GVWR are subject to a maximum deduction of $31,300 for 2025.
- Heavy work trucks and vans (e.g., those with beds at least six feet long) may qualify for full Section 179 expensing.
- The vehicle must be used for business at least 50% of the time, and you must start using it for business in the year you buy it.
How to claim the deduction?
You elect to take the Section 179 deduction by completing and attaching Form 4562, Depreciation and Amortization, to your tax return.
On Form 4562, you list the qualifying property, the cost, and the amount you elect to expense.
Section 179 vs. bonus depreciation
Section 179: Allows you to deduct a specific dollar amount of new business assets. It has a spending cap and an income limitation.
Bonus Depreciation: Allows businesses to deduct a specific percentage of certain assets. There's no overall dollar limit, but it's currently phasing down.
Understanding the differences between Section 179 and bonus depreciation is important for maximizing your tax advantages.
Important Notes
Section 179 rules and limits can change annually due to inflation adjustments and potential legislative changes.
State tax laws regarding Section 179 deductions may differ from federal laws, so it's important to consult with a tax professional to understand how these rules apply to your specific situation and state.
Disclaimer: This information is for general knowledge and should not be considered tax advice. Consult with a qualified tax professional for personalized guidance.