Section 179 Deduction: How it Works in 2025

When you think of depreciating a tangible asset, you likely picture allocating its cost over its estimated useful life, which can be several years. But what if you could skip that long deprecation schedule in favor of something more immediate? That's where Section 179 of the US tax code makes a substantial difference.

Section 179 allows small business owners and entrepreneurs to take an immediate tax deduction for eligible property placed in service during the year instead of deducting the cost over time. Section 179 also impacts: 

• Improved cash flow 

• Business growth incentives 

This article will explain the Section 179 rules, including critical updates for 2025, and help you understand how to take advantage of the tax deduction. If you need assistance balancing deduction rules with Section 179 updates, 1-800Accountant is here to help.  

Key Highlights

• Learn what Section 179 is and which entities qualify. 

• Understand the eligibility rules for the qualifying small business equipment deduction.

• Look at changes to Section 179 as a result of the One Big Beautiful Bill Act. 

• Bonus deprecation vs. Section 179 comparison and considerations. 

• Steps to claim the Section 179 deduction. 

What Is Section 179?

Section 179, described in Internal Revenue Code Section 179, is a tax depreciation deduction. The rules were created as a way to encourage business growth by incentivizing equipment purchases. Standard depreciation methods differ as they allow businesses to deduct a portion of an asset's cost each year, while Section 179 is immediate.

Section 179 encourages businesses to upgrade equipment and other assets sooner, among other impactful investments. However, eligible business entities and property must meet IRS requirements.

Who Is Eligible?

The following business types may take the Section 179 tax deduction: 

• C corporations

• Partnerships

• S corporations

• Sole proprietorships 

Pass-through entities should report the Section 179 expense and pass the tax deduction on to the business owners. Trusts and estates are not eligible for the Section 179 deduction. While Section 179 can be applied to virtually any industry, it has a particular impact on these industries: 

• Manufacturing 

• Transportation 

• Agriculture 

• Healthcare 

Schedule a consultation with one of 1-800Accoutant's small business experts to confirm your business's eligibility. 

What Property Qualifies?

Eligible Property

The IRS allows this deduction for various types of tangible property, including: 

• Machinery and equipment

• Furniture

• Vehicles

• Off-the-shelf computer software

• Patents and copyrights (restrictions apply)

Ineligible Property

While Section 179 applies to a substantial amount of tangible property, the IRS deems some property to be ineligible, including: 

• Land

• Section 197 intangibles

• Custom software

A Section 197 intangible is an asset acquired with the acquisition of a trade or business that is amortized over 15 years, regardless of the asset's actual useful life. For a deeper understanding of IRS eligibility, review these official materials. 

2025 Section 179 Limits

The IRS imposes annual limitations on each taxpayer’s Section 179 deduction. Consider the following rules to determine your Section 179 tax deduction for the year.

Dollar Limit

Section 179's dollar limit has been significantly expanded for 2025. 

• The maximum Section 179 deduction is $2.5 million 

This applies to property placed into service starting on January 1, 2025. 

Phase-Out Threshold

Similar to the dollar limit, Section 179's phase-out thresholds have been increased for 2025. 

• The phase-out threshold has been raised to $4 million. 

• The Section 179 deduction fully phases out for purchases exceeding $6.5 million. 

Purchases above the threshold reduce the maximum deduction.

Business Income Limitation

After applying the Section 179 dollar limit, each taxpayer can take a Section 179 deduction to the extent of their taxable income. 

If your taxable business income limit prevents you from taking your entire Section 179 deduction, the IRS offers relief: You can carry the excess amount to the following tax year.

Refer to this table to view different business income limitation scenarios. 

Bonus Depreciation vs Section 179

Like Section 179, bonus depreciation has been impacted by the passage of the One Big Beautiful Bill Act. 100% bonus depreciation has been made permanent for assets placed in service after January 19, 2025. 

While Section 179 and bonus depreciation both allow businesses to deduct the cost of certain assets, there are important differences you should take into account before application. 

Section 179 and bonus depreciation may be most effective when combined. 

Your business should deduct Section 179 depreciation first. After calculating your Section 179 tax deduction, determine whether your remaining property is eligible for bonus depreciation. Your bonus depreciation deduction represents the remaining property cost. If you find that any depreciable basis remains, use the Modified Accelerated Cost Recovery System (MACRS) to depreciate it. 

How to Claim the Section 179 Deduction

Follow our step-by-step guide to take advantage of your Section 179 tax deduction. We also recommend referring to the detailed instructions in IRS Publication 946.

1. Determine eligible property.

Gather your equipment purchase records and consider the property you placed in service during the year to determine your eligibility for the Section 179 deduction. To qualify, your business should actively use the property at least 50% of the time. 

2. Confirm limits and thresholds.

The maximum Section 179 deduction is $2.5 million for 2025, with a phase-out threshold of $4 million. This deduction fully phases out for asset purchases exceeding $6.5 million. 

3. Calculate business income limit.

This deduction is limited to your net taxable income from the active conduct of business for the year. Any amount disallowed due to the business income limitation can be carried forward to future years. 

Refer to our table above detailing carry-forward and limitation scenarios. 

4. Complete IRS Form 4562, Depreciation and Amortization (Including Information on Listed Property)

This form reports the depreciation expense deducted on your tax return. Fill out Part I to elect the Section 179 tax deduction. Complete each line to compute your business deduction. 

Refer to the IRS Form 4562 instructions as you complete the form. 

Impact on Business Planning

The Section 179 deduction is valuable when planning business purchases. 

If your business is preparing for large equipment purchases, you might wish to strategically delay some purchases until the following tax year. You can ensure greater deductions by keeping your purchases below the phase-out threshold each year. The phase-out threshold for 2025 is $4 million.

Additionally, there are considerations for businesses with lower income. This deduction might not benefit a taxpayer with a low business income limitation. In this scenario, it may be better for the taxpayer to forego the Section 179 deduction and instead follow traditional depreciation rules. 

Are you planning an acquisition or a large property purchase for your business? Consult with 1-800Accountant's year-round tax advisors to ensure your tax strategy is in perfect alignment with 2025 growth goals. 

Common Mistakes & How to Avoid Them

Small business owners who claim the Section 179 deduction on behalf of their operations can make common, costly mistakes. Refer to these Section 179 mistakes below and how to avoid them. 

• Claiming ineligible property. Ensure the asset is eligible for Section 179, which should be tangible personal property used by your business. Assets such as land are ineligible. 

• Missing filing deadlines. Mark a calendar and create a notification system to ensure your business is ready for every applicable deadline throughout the year. The consequences of missing a deadline may involve costly penalties and increased IRS scrutiny. 

• Overlooking business income limits. Know your business income limits each tax year and prepare to carry forward any unused portion to other tax years.  

• Not coordinating Section 179 with other deductions. Consider how Section 179 might be used with other helpful deductions, such as bonus depreciation. 

FAQs

Can I use Section 179 for vehicles?
Generally, business vehicle purchases can be applied to the Section 179 deduction, assuming eligibility requirements are met. This applies to vehicles purchased in new and used condition, and must be used 50% or more of the time for business purchases. 

Does used equipment qualify?
In addition to new equipment purchases, used equipment can qualify for the Section 179 deduction. While the equipment doesn't have to be brand new, it should be new to your operations and not previously owned by you. Similar to vehicles, used equipment must be used 50% or more of the time for business purposes.  

What happens if I sell property after claiming Section 179?If you sell a property after claiming this deduction, it will trigger depreciation recapture. The recapture amount will either be the gain from the sale of the property or the Section 179 deduction amount that was claimed. Once the amount is determined, it is taxed at your ordinary income tax rates, which are likely higher than applicable capital gains rates.

Can Section 179 create a loss?
Fortunately, the Section 179 deduction will not create a loss for your business. This deduction allows you to deduct the cost of qualifying equipment up to your business's profit. Still, you cannot use it to bring your taxable income below zero, which would generate a loss for your business. 

How does Section 179 apply to partial business use property?
A partial business use property may still be deducted via Section 179, although some rules and limitations must be followed. For example, like other assets, the property must be used for business purposes 50% or more of the time, and the Section 179 calculation depends on that use percentage to determine the precise amount.

Conclusion & CTA

The Section 179 deduction and its recent business-friendly expansion of thresholds and limitations should be a boon to small business owners throughout the United States. It provides significant tax relief, but determining accurate Section 179 calculations while abiding by its rules and standards can be difficult without professional expertise guiding the way. That's where 1-800Accountant, America's leading virtual accounting firm, can make an impact. 

Expert Section 179 support ensures this deduction is maximized while preserving ongoing business compliance. Our suite of affordable, tax-deductible financial services, including year-round tax advisory and business tax preparation, is handled on your behalf, so you can spend more time focusing on your next business milestone instead of agonizing over ever-changing income limitations and asset eligibility.

Schedule a free 30-minute consultation with a small business expert to get started.