If you’re a business owner, you can take an immediate expense deduction for the purchase of certain property — like machinery and equipment — through the Section 179 tax deduction. Rather than depreciating the property over time, the Section 179 deduction allows business owners to deduct the entire cost as an expense at the time of purchase.
A similar tax incentive is bonus depreciation, which is a temporary provision that was part of the Tax Cuts and Jobs Act of 2017. With bonus depreciation, you can only deduct a percentage of the eligible expense — unlike the full amount allowed by the Section 179 deduction. The business property must qualify for bonus depreciation, and the percentage you can deduct depends on the year the property was put into use. Bonus depreciation is being phased out by 2027, with a reduction in the percentage of the property cost you can claim each year until then.
Both the Section 179 deduction and bonus depreciation allow you to reduce the taxable income for your business in the year when the purchased property was put into service. However, there are some important rules to keep in mind. Here’s what you need to know.
How the Section 179 deduction works
The Section 179 deduction is an optional tax break that allows business owners to deduct the full cost of qualifying equipment for the tax year when it was purchased, rather than depreciating it over time. The deduction can only be used if the property or equipment you purchase is used for the business more than 50% of the time.
The Section 179 deduction is intended to encourage businesses to invest in equipment and technology to grow. To qualify, your business must have taxable income and you cannot claim it if you have a net loss for the business.
For tax year 2024, business owners can deduct up to $1.22 million in qualifying purchases with the Section 179 deduction, though that limit increases to $1.25 million for tax year 2025. (The limit is adjusted for inflation each year.) Up to those limits, you can elect to recover all or part of the cost of qualifying property.
The primary benefit of the Section 179 deduction is that business owners receive immediate tax savings rather than waiting the typical five to seven years to depreciate the cost, says Tom Wheelwright, a certified public accountant and the CEO of WealthAbility in Tempe, Ariz.
What qualifies for the Section 179 deduction?
A broad range of property is covered by the Section 179 deduction, including both new and pre-owned property that’s depreciable. To qualify for this tax break, the property must meet the IRS’s eligibility requirements, it must be acquired for business use, and it must have been acquired by purchase.
The Section 179 deduction includes:
- Tangible personal property such as machinery, equipment, appliances, signs, portable air conditioners and heaters, furnishings, and livestock.
- Off-the-shelf computer software that’s readily available for purchase by the general public.
- Quality improvement property and improvements to nonresidential real property such as fire protection and alarm systems, security systems, and heating, ventilation, and air-conditioning units.
What is the Section 179 recapture?
If you don’t opt to take the Section 179 deduction, you can depreciate the cost of that property over time. The IRS determines a specific “recovery period” for various types of property, which specifies the number of years over which you can recover its cost.
When you take the Section 179 deduction, you immediately deduct the full cost of the property in the year it was put to use. But the same recovery period applies for the specific type of property, and it’s important to be mindful of these periods. If you stop using property primarily for business purposes or sell or exchange the property, you may be required to recapture some of the Section 179 deduction. That’s true if the recovery period is still in effect for the property.
For example, consider you bought a truck for your business and used the Section 179 deduction to write off the entire cost, but after two years decide you no longer need it. When you sell the truck, you must pay a recapture amount that’s calculated by subtracting the depreciation that would have been allowable on the section 179 deduction from the deduction amount you claimed.
Business owners may be surprised by the requirement to recapture the deduction, particularly because most people aren’t paying tax when they sell a vehicle, Wheelwright says. “The biggest thing people should remember is it’s not free just because it’s tax deductible.”
How bonus depreciation works
Bonus depreciation, also known as accelerated depreciation, the special depreciation allowance or the additional first-year depreciation deduction, is an optional tax break similar to the Section 179 deduction that’s in the process of being phased out by Jan. 1, 2027.
With bonus depreciation, you can deduct a percentage of an eligible property expense — that amount was 60 percent for tax year 2024 and falls to 40 percent for tax year 2025.
Unlike the Section 179 deduction, bonus depreciation doesn’t have a spending limit nor does it have a taxable income limit. That makes bonus depreciation attractive if you’re buying especially expensive assets.
You can use the Section 179 deduction together with bonus depreciation. First, you need to claim the Section 179 deduction up to the applicable dollar limit and then you can use the bonus depreciation on the remaining expenses beyond that limit.
One advantage of bonus depreciation is that you can claim it even if you have a net loss for your business. That’s particularly helpful if your business is in its early stages and you don’t yet have a profit, Wheelwright notes.
“If you had a loss, you might want to take the bonus depreciation, even at 40 percent, because 40 percent is more than the Section 179 deduction would be, which is zero,” Wheelwright says.
Also, depending on the business type, loss, and taxpayer’s income tax situation, excess loss may be able to be carried into the next tax year to count against future profits or other income.
What qualifies for bonus depreciation?
Most of the same business investments that qualify for the Section 179 deduction also qualify for bonus depreciation. But bonus depreciation is generally intended to be used for those investments with shorter recovery periods.
For example, improvements to nonresidential real property that aren’t quality improvement property may not qualify for bonus depreciation whereas they may for the Section 179 deduction. (See this IRS page for more on quality improvement property.)
What is bonus depreciation recapture?
As with the Section 179 deduction, you may have to recapture some of the bonus depreciation if you sell or exchange the property or stop using it primarily for business purposes.
Because you are only able to deduct a percentage of the property cost with bonus depreciation, that will also affect the amount you must recapture. As with the Section 179 deduction, specific recovery periods will apply, depending on the property.
Section 179 deduction vs. bonus depreciation
Both the Section 179 deduction and bonus depreciation offer immediate tax savings to business owners, including people who are self-employed or freelancers. By deducting the cost of an investment in your business at the time the property is put into use, you don’t have to spread out the depreciation over several years. (That said, recapture, as described above, is always a potential issue to consider.)
While similar, the difference between these two tax incentives is primarily the amount you can deduct — 100 percent of the cost for the Section 179 deduction vs. a percentage of the cost with bonus depreciation.
Because the bonus depreciation provision is being phased out, most businesses are relying largely on the Section 179 deduction for qualifying property costs, Wheelwright says. But there are some scenarios when one option is preferable to the other:
- If you have a net loss for your business, you are able to claim bonus depreciation (but not the Section 179 deduction).
- If you purchase qualifying property over the deduction limit, first claim the Section 179 deduction up to that limit and then the bonus depreciation on the remainder of that value, with no limit.
- If you want to choose which asset to apply the tax break to, claim the Section 179 deduction because you can apply it to the entire asset class with bonus depreciation.
- If you have expensive purchases, claim bonus depreciation because you won’t face a limit on spending.
- If you buy assets with a shorter recovery period, use bonus depreciation.
Finally, the de minimis tax rule may be more applicable to people who don’t have as many business-related expenses, Wheelwright notes. As with the Section 179 deduction and bonus depreciation, this rule allows you to immediately deduct up to $2,500 to cover the costs of tangible property rather than depreciating it over time. But the de minimis rule only applies to items like office supplies, tools, equipment, and furniture — it doesn’t apply to real property.
While all of these types of tax breaks are attractive because they offer immediate savings, as a fallback, for assets that qualify for capitalization you can always depreciate the cost of the asset over time. You may also want to consult with a tax expert in advance. Here are 5 tips to find the best tax preparer for you.
Finally, it’s important to keep perspective when making purchases for the future of your business especially because of the recapture rule, Wheelwright says. “Don’t let tax drive your decisions.”
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