Section 179 and Bonus Depreciation: Deducting Business Equipment

When you buy equipment, vehicles, or software for your business, you can often deduct the full cost in the year of purchase instead of depreciating it over several years. The two main tools are Section 179 expensing and bonus depreciation. Both are among the most valuable small business tax deductions available. This guide explains when to use each and the special rules for vehicles.

Key Takeaways

• Section 179 lets you deduct up to $1,250,000 (2025) of equipment cost immediately.
• Bonus depreciation is phasing down: 40% in 2025, 20% in 2026, 0% in 2027.
• Heavy vehicles (6,000+ lbs GVWR) get a significantly larger first-year deduction.
• You can combine Section 179 and bonus depreciation for maximum first-year write-off.
• The deduction requires more than 50% business use.

Section 179 Expensing

Section 179 allows you to deduct the full purchase price of qualifying business assets in the year placed in service, rather than depreciating them over 5-7 years under the standard MACRS depreciation schedule.

Limits

The deduction phases out dollar-for-dollar once total qualifying purchases exceed the spending cap. It also cannot exceed your business’s taxable income — Section 179 cannot create a business loss (but unused amounts carry forward). This income limit applies regardless of whether you operate as a sole proprietorship, LLC, or S-corp.

Qualifying Property

• Machinery and equipment
• Computers and software (off-the-shelf)
• Office furniture and fixtures (including items for a home office)
• Certain improvements to nonresidential real property (roofs, HVAC, fire protection, alarm and security systems) — see also cost segregation studies for larger properties
• Business vehicles (with special limits — see our buy vs lease business car tax comparison)

Non-Qualifying Property

• Real estate (buildings, land)
• Inventory
• Property used outside the United States
• Property acquired from related parties
• Air conditioning and heating units for residential property

Bonus Depreciation

Bonus depreciation is a separate provision that allows an additional first-year deduction on qualifying assets. Unlike Section 179, bonus depreciation:

• Has no dollar limit (you can deduct billions if you buy billions).
• Can create a business loss that offsets other income.
• Does not require business income to claim.

The Phase-Down Schedule

The Tax Cuts and Jobs Act set bonus depreciation at 100% through 2022. It is now phasing down as part of the broader TCJA sunset in 2026:

This phase-down makes Section 179 increasingly important for immediate expensing.

Combining Section 179 and Bonus Depreciation

You can use both on the same asset. The typical approach:

1. Apply Section 179 first (up to the dollar limit and business income limit).
2. Apply bonus depreciation to the remaining cost basis.
3. Depreciate any leftover balance using standard MACRS depreciation.

Example (2025): You purchase $80,000 of equipment.

• Section 179: Deduct $80,000 (within the $1,250,000 limit).
• If Section 179 is limited by business income, apply 40% bonus depreciation to the remainder.
• Any remaining balance is depreciated over 5 or 7 years using MACRS depreciation.

Vehicle Deduction Rules

Vehicles have special rules because the IRS limits “luxury vehicle” deductions.

Passenger Vehicles (Under 6,000 lbs GVWR)

These limits include both Section 179 and bonus depreciation combined.

Heavy SUVs and Trucks (Over 6,000 lbs GVWR)

Vehicles with a GVWR over 6,000 pounds are not subject to the passenger vehicle caps. This creates the well-known “SUV loophole”:

• Section 179: Up to $30,500 (2025).
• Bonus depreciation: 40% of the remaining cost (2025).
• Standard depreciation on any leftover balance.

Example: A $70,000 heavy SUV placed in service in 2025 (100% business use):

• Section 179: $30,500
• Bonus depreciation (40% of $39,500): $15,800
• MACRS first-year depreciation (20% of $23,700): $4,740
• Year 1 total deduction: $51,040

Qualifying heavy vehicles include many full-size SUVs (Tahoe, Suburban, Expedition, GX, X5 — check the manufacturer’s GVWR rating).

Business Use Requirement

The vehicle must be used more than 50% for business to qualify for Section 179 and bonus depreciation. If business use drops to 50% or below in a later year, you must recapture (pay back) excess depreciation. Keep a mileage log documenting business vs personal miles — one of the best mileage expense apps can automate this tracking for you.

Section 179 for Real Property Improvements

Since 2018, certain improvements to nonresidential (commercial) buildings qualify for Section 179:

• Roofs
• HVAC systems
• Fire protection and alarm systems
• Security systems

These were previously 39-year property. Section 179 allows immediate deduction, making building improvements far more attractive tax-wise. If you own rental property or commercial real estate, a cost segregation study can identify additional components eligible for accelerated depreciation.

Planning Around the Bonus Depreciation Phase-Down

With bonus depreciation dropping from 40% in 2025 to just 20% in 2026 and 0% in 2027, timing your asset purchases has never been more important. Every year you delay a major equipment or vehicle purchase, you lose a significant percentage of the first-year write-off that bonus depreciation provides. Business owners should review their year-end tax checklist and consider accelerating planned purchases into the current tax year whenever cash flow allows. For a full breakdown of what changes when the TCJA provisions expire, see our TCJA sunset 2026 tax changes guide.

How sharper.tax Helps

sharper.tax analyzes your tax return to identify whether you are fully utilizing Section 179 and bonus depreciation on business assets. We flag missed opportunities and model the tax impact of timing asset purchases before year-end. Combined with self-employed tax strategies and solid accounting software to track your assets, you can maximize every deduction available. Sophisticated tax planning used to require a high-end CPA — we make it available for free.

Related Guides

• MACRS Depreciation Guide — understand the standard depreciation schedules that apply when Section 179 and bonus depreciation are exhausted.
• Self-Employed Tax Strategies — a broader look at deductions and planning techniques for business owners.
• Buy vs Lease: Business Car Tax Comparison — how the ownership decision affects your depreciation options.
• Cost Segregation Studies — accelerating depreciation on commercial and rental real property.
• Best Accounting Software: Strategic Review — track your depreciable assets and Section 179 elections accurately.

Sources

• IRS Publication 946: How to Depreciate Property
• IRS Section 179 Deduction FAQ
• IRS Revenue Procedure (Annual Inflation Adjustments)
• IRS Publication 463: Travel, Gift, and Car Expenses

The information above is educational and not tax advice.