Section 179 Deduction: How to Write Off Business Equipment

Yes. Section 179 applies to both new and used equipment, as long as the asset is new to your business. This is one of the biggest advantages of Section 179 over the pre-2018 depreciation rules, which originally limited the first-year expensing election to brand-new property. The Tax Cuts and Jobs Act expanded bonus depreciation to cover used property starting in 2018, and Section 179 has always applied to used equipment as long as it meets the basic requirements.

The requirements are straightforward. The property must be tangible personal property (think equipment, machinery, vehicles, computers, furniture, off-the-shelf software), it must be purchased for use in your trade or business (not for personal use), and it must be placed in service during the tax year. The property cannot be acquired from a related party — you cannot buy your cousin’s old truck and Section 179 it. Related parties are defined under IRC Sections 267 and 707(b), and they include family members (spouse, parents, children, siblings), entities you own more than 50% of, and certain other related entities.

Let me give you a practical example. Say you run a landscaping company and you buy a used commercial mower from an equipment dealer for $18,000. Even though the mower is five years old, you can deduct the entire $18,000 under Section 179 in the year you put it into service. If you are in the 24% federal tax bracket and pay 15.3% self-employment tax, that $18,000 deduction saves you roughly $7,074 in taxes. You get the same deduction whether the mower is new or used — what matters is that it is new to your business.

There are some exceptions to the used-equipment rule that you should be aware of. First, you cannot Section 179 property that you already owned and were using for personal purposes before converting it to business use. If you have a personal truck in your driveway that you start using for business, you cannot Section 179 it — you can only depreciate the portion of the truck’s value that relates to business use, starting from the date of conversion. Second, property acquired by gift or inheritance does not qualify for Section 179. If your father gives you a piece of equipment for your business, you cannot expense it under Section 179 (though you may be able to depreciate it over its useful life). Third, property acquired in a like-kind exchange under Section 1031 has special rules — you can Section 179 the excess basis (the boot paid) but not the carryover basis from the exchanged property.

The used-equipment rule makes Section 179 especially valuable for small and mid-sized businesses that buy a lot of secondhand equipment. A construction company that purchases a used excavator for $85,000 gets the same tax benefit as a company that buys a brand-new excavator for $85,000. This levels the playing field and allows businesses with tighter budgets to still take full advantage of the first-year expensing benefit.

One more practical point: the equipment does not need to be purchased from a dealer. You can buy used equipment from another business, at auction, or through a private sale. As long as the seller is not a related party and the equipment qualifies as Section 179 property, the purchase qualifies for the deduction. Keep the purchase receipt, bill of sale, and any documentation about the equipment’s condition and value, as the IRS may ask for these records if you are audited.

Section 179 is claimed on IRS Form 4562 (Depreciation and Amortization) and flows through to your Schedule C if you are a sole proprietor, or to your business return if you operate through an LLC, S corporation, or partnership. The deduction reduces your net business income, which in turn reduces both your income tax and your self-employment tax (for sole proprietors and partners). Talk to your CPA about whether Section 179 or bonus depreciation provides a better result for your specific equipment purchase, as the two provisions have different phase-out thresholds and limitations.

There is another category worth knowing about: qualified real property improvements. Under Section 179, certain improvements to nonresidential real property qualify for immediate expensing. These include roofs, HVAC systems, fire protection and alarm systems, and security systems placed in service after the building was originally placed in service. If you own a commercial building and put a new roof on it for $120,000, you can Section 179 the entire cost in the year it is placed in service. Before 2018, these improvements had to be depreciated over 39 years — meaning you would deduct only about $3,077 per year. The Section 179 election on qualified improvement property is a big deal for commercial property owners.

There are also specific rules about property that does not qualify for Section 179 under any circumstances. These include: property used outside the United States, property used by governmental units or tax-exempt organizations (unless the property is used in an unrelated trade or business), air conditioning or heating units, property used in connection with furnishing lodging (though there are exceptions for hotels and motels), and property acquired from related parties. The related party rules are defined broadly and include your spouse, ancestors, descendants and any corporation, partnership, or trust in which you own more than 50%.

For self-employed individuals and small business owners, the combination of Section 179 for used equipment and the absence of any requirement for the equipment to be “new” makes this one of the most accessible and practical tax deductions available. Whether you are buying a $500 used printer from an office liquidation sale or a $200,000 used CNC machine from a retiring manufacturer, the Section 179 deduction works the same way. The key is documentation: keep the purchase receipt, record the date the equipment was placed in service, and maintain records showing that the equipment is used in your business. Without these records, the deduction will not survive an IRS examination. Always photograph or scan the serial number plate and any identifying information on the equipment at the time of purchase for your permanent records.

For the 2025 tax year (which gets filed in 2026), the Section 179 deduction limit is $2,560,000. That means a business can expense up to $2,560,000 of qualifying asset purchases in a single year, rather than depreciating those assets over their useful life. This limit is adjusted for inflation each year, so it will likely tick up slightly for 2026. In addition to the deduction limit, there is a phase-out threshold of $3,130,000. If your total qualifying asset purchases for the year exceed $3,130,000, the $1,250,000 deduction limit starts to phase out dollar-for-dollar. Once your total purchases hit $6,650,000, the Section 179 deduction is completely eliminated.

Let me explain what these numbers mean in practice. For the vast majority of small businesses, the $1,250,000 limit is more than enough. If you are a sole proprietor buying a new truck ($55,000), some shop equipment ($30,000), and a computer ($2,000), your total Section 179 eligible purchases are $87,000 — well below the $1,250,000 limit. You expense the whole $87,000 in year one.

The $3,130,000 phase-out threshold is designed to target the benefit toward small and mid-sized businesses. A large corporation that purchases $10 million in new equipment in a year would exceed the phase-out threshold by $6,870,000, completely eliminating their Section 179 deduction. However, that corporation would still be able to use 100% bonus depreciation under Section 168(k), which has no dollar limit and no phase-out threshold (thanks to OBBBA making 100% bonus depreciation permanent). So very large businesses tend to rely on bonus depreciation rather than Section 179, while smaller businesses use Section 179 because it offers some flexibility that bonus depreciation does not (such as the ability to choose how much to expense, which can be useful for managing your taxable income level).

There is one critical limitation that catches people by surprise: the Section 179 deduction cannot exceed your taxable business income. This is the “business income limitation.” If your Schedule C shows a net profit of $40,000 and you purchase $80,000 of equipment, you can only Section 179 $40,000 of it. The remaining $40,000 carries forward to next year. Bonus depreciation does not have this income limitation, which is one reason some taxpayers prefer bonus depreciation over Section 179 — bonus depreciation can create a net operating loss (NOL) that can be carried forward to offset income in future years.

Let me run through a concrete example showing the business income limitation. You are a self-employed consultant. Your gross income for the year is $120,000. Your business expenses (before any Section 179 deduction) total $90,000, leaving you with $30,000 of net business income. You also bought a new computer system for $8,000 and office furniture for $12,000, totaling $20,000 in Section 179 eligible property. Since $20,000 is less than your $30,000 of business income, you can expense the full $20,000. Your net business income drops to $10,000. If you had instead purchased $50,000 of equipment, your Section 179 deduction would be limited to $30,000 (your business income), and the remaining $20,000 would carry forward to next year.

Another important nuance: Section 179 applies at the taxpayer level, not the entity level. If you own two businesses — a consulting practice and a rental property company — the $1,250,000 limit applies to your total Section 179 deductions across both businesses on your personal return. You do not get $1,250,000 per business. The business income limitation, however, is calculated based on your aggregate business income from all sources.

The inflation adjustment happens automatically. The IRS publishes the updated Section 179 limits in a revenue procedure each fall for the following tax year. Keep an eye on the IRS website or ask your tax advisor for the exact limits before making year-end equipment purchases. The difference between buying equipment on December 31 of one year versus January 1 of the next can affect which year’s limits and phase-out thresholds apply.

One final planning tip: because the Section 179 deduction is elective, you can choose exactly how much to expense. If you want to expense only $50,000 of a $100,000 purchase, you can. The remaining $50,000 would be depreciated over the asset’s recovery period (five years for computers and vehicles, seven years for office furniture, etc.) using regular MACRS depreciation or bonus depreciation. This flexibility is unique to Section 179 — bonus depreciation is all-or-nothing for each asset class. Being able to fine-tune the deduction amount lets you manage your taxable income more precisely, which can help you stay in a lower tax bracket or get the most from your credits that depend on your income level.

There is one more nuance about the phase-out threshold that is worth understanding. The phase-out is dollar-for-dollar, which means it can be quite severe for businesses right at the threshold. If you purchase $3,200,000 in qualifying assets, the $1,250,000 Section 179 limit is reduced by $70,000 (the amount by which $3,200,000 exceeds $3,130,000), leaving you with a maximum Section 179 deduction of $1,180,000. If you purchase $4,380,000 or more, the Section 179 deduction is completely eliminated — but again, bonus depreciation would still be available for the full amount with no phase-out.

Also keep in mind that the Section 179 deduction is taken before bonus depreciation and regular depreciation. When you fill out Form 4562, you first calculate your Section 179 deduction in Part I, then determine bonus depreciation in Part II, and then regular MACRS depreciation in Part III. You can use all three provisions on the same asset purchase. For example, you buy a $50,000 piece of equipment and Section 179 $30,000 of it. The remaining $20,000 qualifies for 100% bonus depreciation, giving you a total first-year deduction of $50,000. This layered approach gives you maximum control over the timing and amount of your deductions.

For businesses that are growing rapidly and expect to exceed the phase-out threshold in future years, it may make sense to accelerate equipment purchases into the current year while total purchases are still below the threshold. Conversely, if you are already over the threshold this year, you might delay some purchases to next year to preserve your Section 179 eligibility. This kind of year-end planning is exactly what a CPA can help with.

The answer depends on the weight of the SUV and when it was placed in service. For SUVs, the Section 179 rules create two distinct categories: heavy SUVs (over 6,000 pounds gross vehicle weight rating, or GVWR) and lighter SUVs (6,000 pounds or less).

For light SUVs and passenger vehicles under 6,000 pounds GVWR, the Section 179 deduction is limited by the “luxury automobile” limits under IRC Section 280F. For the 2025 tax year, the maximum first-year depreciation deduction for a passenger vehicle (including Section 179, bonus depreciation, and regular depreciation combined) is approximately $20,300. So even if you buy a $50,000 sedan or small SUV and elect Section 179, your total first-year write-off is capped at roughly $20,400. The remaining cost is depreciated over subsequent years, subject to annual caps of approximately $19,800 in year two, $11,900 in year three, and $7,160 per year thereafter until the vehicle is fully depreciated.

For heavy SUVs and trucks with a GVWR over 6,000 pounds, the luxury auto limits do not apply — but there is a separate Section 179 cap of $30,500 for SUVs (2025). This is the “SUV cap” under IRC Section 179(b)(5)(A). The cap was set at $25,000 when it was enacted and has been adjusted for inflation. So if you buy a $70,000 Cadillac Escalade with a GVWR over 6,000 pounds and use it 100% for business, you can deduct $30,500 under Section 179 in the first year. You can then claim 100% bonus depreciation on the remaining $39,500, giving you a total first-year deduction of $70,000. This is why heavy SUVs are so popular with business owners — you can write off the entire vehicle in year one.

Wait, let me be precise about that. The $30,500 Section 179 SUV cap applies specifically to vehicles defined as “sport utility vehicles” in the tax code — generally, passenger vehicles with four-wheel drive and a GVWR over 6,000 pounds but not more than 14,000 pounds. Pickup trucks with a full-size truck bed (at least six feet long) are not classified as SUVs and are not subject to the $30,500 cap. A Ford F-250 or Ram 2500 with a GVWR over 6,000 pounds and a full-size bed can be fully expensed under Section 179 up to the general $1,250,000 limit, with no special cap. This is why you see so many heavy-duty pickup trucks on construction sites and at real estate offices — the tax treatment is extremely favorable.

Here are a few vehicle examples to make this concrete.

Example 1: You buy a Toyota Camry ($35,000) for your consulting business and use it 100% for business. The Camry weighs under 6,000 pounds GVWR, so the luxury auto limits apply. Your first-year deduction is capped at approximately $20,400. You depreciate the remaining $14,600 over the following years.

Example 2: You buy a BMW X5 ($65,000) with a GVWR over 6,000 pounds and use it 100% for business. The X5 qualifies as a heavy SUV. You can take $30,500 under Section 179 and bonus depreciation on the remaining $34,500, for a total first-year write-off of $65,000.

Example 3: You buy a Ford F-350 with a full-size bed ($75,000) and a GVWR of 10,200 pounds. You use it 100% for business. Because it is a full-size pickup (not an SUV), the $30,500 SUV cap does not apply. You can Section 179 the entire $75,000 in year one under the general $1,250,000 limit.

Now, here is where things get tricky: the business use percentage. All of the deductions above assume 100% business use. If you use the vehicle for both business and personal purposes, you can only deduct the business-use percentage. The IRS requires you to track your mileage and keep records of business versus personal use. If you use your heavy SUV 70% for business and 30% for personal driving, you can only deduct 70% of the cost under Section 179. For the $65,000 BMW X5, that would be 70% of $30,500 = $21,350 for the Section 179 portion, and 70% of $34,500 = $24,150 for the bonus depreciation portion, totaling $45,500 in first-year deductions.

There is also a recapture risk. If your business use drops below 50% in any year during the recovery period, you must recapture (pay back) the excess depreciation you claimed over what straight-line depreciation would have allowed. This recapture is added to your income in the year the business use drops below 50%. So if you Section 179 a $60,000 SUV in year one and then use it mostly for personal driving in year three, you could owe back a significant amount in taxes.

Vehicle deductions are one of the most audit-sensitive areas for small businesses. The IRS knows that vehicles are commonly used for both business and personal purposes, and they scrutinize vehicle deductions closely. Keep a contemporaneous mileage log (or use a tracking app), record the total annual mileage and the business portion, and keep receipts for all vehicle expenses. If you are audited and cannot substantiate the business use percentage, the IRS will disallow part or all of your deduction.

Consult a CPA before purchasing a vehicle for business use. The choice between Section 179, bonus depreciation, actual expenses, and the standard mileage rate depends on the vehicle type, your usage pattern, your income, and your overall tax situation. Getting this right at the time of purchase — and choosing the right vehicle — can save you thousands of dollars over the life of the vehicle.

One additional point that business owners should consider: financing. You can Section 179 a vehicle even if you finance it with a loan. The deduction is based on the full purchase price of the vehicle, not on the down payment or the amount you have paid so far. If you buy a $60,000 truck with a $10,000 down payment and a $50,000 loan, you can still deduct the full business-use percentage of $60,000 under Section 179 in year one. The loan payments are not separately deductible (that would be double-dipping), but the interest on the loan is deductible as a business expense. This makes vehicle purchases very attractive from a cash flow perspective — you get the full tax deduction up front while spreading the actual cash payments over several years.

Both Section 179 and bonus depreciation allow you to deduct the full cost of qualifying business assets in the year they are placed in service, but they work differently and have different rules. Understanding the differences helps you choose the right option for each asset purchase.

Section 179 is an elective provision under IRC Section 179. You choose to expense a specific amount of a qualifying asset purchase, and you can choose to expense some, all, or none of the cost. The key features of Section 179 include: a dollar limit on the total amount you can expense ($1,250,000 for 2025). A phase-out threshold that reduces the deduction when total asset purchases exceed a certain amount ($3,130,000 for 2025). A business income limitation that prevents Section 179 from creating a net operating loss. The ability to apply it selectively to specific assets and in specific amounts. And it applies to both new and used property.

Bonus depreciation is an automatic provision under IRC Section 168(k). Unless you elect out, bonus depreciation applies to all eligible property in a given asset class at the same percentage. The key features of bonus depreciation include: no dollar limit on the total deduction. No phase-out threshold based on total purchases. No business income limitation (it can create a net operating loss). It applies to all eligible assets in a class, not selectively. Thanks to OBBBA, it is permanently set at 100% for property placed in service from 2023 forward. And it applies to both new and used property (since TCJA expanded it in 2018).

Let me show you the practical differences with a real example. Suppose you are a sole proprietor with $80,000 of net business income (before depreciation), and you purchase $100,000 of new equipment this year.

Using Section 179 only: you can expense up to $80,000 (limited by your business income). The remaining $20,000 carries forward to next year. Your net business income drops to zero, but you cannot create a loss.

Using bonus depreciation only: you can deduct the full $100,000. Your net business income is now negative $20,000 (a net operating loss). That $20,000 NOL can be carried forward to offset up to 80% of taxable income in future years under the TCJA NOL rules.

Using a combination: you could take $80,000 under Section 179 (maxing out at your business income) and then claim bonus depreciation on the remaining $20,000. The bonus depreciation would create a $20,000 loss. This combination approach is common because it gives you both the flexibility of Section 179 and the loss-generating ability of bonus depreciation.

Another important difference: Section 179 allows you to choose exactly how much to expense for each asset. If you buy three pieces of equipment for $40,000 each ($120,000 total) and only want to expense $60,000 this year to manage your tax bracket, you can Section 179 $60,000 and depreciate the remaining $60,000 over the normal recovery period. With bonus depreciation, it is all-or-nothing for each asset class. You either take 100% bonus depreciation on all five-year property placed in service during the year, or you elect out of bonus depreciation for that entire class. You cannot take bonus depreciation on some five-year assets and not others.

There are some asset types where one provision works but the other does not. Section 179 applies to tangible personal property, off-the-shelf computer software, qualified improvement property, and certain other assets. It does not apply to most real property (buildings, structural components) except for qualified improvement property and certain specific improvements (roofs, HVAC, fire protection, security systems) for nonresidential real property. Bonus depreciation has a broader reach for real property — it applies to qualified improvement property (QIP) with a 15-year recovery period. Both provisions apply to the same categories of personal property, so for equipment and machinery, the choice between Section 179 and bonus depreciation is usually about the strategic differences described above.

For very small businesses, Section 179 is often the simpler choice. You fill out Part I of Form 4562, write down the amount you want to expense, and you are done. The business income limitation prevents you from over-deducting relative to your income. For larger businesses with big capital expenditures, bonus depreciation is usually better because there is no dollar limit and it can generate NOLs. For mid-sized businesses, a combination approach — Section 179 up to the income limitation, bonus depreciation on the excess — often produces the best result.

One nuance that matters for some businesses: Section 179 deductions can be recaptured if the asset is disposed of or if business use drops below 50%. The recapture rules for bonus depreciation are similar. The difference is that Section 179 recapture is calculated as the difference between the Section 179 deduction taken and the depreciation that would have been allowed without Section 179 (using straight-line depreciation). Bonus depreciation recapture is the difference between bonus depreciation and straight-line depreciation.

A qualified CPA can model both scenarios for your specific purchases and income level to determine which approach — or which combination — minimizes your total tax liability. The right answer varies from business to business and year to year, depending on your income, your asset purchases, your carryforward positions, and your expectations for future income.

One more practical consideration: state conformity. Not all states follow the federal Section 179 and bonus depreciation rules. Some states have lower Section 179 limits, some do not allow bonus depreciation at all, and some require you to add back the federal accelerated depreciation and claim state depreciation on a different schedule. California, for example, does not conform to federal bonus depreciation and has its own, lower Section 179 limit. This means your federal and state depreciation schedules may diverge, creating different book values for the same asset on your federal and state returns. If you operate in multiple states, the compliance burden increases further. Your CPA should model both the federal and state depreciation impact before you make a large equipment purchase. The state adjustment can significantly change the net after-tax cost of the equipment and may affect your decision about timing and method.

Yes, but you can only deduct the business-use percentage, and there are minimum business-use requirements that you need to meet. Under IRC Section 280F, you must use the vehicle more than 50% for business purposes to be eligible for Section 179 or bonus depreciation. If your business use is 50% or less, you are limited to straight-line depreciation over a five-year recovery period, and the annual deduction amounts are lower. This 50% threshold is strict — it is not a sliding scale. One percent below the line and you lose access to the accelerated deductions entirely.

Here is how this works with real numbers. Suppose you buy a heavy-duty pickup truck (over 6,000 pounds GVWR) for $70,000. You track your mileage carefully and determine that you drive 18,000 miles per year for business and 7,000 miles per year for personal use. Your total mileage is 25,000, and your business-use percentage is 72% (18,000 / 25,000). Because your business use exceeds 50%, you qualify for Section 179 and bonus depreciation.

Your Section 179 deduction is 72% of $70,000 = $50,400. That is the maximum you can claim in the first year (assuming this is a qualifying truck with a full-size bed, not subject to the $30,500 SUV cap). The remaining 28% ($19,600) of the vehicle’s cost is your personal-use portion and is not deductible. Your first-year write-off is $50,400, which at a 24% tax rate saves you $12,096 in federal income taxes.

Now consider the same truck but with different usage: 12,000 business miles and 13,000 personal miles. Your business-use percentage is 48% — just under the 50% threshold. You lose eligibility for Section 179 and bonus depreciation entirely. Instead, you must use straight-line depreciation over five years, and the annual deductions are much smaller. Your first-year depreciation on a $70,000 truck at 48% business use would be approximately $6,720 (using straight-line depreciation of $14,000 per year times 48%). That is a massive difference from the $50,400 you would have gotten at 72% business use. The moral: track your mileage carefully and make sure you stay above 50% business use.

Mileage tracking is not optional — it is a legal requirement for vehicle deductions, and the IRS audits vehicle deductions more frequently than almost any other category. Under Section 274(d), you must keep “adequate records” or provide “sufficient evidence” corroborating your own statement of business use. In practice, this means a contemporaneous mileage log that records the date of each business trip, the destination or route, the business purpose, and the miles driven. “Contemporaneous” means recorded at or near the time of the trip, not reconstructed at the end of the year from memory. Smartphone apps like MileIQ, Everlance, or TripLog make this easy by automatically tracking your drives via GPS.

There is an important recapture rule that applies if your business use drops below 50% in any year during the recovery period (typically six years for vehicles). If you Section 179 or bonus depreciate a vehicle and then your business use drops to, say, 40% in year three, you must recapture the “excess depreciation” — the difference between what you claimed and what you would have been allowed to claim using straight-line depreciation at the actual business-use percentage. This recapture is added to your ordinary income in the year the business use drops below 50%.

Here is a concrete recapture example. You Section 179 $50,400 on a truck in year one (72% business use). In year two, your business use drops to 45%. Under straight-line depreciation at 45% business use, your allowable deduction would have been approximately $6,300 per year. For the first two years combined, you would have been allowed $12,600 in total depreciation under straight-line. But you claimed $50,400 in year one. The excess depreciation subject to recapture is $50,400 minus $12,600 = $37,800. That $37,800 gets added to your income in year two. At a 24% federal rate, that is a $9,072 additional tax bill. The recapture effectively takes back the tax benefit you received from the accelerated deduction.

To avoid recapture, you need to maintain above-50% business use for the entire recovery period. For most vehicles, the MACRS recovery period is five years, but the placed-in-service year and the final year both count, so the recovery period effectively spans six calendar years. If you buy a truck in 2025, you need to maintain above-50% business use through 2030 to avoid any recapture risk.

There are several practical strategies for maintaining business-use percentages. First, use a dedicated business vehicle and a separate personal vehicle. If you have two cars and one is used exclusively for business, the business vehicle is 100% business use (assuming no personal trips). Second, if you use a single vehicle for both purposes, be strategic about which trips you take in which vehicle. Business trips include driving to client meetings, visiting job sites, picking up supplies, going to the bank for business deposits, and traveling between work locations. Commuting from home to your regular office is not a business trip — that is personal driving. Third, if you have a home office that qualifies under the regular and exclusive use test, trips from your home office to other business locations (client sites, suppliers, etc.) count as business miles because your home office is your principal place of business. This home-office-to-anywhere rule can significantly increase your business mileage percentage.

One more important point: the Section 179 deduction for vehicles is claimed on Form 4562, and you must answer questions in Part V about listed property (which includes vehicles). The form asks for the vehicle’s total mileage, business mileage, personal mileage, and whether you have written evidence to support the business use. Answering “no” to the written evidence question is essentially waving a red flag at the IRS. Keep your mileage log, keep it current, and keep it forever (or at least until the statute of limitations expires for the last tax year in which you claim a deduction on the vehicle). Your CPA can advise on the best depreciation method for your specific vehicle and usage pattern.

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