Section 179 Deduction

If you are a business owner planning to invest in assets for your company, one powerful provision to consider is the Section 179 Deduction. This tax-saving opportunity can significantly reduce your business’s taxable income. In this guide, we’ll explore what you need to know about the provision.

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January 19, 2025

What is the Section 179 Deduction?

Section 179 is a tax code provision that allows businesses to immediately deduct qualifying assets in the year they are placed in service rather than depreciate them over several years. As a result, businesses can receive valuable tax relief in a single year when making substantial investments.

What Purchases Qualify for the Deduction?

Businesses can claim Section 179 for a wide range of items, including:

Computers
Software (not custom-made or modified specifically for your company)
Machinery and equipment
Office Furniture
Some vehicles
Livestock

To qualify, you must use the assets for business purposes more than 50% of the time. Moreover, new and used assets qualify.

Section 179 Deduction Limits

For 2024, the Section 179 expensing limit is $1,220,000. The phaseout threshold is $3,050,000. This means that if your total qualifying purchases exceed $3,050,000, your deduction decreases by the amount the purchases exceed the threshold.

Example: You purchased a machine for $3,100,000 in 2024. Since the purchase exceeds the threshold by $50,000, your Section 179 deduction decreases to $1,170,000 ($1,220,000 – $50,000).

Note that the expensing limit adjusts annually. For 2025, the limit increases to $1,250,000, and the phaseout threshold rises to $3,130,000.

Section 179 Deduction for Vehicles

The provision places specific deduction limits on vehicles, which vary based on their weight. For 2024, the limits are as follows for vehicles weighing:

Under 6,000 pounds: $12,400
Over 6,000 and no more than 14,000 pounds: $30,500
Over 14,000 pounds: No limit

If the vehicle is used for both personal and business purposes, the deduction is limited to the business use portion. For instance, if a car under 6,000 pounds costs $20,000 and is used 80% for business purposes, the deduction is capped at $9,920 ($12,400 × 80%).

Can I Claim Section 179 for Real Estate?

The provision does not apply to real estate purchases. Real estate is deducted through depreciation (land cannot be depreciated). Additionally, the deduction is not available for land improvements such as paved parking lots, fences, and bridges. However, the Tax Cuts and Jobs Act of 2017 enhanced the deduction to include improvements to nonresidential real properties such as:

Roofs.
Fire alarm systems.
Alarm systems.
Security systems.
Heating, ventilation, and air-conditioning systems.

Alternatives to Section 179

Bonus depreciation may be an option for eligible amounts in excess of the Section 179 expensing limit. Bonus depreciation allows businesses to deduct a large percentage of an asset’s cost in the first year it is placed in service. For 2024, the bonus depreciation rate is 60%, and it will decrease annually by 20% until it phases out entirely in 2027.

Maximize Tax Savings with Expert Guidance

The Section 179 Deduction is a powerful tool for businesses investing in essential assets. By enabling immediate tax relief, it supports growth and improves cash flow. If you are looking to purchase assets for your business, contact DuPage Tax Solutions for personalized guidance.

References

Publication 946 (2023), How to Depreciate Property | Internal Revenue Service. https://www.irs.gov/publications/p946