Section 179 deduction for business equipment: How it works

The Section 179 deduction, combined with bonus depreciation, can mean a powerful tax break—enabling commercial businesses to write off the full cost of equipment, or most of it, in a single year.

What is Section 179?

One of the biggest and best business tax breaks on the books is the Section 179 deduction. Under Section 179 of the Internal Revenue Code, a business may elect to expense—in other words, immediately deduct—the cost of any business property placed in service during the year, within generous limits.

A business can sweeten the pot by claiming a deduction for first-year bonus depreciation on the same qualifying property. This approach may deliver an unprecedented one-two tax punch that could result in a write-off of virtually the entire cost of the property in just one year—even if all or part of that cost is financed.

For example, if your industrial enterprise buys qualifying equipment for $1 million and finances $750,000 using an equipment loan, your business may still be able to deduct the full amount, subject to some restrictions described below.

How does Section 179 work?

Any type of business entity—whether a C corporation, an S corporation, a partnership, a limited liability company or a sole proprietorship—is eligible to claim the Section 179 deduction for the cost of qualified business property placed in service during the year, subject to an annual limit.

Under this definition, eligible business property includes most tangible assets such as equipment or machinery, furniture, and off-the-shelf computer software, but not intangible assets such as patents and copyrights. The physical property acquired may be either new or used.

For example, if your C corporation acquires a $5,000 machine and places the machine in service in 2025, you can generally deduct $5,000 on your 2025 tax return.

Note that qualified equipment is considered placed in service when it is available for a specific use in your business. In other words, you may claim the deduction for a machine that's installed on a manufacturing plant floor or for a house that's ready and available to rent.

Section 179 limits

With the approval of the One Big Beautiful Bill Act signed into law on July 4, 2025, significant updates have been made to Section 179. The Section 179 deduction limit has doubled to $2.5 million—up from $1.25 million—and the phaseout threshold has increased to $4 million, meaning the deduction begins to reduce only when the total equipment purchases exceed that amount. In addition, bonus depreciation has been restored to 100% for qualifying assets placed in service after January 19, 2025. These changes are designed to improve cash flow and incentivize reinvestment—offering substantial benefits, especially for small and mid-sized businesses.

Other Section 179 restrictions

The maximum annual limit isn't the only caveat businesses face when trying to make use of Section 179. Two other key tax law limits could affect your buying decisions.

1. The Section 179 deduction you claim on your return can't exceed the net taxable income from all your business activities. For example, if your business income for the year is $500,000, your Section 179 deduction is limited to $500,000, even though the maximum allowed for the year is much higher.
2. If your total cost of qualified equipment placed in service during the year exceeds the annual threshold, the maximum Section 179 deduction is reduced on a dollar-for-dollar basis. This dollar threshold is adjusted in lockstep with the maximum Section 179 deduction amount. The limit for 2025 is $4 million—up from $3.05 million.

As an example of a deduction on a dollar-for-dollar basis: If the cost of your qualified property exceeds the $4 million threshold by $500,000, the maximum deduction is reduced to $2 million.

The impact of bonus depreciation

In many instances, Section 179 will provide an immediate tax deduction for the entire cost of qualified equipment placed in service during the year. However, if either of the two limits explained above comes into play or the cost exceeds the annual maximum, your business can also benefit from first-year bonus depreciation. This may be especially helpful for large commercial businesses with costly equipment needs.

Unlike the Section 179 deduction, the bonus depreciation was scheduled to be phased out by 2027. Due to the One Big Beautiful Bill Act, bonus depreciation has been restored to 100% for qualifying equipment placed in service after January 19, 2025.

Qualified property includes business property with a cost recovery period of 20 years or less, depreciable software not amortized over 15 years, qualified leasehold improvements and water utility property. Note that the same property may qualify for both Section 179 and first-year bonus depreciation.

The tax breaks are applied in this order: Section 179, bonus depreciation and MACRS.

Section 179 rules for vehicles

One restriction to consider when acquiring commercial vehicles: Section 179 deductions for business vehicles are limited by the luxury car rule.

Although businesses may combine Section 179 with bonus depreciation for vehicles, there are some constraints. In 2025, the maximum combined deduction for a vehicle used 100% of the time for business is $20,200. Plus, a business can claim MACRS on the remainder.

Taking action now

Section 179 provides a unique opportunity for a near-instant cost recovery of high-priced equipment. With astute planning and professional guidance, your firm can maximize the tax benefits and avoid the potential pitfalls.

To learn more about financing the acquisition of business equipment, see our comprehensive guide to equipment financing and leasing options.

Key takeaways

• Under Section 179, businesses can deduct the cost of business property placed in service during the year, within generous limits.
• Businesses can also claim first-year bonus depreciation on the same property if it qualifies.
• This combination of deductions could result in a write-off of virtually the entire cost of the equipment in just one year—even if all or part of that cost is financed.