Section 179
What Is Section 179?
Section 179 of the Internal Revenue Code empowers businesses to deduct the full purchase price of qualifying equipment and software in the same tax year they’re put into service. Instead of stretching depreciation across several years, you can claim the entire cost upfront—dramatically improving your cash flow and creating immediate tax benefits.
Why Section 179 Matters for Your Business
- Immediate Tax Impact: Rather than waiting years for depreciation benefits, claim the full deduction in 2025
- Enhanced Cash Flow: Keep more working capital in your business when you need it most
- Strategic Growth: Upgrade equipment sooner and maintain competitive advantages in your market
How the 2025 Deduction Limits and Phase‐Out Threshold Work
What Is the Maximum Section 179 Deduction for 2025?
For 2025, businesses can deduct up to $2,500,000 in qualifying purchases. This represents the total amount you can write off immediately, provided your equipment meets these key criteria:
- Placed in service during the 2025 tax year
- Used for business purposes more than 50% of the time
- Qualifies under IRS guidelines
Spending Cap and Phase-Out Rules
The Section 179 deduction begins to phase out when your equipment purchases exceed $4,000,000:
- Dollar-for-dollar reduction above $4,000,000:
- Complete phase-out at $6,500,000
- Additional purchases may still qualify for bonus depreciation
How Do Carryover & Limitations Work?
Your Section 179 deduction cannot exceed your business’s net taxable income. However, if your Section 179 election exceeds your taxable business income in a given year, you can choose a partial Section 179 election. Any unused portion of the deduction carries forward to subsequent tax years, allowing you to apply it once you have sufficient income. This means if you can’t fully utilize Section 179 in the current year, you retain the remaining deduction for future use—ensuring you never lose the benefit.
Example: How Does Section 179 Generate Tax Savings?
This example illustrates how Section 179 can dramatically reduce your after-tax equipment costs. For a $2,750,000 purchase:
- Section 179 Deduction: $2,500,000
- Bonus Depreciation: $250,000
- Total Tax Savings: $962,500 (at 35% tax bracket)
- Final Equipment Cost: $1,787,500
How Does Section 179 Compare to Bonus Depreciation in 2025?
- Section 179: $2,500,000 maximum with business income limitation
- Bonus Depreciation: 100% with no income limit
- Optimal Strategy: Often involves combining both for maximum tax benefit
Critical 2025 Requirements
- Deadline: All equipment must be purchased, installed, and placed in service by December 31, 2025.
- Business Use: Equipment must be used more than 50% for business.
- Installation & Documentation: Ensure proper installation and maintain documentation to support your deduction claim.
- Pro Tip: Plan ahead for delivery and installation lead times to meet year‑end requirements.
Contacts
