Section 179 of the U.S. Internal Revenue Code provides for an immediate expense deduction that business owners can take for purchases of depreciable business equipment instead of capitalizing and depreciating the asset over a period of time. This allows businesses to lower their tax liability in the year of the expense versus capitalizing certain costs and depreciating in future years.
Qualifying Property
The section 179 deduction applies to tangible personal property such as machinery and equipment purchased for use in a trade or business. In certain circumstances the taxpayer may elect qualified real property improvements to nonresidential real property, such as a roof, HVAC system, fire protection and alarm system, and security system. Revenue Procedure 2019-08 explains how taxpayers can elect to treat qualified real property as Section 179 property.
Section 179 Guidelines and need to know information
- All equipment, software, or vehicles have to be used for business purposes over 50% of the time. Qualifying purchases may be claimed based on the cost multiplied by the business use percentage. Note that if the business use percentage decreases to less than 50% during lifetime of the asset, then the difference between the depreciation allowed or allowable (multiplied by the adjusted business use percentage) and the Section 179 deduction claimed is calculated on Form 4797 Part IV and must be recaptured as ordinary income.
- Types of equipment eligible for Section 179: Section 1245 property such as machines and equipment used in the business, computer, office furniture and equipment. Off-the-shelf computer software also qualifies as well as certain improvements to existing non-residential buildings, i.e. fire suppression, security systems, HVAC, and roofing. Refer to Publication 946 for more guidance on what property qualifies.
- The asset must be purchased in the tax year for which you are claiming a 179 deduction. Note that if the election is disallowed due to the taxable income limitation, the excess may be carried forward for an unlimited number of years and may be deducted in a future year, subject to the same limitations.
Maximum Deductions and Investment Limitations
There are limitations to the section 179 deduction based on type of asset, the total that may be claimed in a tax year, and total cost of section 179 property purchased. Additionally, sport utility vehicles weighing more than 6000 lbs for over-the road use have specific deduction limits.
| Tax year |
Max deduction | Max threshold cost of Sec 179 property |
| 2023 | $1,160,000 | $2,890,000 |
| 2022 | $1,080,000 | $2,700,000 |
| 2021 | $1,050,000 | $2,620,000 |
| 2020 | $1,040,000 | $2,590,000 |
| 2019 | $1,020,000 | $2,550,000 |
| 2018 | $1,000,000 | $2,500,000 |
| 2017 | $500,000 | $2,030,000 |
Limitations on Vehicles
Passenger vehicle limitations are based on passenger size, date placed in service, and gross vehicle weight. If a car is first used for personal purposes and then changed to business use in a subsequent year, section 179 cannot be used upon transfer to business use, however the vehicle will still be depreciated and it may still be eligible for bonus depreciation. Click here for more information on allowable vehicle depreciation deductions.
Note: This article provides general guidance regarding the Section 179 Deduction. It is not intended as tax advice.
Additional Information:
IRS Publication 946, How to Depreciate Property