Section 179 Deduction
Immediate expensing of qualifying business property rather than depreciating it over multiple years.
Section 179 of the Internal Revenue Code allows businesses to immediately deduct the full purchase price of qualifying business property placed in service during the tax year, rather than recovering the cost through multi-year depreciation schedules. For 2024, the Section 179 deduction limit is $1,160,000, with a phase-out beginning when total qualifying property placed in service exceeds $2,890,000.
Qualifying property includes machinery and equipment, business vehicles (with limits for passenger automobiles), computers and off-the-shelf software, furniture and fixtures, and since the Tax Cuts and Jobs Act of 2017, qualified improvement property (building improvements such as HVAC, roofing, and interior improvements to commercial buildings). Most tangible personal property used in trade or business qualifies; land, buildings, and intangible assets do not.
Section 179 is limited to the taxpayer's taxable income from active businesses—it cannot generate or increase a net operating loss. Disallowed amounts carry forward to future years when the taxpayer has sufficient active business income. This limitation distinguishes Section 179 from bonus depreciation (Section 168(k)), which can generate NOLs.
Bonus depreciation allows immediate expensing of 60% of qualifying new or used property in 2024 (phasing down from 100% in 2022), with no dollar limit. Businesses typically use Section 179 first, then bonus depreciation, to maximize current deductions while managing NOL carryforward positions.
Vehicle deductions under Section 179 are subject to luxury auto limits for passenger automobiles, though heavy SUVs (over 6,000 lb GVWR) qualify for up to $28,900 of Section 179 in 2024—a well-known tax planning tool for small businesses.
FAQs
What is the difference between Section 179 and bonus depreciation?
Both Section 179 and bonus depreciation allow immediate expensing of business assets, but they differ in key ways: Section 179 has an annual dollar limit ($1,160,000 in 2024) and cannot exceed the taxpayer's active business taxable income (no NOL creation). Bonus depreciation has no dollar limit and can generate net operating losses. Section 179 applies only to used assets acquired for business use; bonus depreciation applies to new or used assets. Businesses typically apply Section 179 first (for the income limitation management flexibility) and bonus depreciation to remaining qualifying purchases.
Can a sole proprietor or S corporation use Section 179?
Yes—Section 179 is available to all types of businesses: sole proprietors, S corporations, C corporations, partnerships, and LLCs. For pass-through entities (partnerships, S corps), the Section 179 deduction passes through to individual owners, subject to each owner's active income limitations and at-risk amounts. The income limitation test applies at both the entity and individual owner levels. S corporation shareholders cannot claim Section 179 deductions that exceed their allocated share of the S corporation's active business income.
Is there recapture if Section 179 property is sold before its depreciable life ends?
Yes—if Section 179 property is sold, converted to personal use, or otherwise removed from business use before the end of its normal depreciable life, any deduction taken in excess of what regular MACRS depreciation would have allowed is recaptured as ordinary income in the year of the change. This recapture rule (Section 1245 recapture) applies even if the property is sold at a loss. Recapture is why businesses that sell equipment frequently should weigh immediate expensing options against the potential for future ordinary income recapture upon disposition.
Related Terms
Depreciation
The systematic allocation of a tangible asset's cost over its useful life, reducing its book value on the balance sheet each period.
Amortization
The systematic allocation of an intangible asset's cost or a loan's principal over a defined period.
Qualified Business Income Deduction
20% deduction for pass-through business income under IRC Section 199A for eligible self-employed taxpayers.
At-Risk Rules
Tax rules limiting loss deductions to the amount a taxpayer has economically at risk in an activity.
