Section 179 allows you to deduct the full purchase price of qualifying business equipment in the year you buy it—up to $2.5 million. Instead of depreciating assets over multiple years, you write off the entire cost immediately, reducing your taxable income and improving cash flow right away.
Quick Facts: Section 179 Tax Deduction
| Category | 2026 Limits |
|---|---|
| Maximum Deduction | $2,560,000 |
| Phase-Out Threshold | Begins at $4,090,000 in total purchases |
| Bonus Depreciation | 20% (decreasing from prior years) |
| Business Use Requirement | More than 50% business use |
| Deadline | Equipment must be purchased and placed in service by Dec. 31 |
| Form Required | IRS Form 4562 |
What Is the Section 179 Tax Deduction?
Section 179 is an IRS tax code provision that lets businesses immediately expense the full cost of qualifying equipment instead of depreciating it over time.
Normally, when you buy business equipment, you write off the cost gradually through depreciation—spreading deductions across 5, 7, or more years. Section 179 changes that. You deduct the entire purchase price in the year you buy and put the equipment into service.
This immediate write-off lowers your taxable income dramatically. A $200,000 equipment purchase could save you $70,000 in taxes (assuming a 35% tax bracket) in the same year you buy it.
The deduction applies whether you pay cash, finance, or lease the equipment. You don’t need to own it outright—you just need to place it in service for your business.
Who Qualifies for Section 179?
Any business that purchases qualifying equipment can use Section 179, including:
- Sole proprietorships
- Partnerships
- LLCs
- S Corporations
- C Corporations
Your business must show taxable income to claim the deduction. Section 179 can’t create a net loss—it can only reduce taxable income to zero. Any unused portion carries forward to future tax years.
Section 179 Limits for 2026
The 2026 Section 179 deduction has specific dollar caps that determine how much you can write off.
Maximum Deduction Amount
You can deduct up to $2,560,000 in qualifying equipment purchases for 2026. This represents a significant increase from previous years thanks to the One Big Beautiful Bill Act (OBBBA) signed in 2025.
Phase-Out Threshold
The deduction begins phasing out dollar-for-dollar once your total qualifying purchases exceed $4,090,000. The deduction disappears entirely when total purchases reach approximately $6,650,000.
Example: If you buy $4,500,000 in qualifying equipment, your maximum deduction reduces by $410,000 ($4,500,000 – $4,090,000). Your available Section 179 deduction becomes $2,150,000.
Taxable Income Limitation
Your Section 179 deduction can’t exceed your business’s net taxable income for the year. If you don’t have enough income to use the full deduction, the unused portion carries forward indefinitely to future tax years.
What Equipment Qualifies for Section 179?
Most tangible business property used more than 50% for business purposes qualifies.
Qualifying Equipment Includes:
Machinery and equipment:
- Manufacturing equipment
- Construction machinery
- Agricultural equipment
- Restaurant equipment
- Medical and dental equipment
Office assets:
- Computers and servers
- Office furniture and fixtures
- Copy machines and printers
- Phone systems
Vehicles (with restrictions):
- Heavy work trucks over 14,000 lbs GVWR
- Cargo vans and delivery vehicles
- Specialized work vehicles
Technology:
- Off-the-shelf software
- Point-of-sale systems
- Security systems
Building improvements:
- HVAC systems
- Fire suppression and alarms
- Roofing
- Interior improvements to non-residential buildings
What DOESN’T Qualify
Section 179 excludes:
- Real estate and land
- Property held for investment
- Property purchased from related parties
- Property used outside the United States
- Air conditioning and heating units for residential properties
Vehicle Deductions Under Section 179
Vehicles have special rules based on weight and usage.
Vehicles Over 14,000 lbs GVWR
Heavy work vehicles like dump trucks, tractor trailers, and large cargo vans qualify for the full Section 179 deduction with no special limits. These are treated like any other equipment.
SUVs and Trucks: 6,000-14,000 lbs GVWR
The maximum first-year Section 179 deduction for heavier SUVs and pickup trucks is $31,300. The remaining cost can be depreciated normally or through bonus depreciation.
Vehicles with beds at least 6 feet long (like most full-size pickup trucks) aren’t subject to this $31,300 cap.
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Passenger Vehicles Under 6,000 lbs GVWR
Cars and light trucks have a first-year depreciation cap around $20,400 (prorated by business use percentage). These limits apply whether you use Section 179 or regular depreciation.
Business Use Requirement
Vehicles must be used more than 50% for business to qualify. If business use drops below 50% in later years, you must recapture part of the deduction.
Keep detailed mileage logs showing:
- Date and business purpose of each trip
- Starting and ending odometer readings
- Total miles driven (business vs. personal)
How Equipment Financing Works With Section 179
You can claim Section 179 whether you pay cash, finance, or lease equipment—as long as you put it in service during the tax year.
Financing Equipment
When you finance equipment purchases, you deduct the full purchase price immediately even though you’re paying over time. This creates powerful cash flow benefits.
Example: You finance $500,000 in equipment with $50,000 down and monthly payments. You still deduct the full $500,000 in year one (assuming you qualify). The tax savings essentially fund part of your payments.
Leasing Equipment
True tax leases (operating leases) work differently. You deduct lease payments as an operating expense rather than using Section 179. Your tax advisor can determine which structure benefits you more.
Conditional sales leases or capital leases typically qualify for Section 179 because you’re buying the equipment with lease payments functioning as financing.
Section 179 Qualified Financing
Many equipment lenders offer specialized Section 179 financing programs with:
- Minimal down payments (sometimes 0%)
- Flexible terms aligned to equipment life
- Payment structures matching your cash flow
- Fast approval to meet year-end deadlines
These programs help you acquire equipment immediately while maximizing tax benefits.
Bonus Depreciation vs Section 179
Bonus depreciation works alongside Section 179 to provide additional tax savings.
How Bonus Depreciation Works
After you use your Section 179 deduction, you can apply bonus depreciation to remaining equipment costs. For 2026, bonus depreciation is 20%—continuing a phase-down from 100% in prior years.
Bonus depreciation will decrease further: 0% in 2027 and beyond unless Congress extends it.
Combining Both Deductions
You maximize savings by stacking Section 179 and bonus depreciation:
Example: $3 million equipment purchase
- Section 179 deduction: $2,560,000
- Remaining cost: $440,000
- Bonus depreciation (20%): $88,000
- Total first-year deduction: $2,648,000
- Remainder depreciated normally: $352,000
Key Differences
Section 179:
- Limited to $2,560,000
- Subject to taxable income limitation
- Phases out at high purchase levels
- Requires active business election
Bonus Depreciation:
- No dollar limit
- Applies automatically unless you opt out
- Not limited by taxable income
- Can create a net operating loss
Use Section 179 first because it offers more control and prevents lost deductions if you lack sufficient income.
How to Calculate Your Section 179 Tax Savings
Estimating your savings helps you plan equipment purchases strategically.
Simple Calculation Formula
Tax Savings = Equipment Cost × Your Tax Rate
Example calculations:
$200,000 tractor purchase:
- Tax rate: 35%
- Section 179 deduction: $200,000
- Tax savings: $70,000
- True equipment cost after tax savings: $130,000
$1 million manufacturing equipment:
- Tax rate: 25%
- Section 179 deduction: $1,000,000
- Tax savings: $250,000
- Net cost: $750,000
Using Online Calculators
Several websites offer free Section 179 calculators. Input your:
- Equipment purchase price
- Tax bracket
- State tax rate (some states don’t conform to federal Section 179)
The calculator estimates federal and state tax savings.
Factors Affecting Actual Savings
Your real savings depend on:
- Your effective tax rate (not just top bracket)
- State tax treatment of Section 179
- Alternative minimum tax considerations
- Other deductions and credits
- Business structure (pass-through vs. C corporation)
Consult your tax advisor for precise calculations based on your specific situation.
State Tax Considerations
State tax treatment of Section 179 varies significantly.
States That Follow Federal Rules
Many states automatically conform to federal Section 179 limits. Your state deduction matches your federal deduction in these states.
States With Lower Limits
Some states cap Section 179 at lower amounts—often $25,000 or $500,000. You can take the full federal deduction but only a partial state deduction.
States That Don’t Allow Section 179
A few states require traditional depreciation regardless of federal treatment. You get no immediate state tax benefit even though you claim federal Section 179.
Important State-Specific Notes
Check with your state’s Department of Revenue or tax advisor because:
- Conformity changes year to year
- Some states have phase-in periods
- Multi-state businesses face complex allocation rules
- State bonus depreciation rules may differ from federal
Factor in state taxes when calculating total tax savings from equipment purchases.
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Claiming the Section 179 Deduction
The process is straightforward but requires careful documentation.
Step 1: Determine Eligibility
Verify that:
- Equipment qualifies under IRS rules
- You placed it in service by December 31
- Business use exceeds 50%
- You have sufficient taxable income
Step 2: Complete IRS Form 4562
Section 179 deductions are claimed on Form 4562, Depreciation and Amortization. Attach it to your business tax return.
On Form 4562:
- List each piece of qualifying property
- Enter the cost (business use portion only)
- Specify your elected Section 179 amount
- Calculate your allowable deduction after income limitation
Step 3: Maintain Documentation
Keep records for at least 7 years:
- Purchase invoices and receipts
- Financing or lease agreements
- Title and registration (for vehicles)
- Business use logs (for vehicles and multi-use property)
- Placed-in-service date proof
Step 4: Track for Recapture
If business use drops below 50% before the property’s recovery period ends, you must recapture (pay back) part of the deduction. This gets included as income in that year.
Strategic Timing for Section 179
When you buy equipment significantly impacts your tax benefits.
Year-End Purchasing
Equipment must be purchased AND placed in service by December 31 to qualify for that tax year. “Placed in service” means ready and available for its intended use—not just delivered.
December purchases can be tricky:
- Allow time for delivery and installation
- Ensure equipment is operational before December 31
- Get documentation proving service date
- Coordinate with vendors to avoid delays
Mid-Year Purchasing
You can buy and place equipment in service any time during the tax year. Earlier purchases give you more time to ensure compliance and proper documentation.
Multi-Year Planning
Consider spreading large equipment investments across multiple years if:
- Single-year purchases would exceed the $4,090,000 phase-out threshold
- You lack sufficient taxable income to use the full deduction
- You want to match deductions to revenue fluctuations
Dealing With Declining Bonus Depreciation
Since bonus depreciation is 20% in 2026 and scheduled to reach 0% in 2027, timing matters for purchases exceeding Section 179 limits. Acting sooner captures more immediate write-offs.
Common Section 179 Mistakes to Avoid
Even experienced business owners make errors that cost them deductions.
Not Meeting Business Use Requirements
Equipment used 50% or less for business doesn’t qualify. If you buy a vehicle for business but use it personally 60% of the time, you can’t claim Section 179.
Keep accurate usage logs from day one. Retroactively creating documentation raises red flags during audits.
Forgetting the Placed-in-Service Date
Simply buying equipment by December 31 isn’t enough. You must place it in service—ready and available for use—by year-end.
A machine still in the shipping container or awaiting installation doesn’t qualify. Plan purchases early to ensure full setup before December 31.
Exceeding Income Limitations
Section 179 can’t create a business loss. If your taxable income is $100,000, your maximum Section 179 deduction is $100,000 even if you bought $500,000 in equipment.
Calculate projected taxable income before making large purchases. Consider accelerating income or deferring expenses to maximize your deduction.
Ignoring State Tax Rules
Assuming your state follows federal Section 179 can be costly. Some states don’t allow the deduction at all.
Research state rules or consult a tax professional before making purchase decisions based on tax savings.
Poor Record Keeping
The IRS can audit Section 179 deductions years after you claim them. Missing documentation means losing deductions and potentially paying penalties.
Create a file for each qualifying asset with all supporting documents. Store records for at least 7 years after the asset is fully depreciated.
Section 179 for Different Business Types
Different business structures have unique considerations.
Sole Proprietorships
Sole proprietors claim Section 179 on Schedule C of Form 1040. Your deduction can’t exceed Schedule C net income before the Section 179 deduction.
Partnerships and LLCs
Partnerships elect Section 179 at the entity level. The deduction passes through to partners via Schedule K-1.
Each partner’s share is limited by their individual taxable income from all sources. Partners might have different limitations based on their personal tax situations.
S Corporations
S corporations make the Section 179 election. The deduction passes through to shareholders on Schedule K-1.
The corporate income limitation applies first, then each shareholder faces their individual income limitation.
C Corporations
C corporations claim Section 179 directly at the corporate level. The income limitation is based on corporate taxable income.
Unlike pass-through entities, unused Section 179 carries forward at the corporate level.
FAQs
Can I use Section 179 for used equipment?
Yes, used equipment qualifies as long as it’s new to your business. You can’t claim Section 179 on equipment you previously owned or used. The equipment must be purchased from an unrelated party and meet all business use requirements. Both new and pre-owned equipment receive the same treatment under current rules.
What happens if I sell equipment I claimed Section 179 on?
If you sell or dispose of Section 179 property before the end of its recovery period, you may need to recapture part of the deduction. The recapture amount gets added back to your taxable income. If business use drops below 50%, recapture rules also apply. Keep detailed records of any property sales to calculate correct recapture amounts.
Does Section 179 apply if I finance equipment?
Absolutely. You can claim the full Section 179 deduction in the year you finance equipment and place it in service—even though you’re paying over time. This applies to loans, equipment financing agreements, and conditional sales leases. The financing method doesn’t affect your eligibility; you just need more than 50% business use.
Can I take Section 179 and bonus depreciation on the same equipment?
No, you must choose one or the other for each specific asset. However, you can combine both methods across different equipment purchases. Use Section 179 first up to the $2,560,000 limit, then apply 20% bonus depreciation to additional purchases. This maximizes your first-year deductions when buying more than $2.5 million in qualifying property.
What if I don’t have enough income to use my full Section 179 deduction?
Any Section 179 deduction that exceeds your taxable income carries forward to future tax years. You can use the carryforward amount when you have sufficient income—there’s no expiration. This protects your deduction even if you have a low-income or loss year. Track carryforwards carefully to ensure you don’t lose the benefit.
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