Section 179 Expensing Deduction: Limits, Phase-Out, and Recapture

The Section 179 expensing deduction lets a business write off the full cost of qualifying equipment, vehicles, software, and certain building improvements in the year the property is placed in service, instead of depreciating it over several years. For tax years beginning in 2026, the maximum deduction is $2,560,000, and it begins phasing out once total qualifying purchases exceed $4,090,000. Those caps come from the One Big Beautiful Bill Act, signed July 4, 2025, which doubled the prior limits for tax years beginning after December 31, 2024, and indexed them for inflation.¹ For tax years beginning in 2025, the maximum is $2,500,000 with a $4,000,000 phase-out threshold.

What Property Qualifies

Most tangible personal property used in a trade or business qualifies: machinery, manufacturing equipment, office furniture, computers, and off-the-shelf software with a standard license. Property can be new or used, so long as it is new to your business and bought in an arm’s-length transaction. Land, permanent structures such as swimming pools, and property held for investment do not qualify.²

Some improvements to nonresidential buildings also qualify, in two categories. Qualified improvement property covers interior work on a commercial building that is already in service, but not work that enlarges the building, adds an elevator or escalator, or changes the internal structural framework. The second category covers specific building systems whether interior or exterior: roofs, HVAC, fire protection and alarm systems, and security systems. Both categories qualify only when the improvement happens after the building was first placed in service.²

Vehicle Limits

Vehicles have their own caps, and weight is what matters. Passenger automobiles under 6,000 pounds face the tightest limit: the maximum first-year write-off, combining Section 179, bonus depreciation, and regular depreciation, tops out at $20,300 for vehicles placed in service in 2026 when bonus depreciation applies, or $12,300 when it does not.³

SUVs and trucks with a gross vehicle weight rating between 6,000 and 14,000 pounds can take up to $32,000 under Section 179 in the first year. Any remaining cost is then eligible for bonus depreciation and regular MACRS depreciation, which often lets the owner write off the full purchase price in year one. Vehicles above 14,000 pounds, such as heavy commercial trucks, are not subject to the SUV cap and can be expensed up to the general Section 179 limit.

Every vehicle must still meet the more-than-50% business use test. A truck driven 60% for work and 40% for personal use qualifies, but only the business-use share of the cost is deductible.

Business Use and How You Acquired the Asset

To claim the deduction on any asset, you must use it for business more than 50% of the time. Fall below that threshold and the immediate write-off is off the table. For items the IRS calls listed property, including vehicles, computers, and cameras, you need contemporaneous records proving business use: a mileage log, time-use diary, or similar documentation kept at or near the time of use, not reconstructed at tax time.⁴

How you got the asset also matters. It must be purchased for use in an active trade or business. Gifts, inherited property, and anything obtained through a trade do not qualify. Neither does property bought from a related party, such as your spouse, a parent, a child, or a corporation in which you own more than 50%.²

The Dollar Cap, Phase-Out, and Income Limit

The phase-out reduces the deduction dollar for dollar. Once your total qualifying purchases for the year exceed $4,090,000, every additional dollar spent shrinks your maximum deduction by one dollar. At $6,650,000 in purchases the deduction is gone entirely. The design targets the benefit at small and mid-sized businesses rather than large corporate buyers.

There is a second ceiling that has nothing to do with how much you buy. Your total Section 179 deduction for the year cannot exceed your combined taxable income from all active trades or businesses.¹ The deduction cannot create a net loss. If the amount you elected exceeds that income, the excess carries forward to future tax years and can be claimed when you have enough business income to absorb it.²

Section 179 and Bonus Depreciation Together

Section 179 and bonus depreciation are separate deductions. When both apply to the same asset, they run in order: first Section 179 reduces the depreciable basis, then bonus depreciation applies to whatever basis remains, and any leftover basis is depreciated under normal MACRS over the recovery period.¹

For property acquired and placed in service after January 19, 2025, bonus depreciation is 100%. The One Big Beautiful Bill Act restored full expensing and made it permanent. For property acquired before that date but placed in service during 2026, bonus depreciation is only 20%, the last step of the original phase-down schedule under the Tax Cuts and Jobs Act.³

The difference between the two matters most at higher spending levels. Section 179 has the investment phase-out and the taxable income cap; bonus depreciation has neither. A business that buys $5 million in equipment may lose part or all of its Section 179 deduction to the phase-out but can still claim 100% bonus depreciation on the full remaining cost. For smaller purchasers, Section 179 often gives more control because you choose exactly how much to expense and carry the rest forward.

Recapture if Business Use Drops

The deduction comes with a condition attached. Business use must stay above 50% for the entire recovery period of the asset, typically five or seven years depending on property type. If business use falls to 50% or below in any year during that window, you owe the IRS back part of what you claimed.⁴

The recapture amount equals the difference between the Section 179 deduction you originally took and the regular depreciation you would have claimed over those years had you never elected to expense the asset. You report it on Part IV of Form 4797 and include it as income on the same form or schedule where you took the original deduction, such as Schedule C for a sole proprietor. Your basis in the property rises by the recapture amount, which partially offsets the hit if you later sell.⁵ This is why contemporaneous usage logs matter. Without them, you have no defense if the IRS questions whether business use really stayed above the line.

How to Make the Election

You claim the deduction on Part I of Form 4562, Depreciation and Amortization. For each asset, you need the description, the date it was placed in service (the date it was ready for use, not necessarily the purchase date), and the total cost including shipping and installation. Enter the total cost of all qualifying property on Line 2, specify how much you want to expense, and the form calculates your allowable deduction on Line 12.⁶ You are not required to expense the full cost of every asset; a partial election is valid.

Attach Form 4562 to your business return: Form 1120 for a corporation, Form 1065 for a partnership (the deduction passes through to partners on Schedule K-1), or Schedule C with Form 1040 for a sole proprietor.⁷⁸ The election must be made on your original return or on an amended return filed within the time allowed by law, including extensions. Revoking an election already made requires consent from the IRS Commissioner, granted only in extraordinary circumstances.⁹ Keep the return and supporting documentation for at least as long as the asset’s recovery period, since recapture can be triggered in any of those years. The standard three-year retention rule is a floor when Section 179 property is involved.¹⁰

State Rules Can Differ

Federal and state deductions are not always the same. About a dozen states and the District of Columbia do not conform to the current federal Section 179 limits. Some cap the deduction as low as $25,000, others allow up to $250,000, and a handful use older federal limits that have since been increased. If your state does not follow the federal rules, you may owe significantly more in state income tax than your federal return suggests, even after a large equipment purchase. Check your state’s conformity rules before assuming a full federal deduction flows through to the state return.

1
Internal Revenue Service. Instructions for Form 4562 (2025)
2
Office of the Law Revision Counsel. 26 USC 179 – Election to Expense Certain Depreciable Business Assets
3
Internal Revenue Service. Rev. Proc. 2026-15
4
Internal Revenue Service. How To Depreciate Property (Publication 946)
5
Internal Revenue Service. Instructions for Form 4797
6
Internal Revenue Service. Form 4562 – Depreciation and Amortization
7
Internal Revenue Service. Instructions for Form 1120 (2025) – Section: Line 20. Depreciation
8
Internal Revenue Service. Instructions for Form 1065 (2025)
9
eCFR. 26 CFR 1.179-5 – Time and Manner of Making Election
10
Internal Revenue Service. How Long Should I Keep Records