The Section 179 tax deduction lets a business write off the full purchase price of qualifying equipment and software in the year it’s placed in service, instead of depreciating the cost over several years. For the 2026 tax year, you can deduct up to $2,560,000, with a dollar-for-dollar phase-out that begins once total qualifying purchases exceed $4,090,000.1Internal Revenue Service. Revenue Procedure 2025-32 Those ceilings roughly doubled under the One, Big, Beautiful Bill, which makes the provision considerably more powerful than it was a year ago. Any size business can claim it, but the phase-out structure concentrates the benefit on small and mid-sized companies.
What Qualifies and What Doesn’t
Section 179 covers tangible personal property used in your business: machinery, manufacturing equipment, office furniture, computers, and off-the-shelf software available to the general public. Custom-built software does not qualify.2Office of the Law Revision Counsel. 26 USC 179 – Election to Expense Certain Depreciable Business Assets
New and used equipment both qualify, provided the asset is new to your business and bought at arm’s length. Equipment you already owned, property received as a gift or inheritance, and purchases from related parties (family members or controlled entities) are all excluded.
Some improvements to nonresidential buildings qualify too. The IRS allows Section 179 treatment for interior renovations classified as qualified improvement property, along with roofs, HVAC systems, fire protection and alarm systems, and security systems. The improvement cannot enlarge the building, and elevators, escalators, and changes to the structural framework are excluded.3Internal Revenue Service. Publication 946 – How To Depreciate Property
Land, inventory held for resale, and property used outside the United States do not qualify.2Office of the Law Revision Counsel. 26 USC 179 – Election to Expense Certain Depreciable Business Assets
You don’t need to pay cash upfront. Equipment bought with a loan or a typical installment arrangement qualifies for the full purchase price the year it’s placed in service. Leases split by type: a finance lease with a nominal buyout at the end (often $1) generally treats you as the tax owner and qualifies, while a true operating lease where you return the equipment usually does not. Confirm the classification with your accountant before filing.
Vehicle Rules and the SUV Cap
Vehicles are where Section 179 planning gets interesting, and where most mistakes happen. The rules split into three tiers based on the vehicle’s gross vehicle weight rating stamped on the door placard, not curb weight.
- Passenger vehicles at or under 6,000 pounds GVWR follow the standard luxury auto depreciation limits under Section 280F. For 2026, the first-year deduction caps at $20,300 with bonus depreciation or $12,300 without it.4Internal Revenue Service. Revenue Procedure 2026-15
- SUVs and crossovers over 6,000 but under 14,000 pounds GVWR qualify for Section 179, but the deduction is capped at $32,000 for 2026. Any remaining cost can be recovered through bonus depreciation and regular MACRS depreciation.1Internal Revenue Service. Revenue Procedure 2025-32
- Heavy work trucks and vans over 6,000 pounds GVWR designed primarily for work rather than passenger comfort can qualify for the full deduction with no SUV cap. Pickup trucks with a bed at least six feet long also avoid the SUV limitation.
2026 Dollar Limits and the Phase-Out
The maximum deduction for 2026 is $2,560,000. The phase-out begins once your total qualifying Section 179 purchases for the year exceed $4,090,000, and it works dollar for dollar: every dollar spent above the threshold reduces your maximum deduction by a dollar.1Internal Revenue Service. Revenue Procedure 2025-32
The deduction disappears entirely once total purchases hit $6,650,000. A business that spends $4,500,000 would see its maximum deduction reduced by $410,000, leaving $2,150,000 available.
The Taxable Income Limit and Carryforward
There’s a second ceiling that catches people off guard. Your Section 179 deduction cannot exceed your business’s taxable income from active operations for the year. If your business earned $200,000 in taxable income and bought $500,000 in equipment, your deduction is limited to $200,000 for that year.2Office of the Law Revision Counsel. 26 USC 179 – Election to Expense Certain Depreciable Business Assets
The disallowed amount doesn’t vanish. It carries forward indefinitely, and in any future year you can deduct the carried-forward amount up to the lesser of that year’s dollar limit or your taxable income from active operations. There’s no expiration, but you have to track the balance and claim it on a future Form 4562. For a business with a lean year followed by a profitable one, the carryforward is genuinely useful.
Business Use Must Stay Above 50%
Equipment must be used for business more than 50% of the time to qualify for any Section 179 deduction. Fall below that threshold and the entire deduction for that asset is lost. Between 51% and 99% business use, you deduct only the business-use portion: a $50,000 machine used 80% for business produces a $40,000 deduction.2Office of the Law Revision Counsel. 26 USC 179 – Election to Expense Certain Depreciable Business Assets
Passenger vehicles, equipment that lends itself to personal use like cameras and recording gear, and property used for entertainment fall under the IRS’s “listed property” rules and require detailed records: mileage logs for vehicles, time-use logs for shared equipment, documentation of business use. Equipment used exclusively at a regular business establishment, and computers used solely at your office, are generally exempt from that classification.3Internal Revenue Service. Publication 946 – How To Depreciate Property
If business use of a Section 179 asset later drops to 50% or below during the property’s recovery period, the IRS recaptures part of the deduction. The recapture amount is the difference between the Section 179 deduction you took and the depreciation you would have been entitled to under the standard MACRS schedule. You report it on Part IV of Form 4797, and it’s added back to income for the year the use dropped.5Internal Revenue Service. Instructions for Form 4797 The recapture is ordinary income and may also be subject to self-employment tax. Partnerships and S corporations calculate the recapture at the entity level and pass the information through to the owners.
Section 179 and Bonus Depreciation Together
Section 179 and bonus depreciation are separate deductions that can apply to the same purchase. The One, Big, Beautiful Bill restored permanent 100% bonus depreciation for qualifying property acquired after January 19, 2025.6Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One, Big, Beautiful Bill
Section 179 applies first, up to your elected amount and the applicable limits. Bonus depreciation then covers any remaining cost. For most small and mid-sized businesses that stay under $2,560,000 in qualifying purchases, Section 179 alone handles the entire cost. Bonus depreciation matters more when purchases exceed the Section 179 limit or when the taxable income cap blocks part of the deduction.
One difference is worth knowing. Section 179 cannot create or increase a net operating loss because it’s capped at business income. Bonus depreciation has no income limit and can generate a loss that carries forward. In a loss year, bonus depreciation may be the better tool.
How to Claim the Deduction
You claim Section 179 on Part I of IRS Form 4562, Depreciation and Amortization.7Internal Revenue Service. About Form 4562, Depreciation and Amortization For each asset, you list a description, the cost attributable to business use, and the elected cost you’re deducting.8Internal Revenue Service. Form 4562 – Depreciation and Amortization The form also asks for total Section 179 property costs so the phase-out can be applied, and it’s where you calculate and track any disallowed amount as a carryforward.
Form 4562 attaches to whatever return your business files: Schedule C for sole proprietors, Form 1120 for C corporations, 1120-S for S corporations, or 1065 for partnerships. Partnerships and S corporations pass the deduction through to owners, who apply their own income limitations on their personal returns.
The deduction is claimed for the year the property is placed in service, meaning delivered, set up, and ready for its intended use. The date you signed a purchase agreement or wrote the check doesn’t control.2Office of the Law Revision Counsel. 26 USC 179 – Election to Expense Certain Depreciable Business Assets Equipment ordered in November but not operational until January belongs on next year’s return.
Once you file with a Section 179 election, you’re locked in. The IRS will only grant a revocation in “extraordinary circumstances,” and you have to request it by letter to the Commissioner in Washington with a detailed explanation.9eCFR. 26 CFR 1.179-5 – Time and Manner of Making Election You also can’t change which assets the deduction was applied to after filing. When you have multiple purchases with different recovery periods or different bonus depreciation treatment, it’s worth deciding upfront how to allocate the deduction across them.