What Is a Section 179 Deduction and Who Qualifies?

The Section 179 deduction is a tax election that 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 many years. For the 2026 tax year, the maximum deduction is $2,560,000, and it begins phasing out once total qualifying purchases pass $4,090,000. Any business that buys tangible property for use more than 50% in a trade or business can qualify, subject to a taxable-income cap and specific limits on vehicles.

What Property Qualifies

Section 179 covers tangible personal property used in a trade or business: machinery, office furniture, production equipment, tools, and computers. Off-the-shelf software with a standard license available to the public also qualifies; custom-built software does not.¹

Certain improvements to the interior of an existing nonresidential building are also eligible. The IRS groups these as “qualified improvement property” and “qualified section 179 real property”:²

Roofs
Heating, ventilation, and air conditioning systems
Fire protection and alarm systems
Security systems

The improvement must be made after the building was first placed in service. Work on the internal structure itself, such as enlarging the building or installing elevators, does not qualify.

What Doesn’t Qualify

Several categories are outside Section 179 no matter how the business uses them:²

Land and land improvements, including parking lots, sidewalks, fences, bridges, and swimming pools
Buildings themselves and their structural components (though the interior improvements listed above may still qualify)
Property used predominantly outside the United States
Property received as a gift, through inheritance, or acquired from certain related parties such as a spouse or direct family member; the statute requires a bona fide purchase¹

Who Qualifies: The Business-Use Test

The property must be used more than 50% for business during the tax year. At exactly 50% or less, Section 179 is off the table and the business must use standard depreciation instead.¹

When an item is used for both business and personal purposes, only the business share is eligible. Buy a $2,000 laptop used 75% for business, and $1,500 is eligible for Section 179. The other $500 is personal.

Records need to show that split. For vehicles, the IRS expects a written mileage log with the date, destination, business purpose, and beginning and ending odometer readings for each trip.³

The Taxable Income Cap

Even when purchases sit well within the dollar limits, the Section 179 deduction cannot exceed the total taxable income from the active conduct of a trade or business for the year.¹ The deduction can zero out taxable income but cannot create or deepen a net operating loss on its own.

For a sole proprietor, taxable income for this test includes W-2 wages from any job, not only self-employment earnings. On a joint return, spouses combine their business incomes.⁴

Anything disallowed by the income cap carries forward to future years with no time limit.⁵ If there are carryovers from more than one year, the oldest amount is used first. Carryovers still count against future-year dollar limits, so they preserve what could not be used rather than adding capacity.

Vehicle Rules and Limits

Business vehicles qualify but sit under a separate set of weight-based rules.

Heavy Vehicles Over 6,000 Pounds

Vehicles with a gross vehicle weight rating between 6,001 and 14,000 pounds, including many full-size SUVs, pickups, and vans, are eligible. Passenger-oriented SUVs in this class are capped at a $32,000 Section 179 deduction for 2026, with any leftover cost recovered through regular depreciation.⁶

The $32,000 SUV cap does not apply to vehicles that seat more than nine passengers behind the driver, have a cargo bed of at least six feet that is not easily accessed from the passenger area, or have a fully enclosed driver and cargo area with no rear seating.⁶ Those work vehicles can qualify for the full Section 179 amount.

Passenger Automobiles at 6,000 Pounds or Less

Cars and small crossovers rated at 6,000 pounds or less are subject to the annual “luxury auto” depreciation caps, which are far below the general Section 179 ceiling. For planning purposes, expect a first-year limit in the range of $12,000 to $20,000 depending on whether bonus depreciation is also claimed.⁶

Dollar Limits and Phase-Out for 2026

The IRS adjusts the Section 179 caps for inflation each year, and the One Big Beautiful Bill Act pushed them substantially higher.⁷ For 2026:

Maximum deduction: $2,560,000
Phase-out threshold: $4,090,000 in total qualifying purchases
Complete elimination: $6,650,000 in total qualifying purchases

The phase-out reduces the deduction dollar-for-dollar. A business that buys $4,190,000 in qualifying equipment sits $100,000 over the threshold, so the maximum deduction shrinks from $2,560,000 to $2,460,000. Every additional dollar spent above $4,090,000 cuts the ceiling by another dollar until the deduction disappears at $6,650,000.

Section 179 With Bonus Depreciation

Bonus depreciation is a separate accelerated write-off, and both can apply to the same purchase. The One Big Beautiful Bill Act restored 100% bonus depreciation for most qualifying property acquired and placed in service after January 19, 2025.⁷

When both are used on the same asset, Section 179 comes first. Bonus depreciation then applies to whatever cost is left. That ordering matters because Section 179 is capped by taxable income while bonus depreciation is not; bonus depreciation can create or increase a net operating loss. On expensive purchases, taking Section 179 up to the income limit and letting bonus depreciation handle the rest leaves more room for losses and carryovers.

Property acquired before January 20, 2025, and placed in service in 2026 qualifies for only 20% bonus depreciation under the original phase-down schedule, which makes Section 179 particularly useful for those older purchases.

Recapture if Business Use Drops

Section 179 comes with a follow-through obligation. If business use of the asset falls to 50% or less during any year of its recovery period, part of the deduction is recaptured and added back to income.²

The recapture amount is the original Section 179 deduction minus the depreciation that would have been allowed without the election. It is reported as ordinary income on Form 4797 (Part IV), and the asset’s basis is increased by the same amount.⁸ If a business expensed $50,000 on equipment two years ago and standard depreciation would have allowed $18,000 over that period, the $32,000 difference is recaptured in the year business use falls below the threshold.

How to Claim Section 179

The election is made by filing Form 4562, Depreciation and Amortization, with the tax return for the year the property is placed in service.⁹ For each asset, gather:

The purchase date, from a receipt or contract
The date the asset was placed in service, meaning the date it was ready and available for business use
The total cost, including shipping and installation
The business-use percentage

Part I of Form 4562 takes a description of each property, its cost adjusted for business use, and the amount elected to be expensed. The form checks the totals against the annual deduction limit and the taxable income cap.¹⁰

Sole proprietors attach Form 4562 to Form 1040. Partnerships file it with Form 1065, S corporations with Form 1120-S, and C corporations with Form 1120.⁴

Revoking the Election

An election made for a specific piece of property can be revoked if the business later decides Section 179 was not the right call, for example to spread the deduction across future years through depreciation instead. The revocation is permanent for that asset: once revoked, Section 179 cannot be re-elected for the same property in the same tax year.¹ Both the original election and a revocation can be made on an amended return filed within the normal deadline for amending.

1
Office of the Law Revision Counsel. 26 USC 179 – Election To Expense Certain Depreciable Business Assets
2
Internal Revenue Service. Publication 946, How To Depreciate Property
3
Internal Revenue Service. Publication 463, Travel, Gift, and Car Expenses
4
Internal Revenue Service. Instructions for Form 4562
5
eCFR. 26 CFR 1.179-3 – Carryover of Disallowed Deduction
6
Internal Revenue Service. 2025 Instructions for Form 4562 – Depreciation and Amortization
7
Internal Revenue Service. One Big Beautiful Bill Provisions
8
Internal Revenue Service. Instructions for Form 4797
9
Internal Revenue Service. About Form 4562, Depreciation and Amortization
10
Internal Revenue Service. Form 4562