Section 179 Deduction
An IRS provision allowing businesses to immediately deduct the full cost of qualifying equipment and property in the year it is placed in service, rather than depreciating it over time. The 2025 limit is $2,500,000 (raised by OBBBA).
Section 179 of the Internal Revenue Code allows businesses to expense — deduct in full — the cost of qualifying tangible personal property and certain software in the year it is placed in service, rather than recovering the cost through multi-year depreciation. For 2025, the maximum Section 179 deduction is $2,500,000, with a phase-out beginning when total qualifying asset purchases exceed $4,000,000 (both raised by OBBBA, which took the cap from $1,250,000 to $2,500,000).
Qualifying property includes machinery, equipment, computers, office furniture, certain vehicles, and off-the-shelf software. Most tangible personal property used in a business qualifies. Certain listed property (like passenger automobiles) is subject to additional limitations. Real property such as land and most buildings generally does not qualify, though certain improvements to nonresidential real property (HVAC systems, roofs, security systems) became eligible under the Tax Cuts and Jobs Act.
A key constraint is that the Section 179 deduction cannot exceed your business's taxable income for the year. Any amount disallowed by this income limitation can be carried forward to future years. Section 179 is especially valuable for small and medium-sized businesses that want an immediate tax deduction when purchasing equipment, providing a strong incentive for capital investment.
How it works
Section 179 lets a business deduct the full cost of qualifying equipment, software, and certain property improvements in the year the asset is placed in service, instead of spreading the deduction across MACRS's multi-year recovery schedule. For 2025, the maximum deduction is $2,500,000, and the deduction starts shrinking once a business's total qualifying purchases for the year exceed $4,000,000 — both figures were raised by OBBBA from the prior $1,250,000 cap.
You claim it on Form 4562 alongside any MACRS or bonus depreciation for the same year, and it applies to most tangible personal property used in a trade or business — machinery, computers, office furniture, off-the-shelf software, qualifying vehicles, and certain nonresidential real property improvements like HVAC, roofing, and security systems added under the Tax Cuts and Jobs Act. Land and most buildings themselves generally don't qualify.
The deduction cannot exceed your business's taxable income for the year; whatever Section 179 amount is disallowed by that income limit simply carries forward to future years rather than being lost. Because it phases down once purchases climb well past the $4,000,000 mark for the year, it's most valuable to small and mid-sized businesses making moderate annual equipment purchases rather than to very large capital-intensive operations that regularly blow through the phase-out range.
Example: Section 179 limited by taxable income
A small business buys $1,000,000 of qualifying equipment in 2025 — well under both the $2,500,000 cap and the $4,000,000 phase-out threshold, so the full purchase price is eligible for Section 179.
But the business only has $700,000 of taxable income for the year before the deduction. Since Section 179 can't create or increase a loss, the deduction is capped at $700,000 for this year, and the remaining $300,000 carries forward to be used against taxable income in a future year.
Frequently asked questions
What is the Section 179 deduction limit for 2025?
Can Section 179 create a business loss?
Does Section 179 cover real estate?
Related Terms
MACRS Depreciation
Modified Accelerated Cost Recovery System — the standard IRS method for depreciating business assets, using predetermined recovery periods and front-loaded deduction schedules.
Bonus Depreciation
A tax incentive allowing businesses to immediately deduct a large percentage of the cost of qualifying assets in the first year. Was phasing down under TCJA (100%→80%→60%→40%) but the One Big Beautiful Bill Act (OBBBA, 2025) permanently restored the 100% rate for property ACQUIRED after January 19, 2025 — the test is the acquisition date, not the date placed in service.
Depreciation
A tax deduction that spreads the cost of a business asset over its useful life. Section 179 and bonus depreciation may allow full first-year expensing for qualifying assets.
Business Expenses
Costs incurred in running a business that are deductible on your tax return if they are ordinary (common in your industry) and necessary (helpful and appropriate for your trade).