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Setting an Asking PriceUsing a Business BrokerSelling a Business During DivorceSelling a Failing BusinessTransferring Intellectual PropertyPreparing an Online Business for SalePreparing for Sale, Two Years OutSelling a Business QuicklyWriting a Selling MemorandumSelling a Business Step by StepSelling a Business With DebtChanges Worth Making Before SellingSection 179 lets you deduct the full cost of qualifying equipment and software in the year of purchase -- instead of depreciating it over 5-7 years. This guide explains the rules, the limits, how our calculator models the tax savings, and how to combine 179 with equipment financing to generate cash-flow-positive day one.
Section 179 of the Internal Revenue Code allows businesses to immediately deduct the full purchase price of qualifying equipment and software placed in service during the tax year -- rather than depreciating it over the asset's useful life under MACRS.
Without Section 179, a $100,000 piece of equipment would be depreciated under the Modified Accelerated Cost Recovery System (MACRS) -- typically over 5 or 7 years. Section 179 collapses that entire depreciation schedule into one deduction in year one. The tax savings happen immediately rather than trickling in over a decade.
Section 179 is a taxpayer election -- you choose how much (up to the annual limit) of qualifying purchases to expense in the current year. You can elect to use 179 on some assets and MACRS depreciation on others. The election is made on Form 4562 when you file your return.
The core tax savings math
A $200,000 equipment purchase with Section 179 at a 30% effective tax rate produces a $60,000 immediate tax saving (200,000 × 30%). Your after-tax cost of the equipment drops from $200,000 to $140,000. If you finance the equipment, the monthly loan payment is often less than the monthly tax savings -- creating a cash-flow-positive purchase from day one. The calculator shows this clearly.
Bonus depreciation (Section 168(k)) is a separate but related provision that also allows accelerated first-year expensing of qualifying property. It works alongside Section 179 and in many cases is applied after the 179 limit is exhausted.
| Provision | Section 179 | Bonus Depreciation |
|---|---|---|
| 2024 rate | 100% (up to $1.22M limit) | 60% first-year |
| 2025 rate | 100% (up to limit) | 40% |
| 2026 rate | 100% (up to limit) | 20% |
| 2027+ | 100% (up to limit) | 0% (unless extended) |
| Dollar limit | Yes -- $1.22M (2024) | No dollar cap |
| Phase-out | Yes -- at $3.05M in purchases | No phase-out |
| Income limitation | Yes -- cannot exceed taxable income | No -- can create net operating loss (NOL) |
| Used property | Yes (new or used) | Yes (new or used, post-2017) |
| New property only | No -- used property eligible | No -- used eligible (post-2017 rule) |
| Ordering | Applied first | Applied after 179 exhausted |
The practical ordering for a $500,000 equipment purchase at 30% tax rate in 2024: apply $500,000 of Section 179 (if within the limit and income allows), deduct the full $500,000 in year one. If you've exceeded the 179 limit, apply 60% bonus depreciation to the remaining basis, then MACRS to the rest.
Bonus depreciation is declining -- act before 2027
The Tax Cuts and Jobs Act of 2017 created 100% bonus depreciation through 2022. It has been declining since: 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, 0% in 2027 unless Congress acts to extend it. Section 179 has no such phase-out schedule -- it is a permanent provision. If you are planning major equipment purchases, 2024 and 2025 are the last years with meaningful bonus depreciation rates.
Our calculator computes the tax savings from Section 179 and bonus depreciation, the after-tax cost of the equipment, and -- when combined with an equipment loan -- the monthly net cash flow from day one.
Section 179 tax savings
Tax savings = min(Purchase price, 179 limit, taxable income) × Tax rate
The 179 deduction is the smallest of: the actual purchase price, the annual limit ($1.22M in 2024), and your taxable business income. It cannot create or increase a net operating loss.
After-tax equipment cost
After-tax cost = Purchase price - (179 deduction × Tax rate) - (Bonus depr. × Tax rate)
The immediate tax savings reduce the effective cost of the asset. A $200K machine at 30% tax rate with full 179 election has an after-tax cost of $140K. If bonus depreciation also applies (e.g., after 179 is exhausted), the savings layer further.
Monthly cash flow (with equipment loan)
Monthly net = (Tax savings / 12) - Monthly loan payment
This is approximate -- the tax savings are realized at tax filing (once a year), not monthly. But the monthly equivalent of the annual tax savings vs. the monthly loan payment is the clearest way to see whether the equipment purchase is cash-flow-positive. When tax savings / 12 exceeds the monthly payment, the purchase effectively pays for itself in year one.
MACRS comparison (5-year property, half-year convention)
Year 1: 20% | Year 2: 32% | Year 3: 19.2% | Year 4: 11.52% | Year 5: 11.52% | Year 6: 5.76%
The calculator shows the full MACRS schedule alongside the 179 alternative so you can see the year-by-year PV of the deduction timing difference. Accelerating deductions has real time-value-of-money value even when the total deduction is the same.
| Field | What it is | Where to find it | Impact |
|---|---|---|---|
| Equipment purchase price | Total cost of the asset(s) you are purchasing and placing in service this tax year. Includes purchase price plus any delivery/installation required for the asset to function. | Vendor invoice or quote | The base for all deduction and savings calculations. Each additional dollar of eligible purchase = tax rate cents of immediate savings (up to the 179 limit). |
| Effective tax rate | Your marginal or effective combined federal + state tax rate on business income. This is the rate at which the deduction saves you taxes. For pass-through entities (S-Corp, partnership, sole prop), use your personal rate. For C-Corps, 21% federal + state rate. | CPA, prior year tax return effective rate | Higher tax rate = more savings per dollar deducted. A 37% taxpayer saves nearly twice as much as a 21% C-Corp per dollar of 179 deduction. |
| Taxable business income | Your expected business taxable income for the current year, before the Section 179 deduction. The 179 deduction cannot exceed this amount. | YTD P&L, prior year returns, CPA projection | This is the income limitation cap. If you enter $500K income and $800K equipment cost, the calculator limits the 179 deduction to $500K and shows how to use bonus depreciation on the remaining basis. |
| Total 179 purchases (all assets) | Your total qualifying asset purchases for the year across all assets -- not just the equipment in this calculation. Used to determine whether the phase-out applies. | Sum of all equipment and qualifying purchases this year | If total purchases exceed $3.05M (2024), the 179 deduction limit phases out dollar-for-dollar above that threshold. |
| Equipment loan amount | The amount you are financing (if any). Used in the cash-flow-positive analysis. Enter 0 if purchasing outright. | Lender term sheet or purchase decision | Determines the monthly loan payment to compare against the monthly equivalent of the tax savings. |
| Loan interest rate | Annual rate on the equipment loan. Used to calculate the monthly P+I payment for the cash flow comparison. | Lender quote | Higher rate = larger monthly payment = less likely to be cash-flow-positive from day one. |
| Loan term (months) | Repayment period for the equipment loan in months. | Lender term sheet | Longer term = lower monthly payment = more likely to be cash-flow-positive in year one, even though total interest cost is higher. |
| Bonus depreciation rate | The applicable first-year bonus depreciation percentage for the current tax year. Pre-filled based on year (60% for 2024, 40% for 2025, 20% for 2026). | Tax year selection or CPA guidance | Applied to the basis remaining after the 179 deduction. Adds to year-one tax savings beyond the 179 limit. |
Machinery and equipment
CNC machines, manufacturing equipment, printing presses, construction equipment, restaurant equipment, medical devices, lab equipment. Both new and used qualify.
Business vehicles
Vehicles over 6,000 lb GVWR (trucks, vans, SUVs) used more than 50% for business. SUVs have a $30,500 annual 179 cap (2024). Vehicles under 6,000 lb are "listed property" with strict limits.
Off-the-shelf software
Business software purchased commercially (not custom-developed), including ERP systems, industry-specific software, accounting software. Must be available to the general public.
Qualified Improvement Property (QIP)
Interior improvements to nonresidential real property you do not own: HVAC, fire protection, alarm systems, security systems, and general interior improvements. Excludes structural components and exterior improvements.
Computers and technology
Computers, servers, routers, networking equipment, point-of-sale systems, tablets used more than 50% for business. Listed property rules apply if personal use exceeds 50%.
Single-purpose agricultural structures and livestock
Livestock (horses, cattle) used for business purposes, hog confinement facilities, poultry houses, and other structures designed for a single purpose. Broad rural business applicability.
| Asset type | Why ineligible | Alternative treatment |
|---|---|---|
| Real Property | ||
| Land | Never depreciable. No basis deduction of any kind. | No depreciation -- ever |
| Buildings and structural components | Depreciable over 27.5 yr (residential) or 39 yr (commercial), not eligible for 179. | MACRS only; 27.5 or 39 yr straight-line |
| Exterior improvements | Landscaping, parking lots, driveways. Depreciated as land improvements over 15 years. | MACRS 15-year; bonus depreciation may apply |
| HVAC installed in building | If part of the building structure (not installed as a tenant improvement), ineligible for 179. | May qualify as QIP if tenant improvement in leased space |
| Business Limitations | ||
| Property not used >50% for business | Listed property rules require >50% business use for 179 election. Personal use percentage is excluded from the deductible basis. | Deduct only the business-use percentage |
| Property held for sale (inventory) | Inventory is not a depreciable asset. Cost of goods sold, not a capital expenditure. | COGS -- deducted when sold, not when purchased |
| Intangibles (goodwill, customer lists) | Section 197 intangibles are amortized over 15 years. Not eligible for 179. | Section 197 amortization over 15 years |
| Property acquired from a related party | Tax law prohibits 179 on property purchased from related parties (controlled entities, family members) to prevent artificial transactions. | MACRS depreciation -- no 179 acceleration |
| Air conditioning / heating for buildings | Central HVAC for the building structure specifically excluded from 179 (pre-2018 exclusion, now partially restored for QIP). | 15-year property; bonus depreciation may apply |
Section 179 has two caps that can reduce or eliminate the deduction. Both are indexed for inflation and adjust annually.
2024 deduction limit
$1,220,000
Maximum 179 deduction in a single tax year, regardless of how much qualifying property you purchase. Indexed for inflation annually. Any excess is simply not deducted (or picks up bonus depreciation).
2024 phase-out threshold
$3,050,000
If total qualifying purchases exceed this amount, the $1.22M deduction limit phases out dollar-for-dollar above the threshold. Above $4.27M in purchases, the 179 deduction is fully eliminated (but bonus depreciation still applies).
Phase-out calculation
Reduced limit = $1,220,000 - (Total purchases - $3,050,000)
Example: If you purchase $3,500,000 of qualifying property in 2024, the 179 limit is reduced by $450,000 (= 3,500,000 - 3,050,000). Your effective 179 limit becomes $770,000 (= 1,220,000 - 450,000). Bonus depreciation on the remaining basis is unaffected -- no phase-out applies to bonus.
| Tax year | Section 179 limit | Phase-out begins | Bonus depr. rate |
|---|---|---|---|
| 2022 | $1,080,000 | $2,700,000 | 100% |
| 2023 | $1,160,000 | $2,890,000 | 80% |
| 2024 | $1,220,000 | $3,050,000 | 60% |
| 2025 | ~$1,250,000 (est.) | ~$3,130,000 (est.) | 40% |
| 2026 | Inflation adj. | Inflation adj. | 20% |
| 2027+ | Inflation adj. | Inflation adj. | 0% (unless extended) |
Vehicle deductions are the most complicated area of Section 179. The rules depend on the vehicle's Gross Vehicle Weight Rating (GVWR), the percentage of business use, and whether the vehicle is an SUV.
| Vehicle type | GVWR | Section 179 cap (2024) | Rule that applies |
|---|---|---|---|
| Passenger cars | <6,000 lb | $12,400 (luxury auto limit) | Listed property; strict annual deduction caps apply regardless of 179 election |
| Light SUVs | <6,000 lb | $12,400 (luxury auto limit) | Same as passenger cars; listed property rules control |
| Heavy SUVs | 6,001 -- 14,000 lb | $30,500 (SUV 179 cap) | Eligible for 179 but capped at $30,500/year. Examples: Ford Expedition, Chevy Suburban, Lincoln Navigator, many full-size SUVs |
| Heavy trucks and vans | >6,000 lb cargo/not SUV | No separate cap -- standard 179 rules | Pickup trucks (cargo beds 6+ ft), heavy cargo vans, and similar do not trigger the $30,500 SUV cap and can be expensed up to the standard limit |
| Work vans (no passenger) | >6,000 lb | No separate cap | Cargo vans designed primarily for cargo (no rear passenger seats) are not subject to luxury auto limits |
The business use percentage rule
For any listed property (vehicles, computers), the Section 179 deduction can only be taken on the business-use percentage of the asset. If you drive a $75,000 heavy truck 60% for business and 40% personally, your eligible basis is $45,000 (60%), not $75,000. If business use drops below 50% in a later year, you must recapture the 179 deduction as ordinary income for the prior accelerated depreciation. Keep a mileage log.
You have three tools for depreciating a new asset purchase. Here is when to use each -- and how they interact.
$100,000 equipment purchase -- year-by-year deduction comparison
Section 179 lets you deduct the full cost of qualifying equipment and software in the year of purchase -- instead of depreciating it over 5-7 years. This guide explains the rules, the limits, how our calculator models the tax savings, and how to combine 179 with equipment financing to generate cash-flow-positive day one.
Section 179 of the Internal Revenue Code allows businesses to immediately deduct the full purchase price of qualifying equipment and software placed in service during the tax year -- rather than depreciating it over the asset's useful life under MACRS.
Without Section 179, a $100,000 piece of equipment would be depreciated under the Modified Accelerated Cost Recovery System (MACRS) -- typically over 5 or 7 years. Section 179 collapses that entire depreciation schedule into one deduction in year one. The tax savings happen immediately rather than trickling in over a decade.
Section 179 is a taxpayer election -- you choose how much (up to the annual limit) of qualifying purchases to expense in the current year. You can elect to use 179 on some assets and MACRS depreciation on others. The election is made on Form 4562 when you file your return.
The core tax savings math
A $200,000 equipment purchase with Section 179 at a 30% effective tax rate produces a $60,000 immediate tax saving (200,000 × 30%). Your after-tax cost of the equipment drops from $200,000 to $140,000. If you finance the equipment, the monthly loan payment is often less than the monthly tax savings -- creating a cash-flow-positive purchase from day one. The calculator shows this clearly.
Bonus depreciation (Section 168(k)) is a separate but related provision that also allows accelerated first-year expensing of qualifying property. It works alongside Section 179 and in many cases is applied after the 179 limit is exhausted.
| Provision | Section 179 | Bonus Depreciation |
|---|---|---|
| 2024 rate | 100% (up to $1.22M limit) | 60% first-year |
| 2025 rate | 100% (up to limit) | 40% |
| 2026 rate | 100% (up to limit) | 20% |
| 2027+ | 100% (up to limit) | 0% (unless extended) |
| Dollar limit | Yes -- $1.22M (2024) | No dollar cap |
| Phase-out | Yes -- at $3.05M in purchases | No phase-out |
| Income limitation | Yes -- cannot exceed taxable income | No -- can create net operating loss (NOL) |
| Used property | Yes (new or used) | Yes (new or used, post-2017) |
| New property only | No -- used property eligible | No -- used eligible (post-2017 rule) |
| Ordering | Applied first | Applied after 179 exhausted |
The practical ordering for a $500,000 equipment purchase at 30% tax rate in 2024: apply $500,000 of Section 179 (if within the limit and income allows), deduct the full $500,000 in year one. If you've exceeded the 179 limit, apply 60% bonus depreciation to the remaining basis, then MACRS to the rest.
Bonus depreciation is declining -- act before 2027
The Tax Cuts and Jobs Act of 2017 created 100% bonus depreciation through 2022. It has been declining since: 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, 0% in 2027 unless Congress acts to extend it. Section 179 has no such phase-out schedule -- it is a permanent provision. If you are planning major equipment purchases, 2024 and 2025 are the last years with meaningful bonus depreciation rates.
Our calculator computes the tax savings from Section 179 and bonus depreciation, the after-tax cost of the equipment, and -- when combined with an equipment loan -- the monthly net cash flow from day one.
Section 179 tax savings
Tax savings = min(Purchase price, 179 limit, taxable income) × Tax rate
The 179 deduction is the smallest of: the actual purchase price, the annual limit ($1.22M in 2024), and your taxable business income. It cannot create or increase a net operating loss.
After-tax equipment cost
After-tax cost = Purchase price - (179 deduction × Tax rate) - (Bonus depr. × Tax rate)
The immediate tax savings reduce the effective cost of the asset. A $200K machine at 30% tax rate with full 179 election has an after-tax cost of $140K. If bonus depreciation also applies (e.g., after 179 is exhausted), the savings layer further.
Monthly cash flow (with equipment loan)
Monthly net = (Tax savings / 12) - Monthly loan payment
This is approximate -- the tax savings are realized at tax filing (once a year), not monthly. But the monthly equivalent of the annual tax savings vs. the monthly loan payment is the clearest way to see whether the equipment purchase is cash-flow-positive. When tax savings / 12 exceeds the monthly payment, the purchase effectively pays for itself in year one.
MACRS comparison (5-year property, half-year convention)
Year 1: 20% | Year 2: 32% | Year 3: 19.2% | Year 4: 11.52% | Year 5: 11.52% | Year 6: 5.76%
The calculator shows the full MACRS schedule alongside the 179 alternative so you can see the year-by-year PV of the deduction timing difference. Accelerating deductions has real time-value-of-money value even when the total deduction is the same.
| Field | What it is | Where to find it | Impact |
|---|---|---|---|
| Equipment purchase price | Total cost of the asset(s) you are purchasing and placing in service this tax year. Includes purchase price plus any delivery/installation required for the asset to function. | Vendor invoice or quote | The base for all deduction and savings calculations. Each additional dollar of eligible purchase = tax rate cents of immediate savings (up to the 179 limit). |
| Effective tax rate | Your marginal or effective combined federal + state tax rate on business income. This is the rate at which the deduction saves you taxes. For pass-through entities (S-Corp, partnership, sole prop), use your personal rate. For C-Corps, 21% federal + state rate. | CPA, prior year tax return effective rate | Higher tax rate = more savings per dollar deducted. A 37% taxpayer saves nearly twice as much as a 21% C-Corp per dollar of 179 deduction. |
| Taxable business income | Your expected business taxable income for the current year, before the Section 179 deduction. The 179 deduction cannot exceed this amount. | YTD P&L, prior year returns, CPA projection | This is the income limitation cap. If you enter $500K income and $800K equipment cost, the calculator limits the 179 deduction to $500K and shows how to use bonus depreciation on the remaining basis. |
| Total 179 purchases (all assets) | Your total qualifying asset purchases for the year across all assets -- not just the equipment in this calculation. Used to determine whether the phase-out applies. | Sum of all equipment and qualifying purchases this year | If total purchases exceed $3.05M (2024), the 179 deduction limit phases out dollar-for-dollar above that threshold. |
| Equipment loan amount | The amount you are financing (if any). Used in the cash-flow-positive analysis. Enter 0 if purchasing outright. | Lender term sheet or purchase decision | Determines the monthly loan payment to compare against the monthly equivalent of the tax savings. |
| Loan interest rate | Annual rate on the equipment loan. Used to calculate the monthly P+I payment for the cash flow comparison. | Lender quote | Higher rate = larger monthly payment = less likely to be cash-flow-positive from day one. |
| Loan term (months) | Repayment period for the equipment loan in months. | Lender term sheet | Longer term = lower monthly payment = more likely to be cash-flow-positive in year one, even though total interest cost is higher. |
| Bonus depreciation rate | The applicable first-year bonus depreciation percentage for the current tax year. Pre-filled based on year (60% for 2024, 40% for 2025, 20% for 2026). | Tax year selection or CPA guidance | Applied to the basis remaining after the 179 deduction. Adds to year-one tax savings beyond the 179 limit. |
Machinery and equipment
CNC machines, manufacturing equipment, printing presses, construction equipment, restaurant equipment, medical devices, lab equipment. Both new and used qualify.
Business vehicles
Vehicles over 6,000 lb GVWR (trucks, vans, SUVs) used more than 50% for business. SUVs have a $30,500 annual 179 cap (2024). Vehicles under 6,000 lb are "listed property" with strict limits.
Off-the-shelf software
Business software purchased commercially (not custom-developed), including ERP systems, industry-specific software, accounting software. Must be available to the general public.
Qualified Improvement Property (QIP)
Interior improvements to nonresidential real property you do not own: HVAC, fire protection, alarm systems, security systems, and general interior improvements. Excludes structural components and exterior improvements.
Computers and technology
Computers, servers, routers, networking equipment, point-of-sale systems, tablets used more than 50% for business. Listed property rules apply if personal use exceeds 50%.
Single-purpose agricultural structures and livestock
Livestock (horses, cattle) used for business purposes, hog confinement facilities, poultry houses, and other structures designed for a single purpose. Broad rural business applicability.
| Asset type | Why ineligible | Alternative treatment |
|---|---|---|
| Real Property | ||
| Land | Never depreciable. No basis deduction of any kind. | No depreciation -- ever |
| Buildings and structural components | Depreciable over 27.5 yr (residential) or 39 yr (commercial), not eligible for 179. | MACRS only; 27.5 or 39 yr straight-line |
| Exterior improvements | Landscaping, parking lots, driveways. Depreciated as land improvements over 15 years. | MACRS 15-year; bonus depreciation may apply |
| HVAC installed in building | If part of the building structure (not installed as a tenant improvement), ineligible for 179. | May qualify as QIP if tenant improvement in leased space |
| Business Limitations | ||
| Property not used >50% for business | Listed property rules require >50% business use for 179 election. Personal use percentage is excluded from the deductible basis. | Deduct only the business-use percentage |
| Property held for sale (inventory) | Inventory is not a depreciable asset. Cost of goods sold, not a capital expenditure. | COGS -- deducted when sold, not when purchased |
| Intangibles (goodwill, customer lists) | Section 197 intangibles are amortized over 15 years. Not eligible for 179. | Section 197 amortization over 15 years |
| Property acquired from a related party | Tax law prohibits 179 on property purchased from related parties (controlled entities, family members) to prevent artificial transactions. | MACRS depreciation -- no 179 acceleration |
| Air conditioning / heating for buildings | Central HVAC for the building structure specifically excluded from 179 (pre-2018 exclusion, now partially restored for QIP). | 15-year property; bonus depreciation may apply |
Section 179 has two caps that can reduce or eliminate the deduction. Both are indexed for inflation and adjust annually.
2024 deduction limit
$1,220,000
Maximum 179 deduction in a single tax year, regardless of how much qualifying property you purchase. Indexed for inflation annually. Any excess is simply not deducted (or picks up bonus depreciation).
2024 phase-out threshold
$3,050,000
If total qualifying purchases exceed this amount, the $1.22M deduction limit phases out dollar-for-dollar above the threshold. Above $4.27M in purchases, the 179 deduction is fully eliminated (but bonus depreciation still applies).
Phase-out calculation
Reduced limit = $1,220,000 - (Total purchases - $3,050,000)
Example: If you purchase $3,500,000 of qualifying property in 2024, the 179 limit is reduced by $450,000 (= 3,500,000 - 3,050,000). Your effective 179 limit becomes $770,000 (= 1,220,000 - 450,000). Bonus depreciation on the remaining basis is unaffected -- no phase-out applies to bonus.
| Tax year | Section 179 limit | Phase-out begins | Bonus depr. rate |
|---|---|---|---|
| 2022 | $1,080,000 | $2,700,000 | 100% |
| 2023 | $1,160,000 | $2,890,000 | 80% |
| 2024 | $1,220,000 | $3,050,000 | 60% |
| 2025 | ~$1,250,000 (est.) | ~$3,130,000 (est.) | 40% |
| 2026 | Inflation adj. | Inflation adj. | 20% |
| 2027+ | Inflation adj. | Inflation adj. | 0% (unless extended) |
Vehicle deductions are the most complicated area of Section 179. The rules depend on the vehicle's Gross Vehicle Weight Rating (GVWR), the percentage of business use, and whether the vehicle is an SUV.
| Vehicle type | GVWR | Section 179 cap (2024) | Rule that applies |
|---|---|---|---|
| Passenger cars | <6,000 lb | $12,400 (luxury auto limit) | Listed property; strict annual deduction caps apply regardless of 179 election |
| Light SUVs | <6,000 lb | $12,400 (luxury auto limit) | Same as passenger cars; listed property rules control |
| Heavy SUVs | 6,001 -- 14,000 lb | $30,500 (SUV 179 cap) | Eligible for 179 but capped at $30,500/year. Examples: Ford Expedition, Chevy Suburban, Lincoln Navigator, many full-size SUVs |
| Heavy trucks and vans | >6,000 lb cargo/not SUV | No separate cap -- standard 179 rules | Pickup trucks (cargo beds 6+ ft), heavy cargo vans, and similar do not trigger the $30,500 SUV cap and can be expensed up to the standard limit |
| Work vans (no passenger) | >6,000 lb | No separate cap | Cargo vans designed primarily for cargo (no rear passenger seats) are not subject to luxury auto limits |
The business use percentage rule
For any listed property (vehicles, computers), the Section 179 deduction can only be taken on the business-use percentage of the asset. If you drive a $75,000 heavy truck 60% for business and 40% personally, your eligible basis is $45,000 (60%), not $75,000. If business use drops below 50% in a later year, you must recapture the 179 deduction as ordinary income for the prior accelerated depreciation. Keep a mileage log.
You have three tools for depreciating a new asset purchase. Here is when to use each -- and how they interact.
$100,000 equipment purchase -- year-by-year deduction comparison
Section 179 should generally be elected first (subject to the income limitation). Apply bonus depreciation to any remaining basis after 179. Leave MACRS as the fallback for property that doesn't qualify for either, or when you want to spread deductions across years (useful if you expect higher income -- and thus a higher tax rate -- in future years).
Sometimes MACRS is the better choice
If your business has a low-income year (net operating loss, low profit margin) or you expect significantly higher income in future years, deferring deductions to future high-income years can be more valuable than taking them all now. A $100,000 deduction at 40% future rate saves $40,000 vs. $30,000 today at 30%. Our calculator lets you model the NPV of both approaches.
The most powerful way to use Section 179 is to combine it with an equipment loan. You deduct the entire purchase price in year one but pay the loan over 5-7 years. The monthly tax savings often exceed the monthly loan payment.
The cash-flow-positive test (year 1)
Monthly tax savings = (Purchase × Tax rate) / 12
Monthly loan payment = Loan amount × (r × (1+r)^n) / ((1+r)^n - 1)
If monthly tax savings > monthly loan payment: the equipment is cash-flow-positive in year one. Example: $200K equipment, 32% tax rate, 179 deduction. Monthly tax savings = $200,000 × 32% / 12 = $5,333. Equipment loan at 8.5% over 60 months = $4,101/month. Net: +$1,232/month cash positive in year one.
The timing nuance: when do you actually get the cash?
The $200K Section 179 deduction reduces your taxable income by $200K. You realize the cash savings when you pay less in estimated taxes (quarterly) or receive a refund at tax filing. If you pay quarterly estimated taxes, you can reduce your Q4 payment immediately after placing the equipment in service before year end. The loan payment, however, is due every month. For most profitable businesses, the timing is manageable -- but discuss the exact cash flow timing with your CPA, especially if using the strategy near year end.
| Purchase price | Tax rate | Year-1 tax savings | Loan ($180K, 8.5%, 60 mo) | Monthly net (yr 1) |
|---|---|---|---|---|
| $50,000 | 30% | $15,000 ($1,250/mo) | $926/mo | +$324/mo positive |
| $100,000 | 30% | $30,000 ($2,500/mo) | $1,851/mo | +$649/mo positive |
| $200,000 | 32% | $64,000 ($5,333/mo) | $3,703/mo | +$1,630/mo positive |
| $500,000 | 35% | $175,000 ($14,583/mo) | $9,257/mo | +$5,326/mo positive |
Many states do not fully conform to the federal Section 179 limits or bonus depreciation. If your state decouples from federal rules, you may owe state income tax on income you deducted federally -- creating a tax bill you did not budget for.
| State category | How it works | Planning impact |
|---|---|---|
| Full conformity | State follows federal 179 and bonus depreciation rules exactly. Example: most states that adopt federal changes automatically. Check with your CPA -- this changes annually. | Your state savings = state rate × deduction. Calculator can include this. |
| Partial conformity | State follows a prior-year federal limit. Example: California conforms to a $25,000 179 limit (vs. federal $1.22M) and does not allow bonus depreciation at all. You deduct $1.22M federally but only $25,000 in California -- $1.195M of income is taxed by California in year 1. | Significant unexpected state tax bill if not planned for. California owners: set aside state tax on the "non-conforming" depreciation. |
| No conformity | State requires standard MACRS depreciation regardless of federal 179 or bonus election. Must track a separate "state basis" for every asset. | More complex record-keeping; no state benefit from Section 179 election. State effective tax rate matters less in the calculator. |
California owners: read this
California does not conform to federal bonus depreciation and limits Section 179 to $25,000 (vs. $1.22M federal). If you take a $500,000 Section 179 deduction federally and are a California taxpayer, you will have $475,000 of income that is taxable in California (at ~13.3% top rate) but not federally. The California state tax bill on that $475,000 is approximately $63,000 -- a cost your calculator must include if you live or operate in California. Our calculator includes a "non-conforming state income" field to capture this.
Section 179 is one of the most powerful year-end tax planning tools available to business owners. Here is how to use it strategically before December 31.
Place in service before Dec 31
The asset must be placed in service (available and ready for its intended use) before year end. Ordered and paid does not count -- it must be received and operational. For a December purchase, get the delivery confirmation and first use documentation in your records.
Match deduction to income
The 179 deduction cannot exceed your taxable business income. Forecast your year-end income before electing 179. If income is lower than expected, consider using bonus depreciation (which can create an NOL) or deferring the purchase to a higher-income year.
Watch the $3.05M threshold
If you are approaching $3.05M in total qualifying purchases, the 179 limit begins phasing out. Track cumulative purchases across the year. Once you exceed $4.27M, 179 is gone -- but bonus depreciation (60% in 2024) still applies to new purchases.
Finance late-year purchases
You can deduct the full purchase price under 179 even if you financed 100% of the cost. A $200K machine purchased December 30 with a 5-year loan gives you the full $200K deduction this year while spreading the cash outflow over 60 months. Order now; the loan payment clock starts in January.
Pass-through entities: flow-through to owners
In a partnership or S-Corp, the 179 deduction flows through to each owner's K-1, proportionally. Each owner's deduction is then limited by their personal taxable income from all sources. A partner in a low-income year may not be able to use their share of the 179 deduction and must carry it forward.
Document everything
The IRS scrutinizes Section 179 elections. Keep: the invoice, proof of payment, evidence of delivery and commissioning, business-use log (especially for vehicles), and the Form 4562 election statement in your return. For vehicles, maintain a contemporaneous mileage log.
Can I take Section 179 on equipment I'm still paying for?
Yes. You can take the full Section 179 deduction on equipment you purchased with financing in the year it is placed in service -- you do not need to have paid it off. The deduction is based on the full purchase price, not the amount you have actually paid. This is the foundation of the cash-flow-positive equipment purchase strategy. Finance the full cost, deduct the full cost, and let the tax savings partially offset the monthly loan payments.
Can Section 179 create a net operating loss (NOL)?
No -- this is one of the key differences between Section 179 and bonus depreciation. The Section 179 deduction is limited to your taxable business income for the year. If you only have $150,000 of taxable income, you can only take $150,000 of Section 179, regardless of the annual limit. Any excess carries forward to future years. Bonus depreciation, by contrast, has no income limitation and can create an NOL, which can then be carried forward indefinitely (post-2018 rules) and applied to future income at up to 80% of that year's taxable income.
What if I sell the equipment before the end of the year I took Section 179?
The Section 179 deduction requires the property to be used in business during the year. If you place equipment in service, take the 179 deduction, and then sell or dispose of it in the same tax year before the year ends, you must recapture the portion of the deduction that exceeds what regular MACRS would have allowed for the period of use. Additionally, if you convert the property to non-business use (personal use) before the end of the recovery period, you must recapture the accelerated depreciation as ordinary income in the year of conversion.
Does Section 179 apply to used equipment?
Yes -- Section 179 applies to both new and used qualifying property. This is a significant benefit for businesses that purchase pre-owned equipment. The only restriction is that the property must be new to you -- it cannot have been previously used by you or anyone you acquired the asset from in a related-party transaction. Used equipment from an unrelated third party (an auction, a dealer, another business) qualifies fully.
How do I claim Section 179 on my tax return?
Section 179 is claimed on Form 4562 (Depreciation and Amortization), which is attached to your business tax return (Schedule C for sole proprietors, Form 1065 for partnerships, Form 1120-S for S-Corps, Form 1120 for C-Corps). Part I of Form 4562 handles the 179 election. You list each asset, its cost, the elected 179 amount, and the property class. The election can be made up until the extended due date of the return -- so if you extend your return, you have until September or October to decide how much 179 to elect.
Is Section 179 better or worse for an S-Corp vs. sole proprietor?
The mechanics are different. A sole proprietor (Schedule C) takes the deduction directly on their personal return, limited by their business income from Schedule C. An S-Corp passes the deduction through to shareholders on their K-1, and each shareholder's deduction is limited by their individual allocable income from the S-Corp. For a single-owner S-Corp with sufficient income, the result is similar. For multi-owner S-Corps, the 179 deduction splits proportionally by ownership -- a 30% owner gets 30% of the company's 179 election, limited by their personal income. Coordinate with your CPA to ensure each shareholder can actually use their share of the deduction in the current year.