Section 179 Expensing
Immediately deduct the full cost of qualifying business equipment and software in the year of purchase — up to $1,250,000 in 2026 — instead of depreciating over 5–7 years.
Section 179 of the Internal Revenue Code allows businesses to immediately expense (deduct in full) the cost of qualifying property placed in service during the tax year, rather than recovering the cost through multi-year depreciation schedules. The 2026 §179 deduction limit is $1,250,000, with a phase-out beginning at $3,130,000 of total qualifying property placed in service. Section 179 is the most commonly used first-year expensing election for small and mid-size businesses purchasing equipment, vehicles, and off-the-shelf software.
Qualifying Property
Section 179 applies to tangible personal property used in a trade or business. Qualifying property includes:
| Property Type | Examples | §179 Eligible? |
|---|---|---|
| Machinery and equipment | Medical equipment, manufacturing machinery, HVAC units | Yes |
| Business vehicles | SUVs over 6,000 lbs GVWR, trucks, vans | Yes (SUV cap: $31,300 in 2026) |
| Off-the-shelf software | QuickBooks, Adobe, Microsoft 365 | Yes |
| Qualified improvement property (QIP) | Interior improvements to nonresidential buildings | Yes |
| Listed property | Computers, cameras, smartphones | Yes (if >50% business use) |
| Real property (buildings, land) | Office building, warehouse | No (except QIP) |
| Property used outside the US | Any property used predominantly outside the US | No |
Section 179 vs. Bonus Depreciation
Section 179 and bonus depreciation (§168(k)) are both first-year expensing mechanisms, but they differ in important ways:
| Feature | Section 179 | Bonus Depreciation (2026) |
|---|---|---|
| 2026 deduction rate | 100% up to $1,250,000 limit | 40% (phasing down from 100%) |
| Income limitation | Cannot exceed taxable income from active business | No income limitation — can create a loss |
| Phase-out | Dollar-for-dollar above $3,130,000 of purchases | No phase-out |
| Used property | Eligible (if new to the taxpayer) | Eligible (if new to the taxpayer) |
| Carryforward | Unused §179 carries forward indefinitely | No carryforward — creates NOL |
| State conformity | Many states conform | Many states do NOT conform (California, New York) |
Best practice: Use §179 first (up to the income limitation), then layer bonus depreciation on top to eliminate remaining taxable income. This preserves the §179 carryforward for future years when income is higher.
SUV Limitation
Section 179(b)(5) imposes a special cap on SUVs with a GVWR between 6,001 and 14,000 lbs: the §179 deduction for an SUV is limited to $31,300 in 2026 (indexed for inflation). This cap was enacted to prevent business owners from fully expensing luxury SUVs in the first year. Vehicles with a GVWR over 14,000 lbs (heavy trucks, cargo vans) are not subject to this cap and can be fully expensed under §179.
The §179 SUV cap does not limit bonus depreciation — a business can still claim 40% bonus depreciation on the remaining cost of an SUV after the §179 cap is applied.
Income Limitation and Carryforward
The §179 deduction cannot exceed the taxpayer's aggregate taxable income from active trades or businesses for the year. Unused §179 deductions carry forward to future tax years indefinitely. This differs from bonus depreciation, which creates a net operating loss (NOL) that carries forward at 80% of taxable income under §172.
For S-Corp shareholders and partnership partners, the §179 deduction passes through to the owner's individual return and is limited by the owner's share of the entity's taxable income — not the entity's gross income.
Frequently Asked Questions
Yes, but only the business-use percentage of the vehicle's cost is eligible for §179. If you use a vehicle 80% for business, only 80% of the purchase price qualifies. You must maintain a mileage log to substantiate the business-use percentage.
Yes. Section 179 applies to both new and used property, as long as the property is new to the taxpayer (i.e., you have not previously used or owned it). This makes §179 valuable for businesses purchasing used equipment, machinery, or vehicles.
If you sell or dispose of §179 property before the end of its normal depreciation recovery period, you must recapture the §179 deduction as ordinary income under §1245. The recapture amount is the lesser of the §179 deduction claimed or the gain on the sale.
Yes. S-Corps can elect §179 at the entity level, and the deduction passes through to shareholders on Schedule K-1. However, each shareholder's §179 deduction is limited by their individual taxable income from active business activities — the entity-level election does not guarantee the full deduction at the individual level.
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