Section 179: How to Write Off Business Equipment (and Some Vehicles) in the Year You Buy Them

Educational guide — the deduction that lets you expense equipment immediately instead of waiting years

Normally, when a business buys equipment — a truck, a computer, machinery, office furniture — the cost gets deducted gradually over several years through depreciation. Section 179 changes that: it lets you deduct the full cost of qualifying purchases in the same year you buy them, which can mean a much bigger tax deduction right when you need it.

How It Works, in Plain English

Instead of spreading a $50,000 equipment purchase across five or seven years of depreciation, Section 179 lets you elect to deduct the full $50,000 against this year's business income — as long as you're under the annual limits and have enough business income to absorb it.

2026 limits:

• Maximum deduction: $2,560,000 for qualifying property placed in service during the tax year
• Phase-out begins at $4,090,000 of total qualifying purchases — every dollar spent above that threshold reduces your available Section 179 deduction dollar-for-dollar
• Fully phased out at $6,650,000 in total purchases for the year

These are generous limits set by the One Big Beautiful Bill Act (OBBBA), which nearly doubled the pre-2025 cap — the overwhelming majority of small and mid-sized businesses will never come close to hitting the phase-out threshold, let alone the full limit.

The Big Catch: It's Capped by Your Business Income

Unlike bonus depreciation (below), Section 179 cannot create or increase a business loss. Your deduction is limited to your net taxable income from the active conduct of your trade or business for the year. If you elect more than your business income can absorb, the excess doesn't disappear — it carries forward to future years until you have enough income to use it.

Practical implication: Section 179 is most valuable for an already-profitable business looking to reduce this year's tax bill. A brand-new business with little or no current income generally gets more benefit from bonus depreciation instead, since bonus depreciation isn't limited by current-year income and can create a net operating loss that carries forward.

Section 179 and Bonus Depreciation Work Together

Bonus depreciation is a separate, complementary provision — currently set at 100% for qualifying property acquired and placed in service after January 19, 2025, made permanent under OBBBA. The typical approach: apply Section 179 first (subject to the income limitation), then apply bonus depreciation to any remaining cost basis (which has no income limitation and can create a loss). Used together, most equipment purchases end up fully deductible in the first year regardless of which specific provision does the work.

What Actually Qualifies

Generally, tangible personal property used more than 50% for business:

• Machinery and equipment
• Computers, servers, and off-the-shelf software
• Office furniture and fixtures
• Certain qualified improvement property to nonresidential buildings
• Both new and used property qualify, as long as it's new to you (not previously owned by you or a related party)

What doesn't qualify: land, buildings themselves (as opposed to certain interior improvements), inventory held for sale, and property used 50% or less for business.

Vehicles: Where the Rules Get More Complicated

Vehicles are a common target for Section 179, but they come with their own layered rules on top of the general limits:

• Heavy work vehicles over 14,000 lbs GVWR (large trucks, specialty vehicles) — generally not subject to the SUV cap or luxury auto limits; can qualify for full expensing under the general Section 179 rules.
• SUVs between roughly 6,001–14,000 lbs GVWR — subject to a special $32,000 Section 179 cap for 2026, regardless of the vehicle's actual purchase price. The remaining cost basis above that cap can often still qualify for 100% bonus depreciation, effectively allowing the full cost to be deducted through the combination of both provisions.
• Passenger cars and light trucks/vans at 6,000 lbs GVWR or less — subject to separate "luxury auto" depreciation limits under Section 280F, capping the combined first-year deduction (Section 179 plus depreciation) at a few thousand dollars — far more restrictive than the SUV or heavy-vehicle categories.
• Vehicles designed for predominantly non-personal use — cargo vans with no rear seating, vehicles seating more than 9 people, trucks with cargo beds at least 6 feet long — are generally excluded from the SUV cap entirely and can qualify for fuller expensing.

All vehicle deductions still require more than 50% business use, and the deductible amount is prorated by your actual business-use percentage — a vehicle used 70% for business only gets 70% of the otherwise-available deduction.

A Simple Example

A profitable contracting business buys a $65,000 heavy-duty work truck (7,000 lbs GVWR, 95% business use) and $30,000 of tools and equipment in 2026, with $120,000 of business income for the year:

• The truck exceeds 6,000 lbs but is a work vehicle rather than a passenger-style SUV, so it isn't subject to the $32,000 SUV cap
• Combined with the equipment, total qualifying purchases ($95,000) are well under the $4,090,000 phase-out threshold
• Assuming sufficient business income, the business can generally elect to expense the full business-use portion of both purchases in the same year, rather than depreciating them over several years

How to Claim It

Section 179 is an election, not automatic — you claim it on Form 4562, filed with your business tax return, listing each qualifying asset and the amount you're electing to expense. You can mix approaches asset-by-asset: Section 179 on some purchases, bonus depreciation or standard depreciation on others. The election can be revoked, but only before your original filing deadline passes — after that, reversing it generally requires IRS consent, which is rarely granted.

Why This Matters for Business Structure Decisions

Section 179 (and bonus depreciation) apply the same way regardless of whether you're a sole proprietor, LLC, partnership, S-corp, or C-corp — but the income limitation interacts differently depending on structure. For pass-through entities (LLCs, S-corps, partnerships), the Section 179 deduction generally flows through to the owner's personal return and is limited by the owner's overall business income, not just the entity's. This is worth factoring into equipment purchase timing and entity planning discussed elsewhere on this site.

This article is for general educational purposes only and does not constitute tax, legal, or financial advice. Section 179 and bonus depreciation rules involve numerous technical requirements, vehicle-specific limitations, and interactions with taxable income that are easy to miscalculate. Consult a qualified tax professional or CPA, and see IRS Publication 946 (How to Depreciate Property), before making significant equipment or vehicle purchase decisions based on these deductions.

Tax Code References

• IRC §179 — Authorizes the election to expense the cost of qualifying property in the year placed in service, subject to annual dollar limits and a taxable-income limitation.
• One Big Beautiful Bill Act (OBBBA), Pub. L. 119-21 (signed July 4, 2025) — Increased the Section 179 limit to $2,500,000 (base amount, inflation-adjusted to $2,560,000 for 2026) and the phase-out threshold to $4,000,000 (adjusted to $4,090,000 for 2026); also permanently reinstated 100% bonus depreciation.
• IRS Revenue Procedure 2025-32 — Sets the 2026 inflation-adjusted Section 179 limit ($2,560,000), phase-out threshold ($4,090,000), and SUV cap ($32,000).
• IRC §168(k) — Bonus depreciation (additional first-year depreciation); set at 100% for qualified property acquired and placed in service after January 19, 2025, under OBBBA.
• IRC §280F — "Luxury auto" depreciation limits applicable to passenger automobiles and light trucks/vans at or below 6,000 lbs GVWR, capping the combined first-year deduction well below the general Section 179 limit.
• Form 4562, Depreciation and Amortization — The form used to elect and report Section 179 expensing and bonus/regular depreciation.
• IRS Publication 946, How to Depreciate Property — Detailed IRS guidance on Section 179, bonus depreciation, MACRS depreciation, and vehicle-specific rules.

Tax law changes frequently, including through annual inflation adjustments and new legislation. Figures and rules above reflect the law as of this writing (2026) and should be verified against current IRS guidance before relying on them.