Section 179 vs Bonus Depreciation: Writing Off Equipment

Section 179 in plain terms: how does it differ from bonus and regular depreciation?

Section 179 lets a business deduct the cost of qualifying equipment in the year the equipment is ready for use, up to a dollar cap and the business's income. Bonus depreciation deducts a share of the cost in year one, 100% for most property acquired after January 19, 2025, and applies unless the business elects out. Regular depreciation (MACRS) spreads whatever cost is left over a fixed number of years (Publication 946).

The three apply in a fixed order. Section 179 comes first and lowers the cost that bonus applies to. Bonus then lowers the cost that regular depreciation applies to. Regular depreciation follows IRS percentage tables by property class and convention.

A case is not simple when:

• the purchase is large next to this year's profit, so the method changes the tax bill;
• a preparer or software already picked a method, an earlier return chose one for similar equipment, or nobody picked one;
• the purchase is a vehicle, which has its own caps and records;
• the item is used partly for personal use;
• the owner is a partnership or S corporation, so each owner's limits and basis (cost less deductions taken) matter.

Gather before choosing a method: the invoice or bill of sale (date, price, seller, any trade-in), the date each item was ready for use, the business-use percentage, any prior depreciation schedule or return showing the method used, and the year's expected business income.

Which equipment qualifies, new or used?

Most equipment a business buys qualifies, new or used: machinery, computers, furniture, tools, cars and trucks. Bonus covers land improvements, which Section 179 leaves out. By a separate election, Section 179 also covers roofs, heating and cooling, fire protection, alarm and security systems added to a nonresidential building, which bonus does not; interior improvements to a nonresidential building can take either (Publication 946).

Section 179 also requires that the business bought the item for use in its trade or business. It does not cover property received as a gift or inheritance, property bought from a related person (a spouse, parent, grandparent, child, grandchild, or an entity the buyer owns more than half of) or from the buyer's controlled group, property used mostly outside the United States, or property a non-corporate owner leases to others. The last two have narrow exceptions (Publication 946).

Used equipment can qualify for both if it is bought from an unrelated seller. Bonus on used equipment also fails if the buyer or a predecessor had a depreciable interest in it during the five preceding calendar years or earlier in the year it is placed in service, for example by owning it, selling it and buying it back (Section 168; Treasury Regulation 1.168(k)-2). Both start when the item is placed in service: ready and available for its specific use, even if it has not been used yet. Paying for the item or taking delivery is not enough.

How much can I expense under Section 179, and when does the phase-out start?

The Section 179 maximum is $2,560,000. It shrinks dollar for dollar once the cost of all Section 179 property placed in service in the year passes $4,090,000, and reaches zero at $6,650,000 (Revenue Procedure 2025-32; Publication 946).

These limits are for equipment placed in service in the tax year this page shows. For an earlier year, use that year's Form 4562 instructions.

• The limits apply to each taxpayer, not to each business. An owner with two businesses shares one cap. Spouses count as one taxpayer even on separate returns: their costs are combined for the phase-out, and the reduced cap is split equally unless both elect another split (Publication 946).
• The phase-out counts every qualifying item placed in service in the year, including items the owner does not elect to expense.
• The owner can spread the deduction across items in any amounts and does not have to claim the full cap.

Can Section 179 create a loss?

No. The Section 179 deduction cannot be more than the taxable income from the taxpayer's active trades or businesses, and any excess carries forward to later years. Active means meaningfully taking part in managing or running the business; a passive investor does not count. That income is figured before the Section 179 deduction, the deduction for half of self-employment tax and any net operating loss deduction, but after other business deductions, including depreciation. An individual's wages count as income for this limit. For a partnership, the limit leaves out guaranteed payments to partners; for an S corporation, pay to shareholder-employees; for a C corporation, it is figured before Section 179, net operating losses and special deductions, counting only actively conducted businesses (Publication 946; Form 4562 instructions).

Bonus and regular depreciation have no income cap of their own, so they can produce a loss. Owner-level limits then apply in a set order: for a partner or S corporation shareholder, basis in the entity first (Publication 925); then losses beyond what the owner has at risk, passive losses, then large business losses (Form 461 instructions). See business losses.

How much is bonus depreciation, and for property bought when?

Bonus depreciation is 100% of the business cost for qualifying property acquired and placed in service after January 19, 2025, with no scheduled phase-down (IRS business provisions). Property acquired before that date gets the old, lower rate.

The lower rate follows the calendar year of the in-service date, even for a fiscal-year business.

The acquisition date is not the delivery date. For a written binding contract it is the latest of the contract date, the date it is enforceable under state law, the end of any cancellation period and the date any contingency is met; without one, it is generally the date the buyer pays or incurs more than 10% of the cost (Notice 2026-11; Publication 463). A contract signed before January 20, 2025 can still land on either side of that date. Keep the contract with its cancellation and contingency terms, and the payment and delivery records.

Bonus applies unless the business elects out for a whole class of property, such as all 5-year property. The election covers every item in that class placed in service that year, goes on a statement attached to the timely filed return (extensions count), and cannot be revoked without IRS consent. A return filed on time without the election can add it on an amended return within 6 months of the original due date, not counting extensions (Form 4562 instructions).

Leaving bonus off the return does not turn it off. Unless the business elects out, recapture on a sale counts the bonus as "allowed or allowable" (taken or available to take) (Publication 946).

Which type of depreciation do I use for each item?

For most equipment acquired after January 19, 2025, bonus applies automatically and alone deducts the whole business cost, so the real choice is whether to elect out or add Section 179 for chosen items. Regular depreciation covers what neither deducts. These conditions change the choice:

If an earlier return used regular depreciation on bonus-eligible property without an election out, the correction may need an amended return or an accounting method change (Publication 946). See rebuilding a missing depreciation schedule.

What if I use the item partly for personal use?

Only the business share of the cost can be deducted, and Section 179 is available only when business use is more than 50% in the year the item is placed in service. Multiply the cost by the business-use percentage, and use that amount in the formulas above (Publication 946).

For vehicles, measure use by miles: business miles divided by total miles. For other items, measure by hours actually used. Commuting is not business use.

Property already owned for personal use is figured on the lesser of its value when moved into the business or its original cost. Section 179 generally does not apply to it, because the item must be bought for use in the business (26 CFR 1.179-4). Whether bonus applies, and its acquisition date, needs review.

Vehicles, other transportation property, and cameras or similar entertainment-type equipment not used only for business are "listed property" with stricter rules (Form 4562 instructions):

• Qualified business use must be more than 50% to claim Section 179 or bonus; investment use and some use as pay for services do not count.
• At that level or below, depreciation must be straight line over the longer alternative depreciation system period (5 years for automobiles) every year.
• If use falls to that level or below in a later year, the extra depreciation taken earlier is added back to income.
• The deduction needs adequate records: dates, miles or hours, and business purpose.

What about trucks, SUVs and cars?

The rules turn on the vehicle's weight rating and design, and on business use (Publication 946; Publication 463).

A heavy pickup with a bed shorter than 6 feet can fall under the SUV cap. The 6,000-pound test uses unloaded weight for cars and gross vehicle weight, the maximum loaded rating, for trucks and vans.

Cost a passenger automobile cap blocks in one year is generally deducted in later years, up to each later year's cap, if the car stays in business use (Revenue Procedure 2026-15).

Claiming Section 179 or a method other than straight line in the year a car is first placed in service rules out the standard mileage rate for that car in later years. See standard mileage or actual car expenses. Whether an LLC or S corporation should own the vehicle is a separate question: buying a vehicle through your business.

What do I file for each method?

Form 4562, attached to the return for the year the item is placed in service, reports all three methods (Form 4562 instructions).

• Part I: the Section 179 election and the income limit.
• Part II: the bonus allowance (not for listed property), plus a separate statement to elect out of bonus.
• Part III: regular depreciation.
• Part V: vehicles and other listed property, with their Section 179 (column (i)) and bonus (line 25). Complete it before Part I when listed property is expensed, and every year the property is depreciated.

The Section 179 election is made on the original return for the year the item is placed in service, including one filed late, or on an amended return. It can be revoked on an amended return without IRS approval, and a revocation cannot be undone (Section 179).

Keep an asset record for each item: how and when acquired, price, improvements, Section 179 taken, depreciation taken, how it was used, and when and how it was sold. Keep it until the limitation period ends for the year the item is sold (Publication 583). In the books, record capitalized equipment as an asset, keep the personal share out of business costs, and tie the asset list to Form 4562.

What happens when I sell the item or business use drops?

Gain on a sale is ordinary income, not capital gain, up to the depreciation allowed or allowable, including Section 179 and bonus. Form 4797 Part III figures it (Publication 544). An item expensed in full has no basis left, so the sale price is usually all gain, and ordinary up to the amount deducted. If the item is sold or otherwise disposed of before a Section 179 carryover on it is used, that unused amount cannot be deducted later; it is added back to the item's basis (Publication 946).

If business use falls to 50% or less during the recovery period, income is recaptured without a sale:

• For ordinary property, the Section 179 taken minus the depreciation that would have been allowed on that amount is added to income, and the property's basis goes up by the same amount.
• For listed property, the extra depreciation over straight line under the alternative system is added to income in the first year of low use.

How do partnerships and S corporations pass the deduction to owners?

A partnership or S corporation elects Section 179 on its own Form 4562 and passes the deduction to owners on Schedule K-1. The entity does not deduct it. Bonus and regular depreciation stay on the entity's return and reduce its ordinary business income, and the entity makes any election out of bonus for its own property (Form 1065 instructions; Form 1120-S instructions).

• Two sets of limits. The dollar cap and the income cap apply to the entity and again to each owner. An owner adds Section 179 from every K-1 to any Section 179 from their own business, then applies the owner's cap and income. The owner's phase-out counts only the owner's own purchases, not the entity's.
• Basis. The entity lowers the basis of the property by the amount it elected, even if owners cannot use all of it. A partner lowers the basis of the partnership interest by the amount allocated, and S corporation shareholders generally follow the same rules.
• Selling the property. When the entity sells property it passed Section 179 on for, it reports the sale to owners on Schedule K-1, not on Form 4797.
• C corporations. A C corporation deducts Section 179 itself, limited by its taxable income before that deduction.

See business losses for the owner-level limits that follow.

Example

All amounts are US dollars.

A landscaper buys US$60,000 of equipment

A sole proprietor buys a mower and trailer for US$60,000 and uses them only in the business. Business profit before any deduction for them is US$35,000, with no wages. Assume 7-year property and the half-year convention.

Mixing methods is allowed, but bonus on one item lowers the income that caps Section 179 on another.

A freelancer buys a US$3,000 laptop used 80% for work

The business cost is US$2,400 (US$3,000 × 80%). Business use is over half, so the freelancer can elect Section 179 on the US$2,400 if there is that much business income, or take bonus. The other US$600 is personal and is never deductible. At 40% work use, Section 179 would not be available for this laptop, but bonus could still apply to the US$1,200 business share (US$3,000 × 40%).

An S corporation buys a US$90,000 SUV

The SUV is rated at 6,800 pounds, has no 6-foot cargo bed, and is used only for business. A vehicle rated over 6,000 pounds is not subject to the passenger automobile caps, so bonus alone could deduct the full US$90,000 at the corporation, with no shareholder income cap. If the corporation also elects Section 179, that part is capped at $32,000 and passes to the shareholders on K-1s, each subject to their own limits; the rest of the cost can take bonus.

If the same US$90,000 vehicle were rated at 5,900 pounds, all methods together would be capped at $20,300 for the first year.

Different for you?

• You made a large purchase, or this year's profit is high, and a preparer or software already chose how to write it off, or nobody did: the method depends on the asset, the year's income, personal use and, for partnership and S corporation owners, basis. Settle it before the return is filed: corporate tax help for a corporation or partnership, individual tax help for a sole proprietor.
• You are deciding whether to buy before December 31: see buying equipment before year-end.
• The purchases are small: see expense or capitalize small purchases.
• The item is a vehicle, or you are deciding who should own it: see buying a vehicle through your business and standard mileage or actual car expenses.
• Your asset list is missing, or it does not match your books: see rebuilding a missing depreciation schedule and bookkeeping help.
• The equipment is servers or GPUs: see writing off GPU servers.
• You never took depreciation on a rental: see missed depreciation on rental property.
• The equipment is used mostly outside the United States: it generally does not qualify for Section 179 or bonus, with narrow exceptions such as some vehicles and aircraft operated to and from the United States. See cross-border tax help.
• You also have a Canadian business: Canada uses capital cost allowance, not these rules. See capital cost allowance.