What Is the Section 179 Deduction & How Does It Work?

If you purchase qualifying property for your business, you may be eligible to claim the Section 179 deduction. By claiming this write-off, you save on your taxes by reducing your taxable income.

Section 179, also known as the election to expense, applies to deducting asset expenses. Rather than capitalizing and depreciating an asset, such as necessary equipment or vehicles, you can take an immediate deduction for the related costs. That said, there are some nuances to consider.

Find out how Section 179 Deduction works and what qualifies in our Section 179 deduction guide.

Key takeaways

• You can use the Section 179 deduction to deduct the cost of equipment you purchased in the same tax year.
• The Section 179 limit is $1.22 million for 2024.
• If the cost of the asset is over $3,050,000, the yearly limit is reduced by the portion of the cost that exceeds $3,050,000.
• Section 179 rules may change after the Tax Cuts & Jobs Act expires in 2025.
• Bonus depreciation may be an alternative to the Section 179 deduction or used in conjunction with the Section 179 deduction.

What is Section 179 Deduction?

Section 179 is a section of the Internal Revenue Code that allows business owners to claim a deduction for qualifying business property rather than depreciating the asset over time. This allows business owners to recover the cost of business property they invested in sooner.

Typically, assets are depreciated over time and the tax benefits are claimed over future tax years. With the Section 179 deduction, taxable income is reduced for the cost of the asset in the year the asset is placed in service, often the year of purchase, instead.

Section 179 is one of many overlooked tax deductions that can help you save on your tax bill. Because Section 179 applies to income-generating business properties, you can use this tax write-off for various types of assets.

How does Section 179 work?

Section 179 allows you to deduct the cost, or partial cost, of a qualifying business property when you place it in service instead of depreciating it over time. The amount you can deduct is based on the cost of the property you’re claiming the deduction for.

Before you can calculate your Section 179 deduction, you have to figure out the basis of your property. Generally, this is the cost of the property combined with:

• Sales tax
• Freight charges
• Installation fees

The rules are also different if your business builds or constructs property you want to claim the Section 179 deduction on and your average gross business receipts are more than 30 million. In that case, you may need to use the uniform capitalization rules to calculate the basis of your property.

When you purchase business property and assume debt, your basis is the amount of cash you paid as a down payment plus the mortgage or loan you assumed.

Some fees and charges are included when calculating the basis of real property. You can refer to the Real Property section in IRS Pub. 551 to learn more.

What property qualifies for the Section 179 expense deduction?

Generally speaking, the Section 179 expense deduction can be applied to any business use property, but there are rules and exceptions that may apply to you.

The Section 179 deduction is designed to help you recover the cost of equipment and other property you use for business purposes. This may include:

• Office equipment
• Software
• Business Machinery 

Section 179 also has a “more than 50% business use” rule. If you’re claiming property for business use and taking the Section 179 depreciation deduction, you must use that property for business use more than 50% of the time.

Under the Tax Cuts & Jobs Act, landlords can deduct some personal property inside rental units. This includes items like

• Kitchen appliances
• Window treatments
• Carpets
• Similar items

While the Tax Cuts & Jobs Act is set to expire in 2025, landlords can currently deduct the full cost of personal property inside rental properties using Section 179 if the rental is treated as a trade or business. 

Do your rental activities qualify as business activities for Section 179?

Let’s say your rental property is your primary source of income, and you work full-time maintaining your rental properties or working with an agent or manager. If your rental activities qualify as a trade or business, you may be able to use Section 179 to expense the costs of personal property used in the rental activities. This includes items like:

• New appliances
• Carpet
• Window treatments

The real estate property itself, however, is not eligible for Section 179.

In some cases, people might use rental property as an investment opportunity, known as passive income. If you plan on renting your home as an Airbnb in addition to working a full-time job, you can’t use Section 179 to deduct rental property costs.

If you purchased a second home you’re renting out, this is also considered passive income, and you can’t claim the Section 179 deduction for that property either.

Qualified real property improvements might also be deducted using the Section 179 deduction.  This starts with determining whether you’re making a repair or an improvement to your home.  Green home improvements are not eligible for the Section 179 Deduction. 

As a general rule, Section 179 doesn’t apply to:

• Land
• Land improvements
• Permanent structures
• Land outside the United States

Keep in mind that Section 179 can only be used to deduct the cost of qualified business property you purchased and placed into service during that year. You can’t claim the Section 179 deduction for any qualifying property you purchased in previous years.

The Section 179 deduction doesn’t apply to property you lease or property you receive as a gift or inheritance. You’re also not eligible to claim this deduction for any property you purchase from a relative or an organization you control.

How much is the maximum for the Section 179 deduction?

While the Section 179 deduction is an excellent way to save on the cost of qualifying business property, there are limits. Per IRS rules, you can only deduct up to $1.22 million in qualifying business property expenses each year. Note that if the cost of any property is over $3,050,000, the limit is reduced by the portion of the cost that exceeds $3,050,000.

There’s no minimum Section 179 deduction, which means you can claim any amount of qualifying business property, up to the limit to recover costs. You also can choose to deduct only a portion of the cost of your business property, so you can decide how much you want to take.

Any remaining value will be depreciated over the life of the asset using MACRS, the modified accelerated cost recovery system traditionally used for depreciation on your taxes.

When you’re deciding how much to deduct, one of the things to consider is the useful life of the property you’re deducting. Section 179 might work best for property with a long useful life since it would take longer for that property to depreciate with time.

Bonus depreciation vs. Section 179: What’s the difference?

Bonus depreciation, also known as Special depreciation,  is another way you can deduct the cost of a qualifying business property you recently purchased. While bonus depreciation works similarly to the Section 179 deduction, there are some key differences.

Bonus depreciation will automatically apply for qualified business property surpassing the Section 179 limit of $1.22 million. For bonus depreciation, there is no dollar limit to the maximum amount of qualifying property you can claim. If taxpayers wish to forgo bonus depreciation, they will need to opt out of the election.

While there’s no limit to how much you can deduct through bonus depreciation, for 2024, you can only deduct up to 60% of the basis of a qualifying property. The Section 179 deduction allows you to deduct 100% of the basis of the property.

There are also different rules about what you can deduct with bonus depreciation vs. the Section 179 tax deduction. Each type of deduction allows you to deduct different types of property.

If you’re deciding between bonus depreciation and the Section 179 deduction, consider the type of property you’re deducting and the total cost of that property. If you’re deducting more than $1.22 million in property, bonus depreciation may be a better choice.

Can Section 179 and bonus depreciation be utilized together?

While it can be tough to decide between Section 179 and bonus depreciation, you also have the option of combining these two deductions. Combining Section 179 and bonus depreciation helps you maximize your tax savings.

The IRS rules say you have to apply Section 179 before applying bonus depreciation, but you can claim both deductions. Any amount past the $1.22 million Section 179 limit will have bonus depreciation applied to it.

If a taxpayer chooses to use the Section 179 deduction, it will be applied first, followed by bonus deprecation and finally MACRS deprecation.

If you’re a new business owner and you’re not sure which deductions you qualify for, TurboTax tax software can help you file your taxes yourself or find a professional to help. TurboTax offers expert guidance at every step to earn every possible business deduction and credit you qualify for.