Section 179 Deduction Guide 2025: $2.5 Million Limit Under New Tax Law

TL;DR: The One Big Beautiful Bill Act (signed July 4, 2025) doubled Section 179 limits. You can now expense up to $2.5 million in qualifying equipment and property (up from $1.25 million), with the phase-out threshold rising to $4 million. Combined with restored 100% bonus depreciation, these changes create the most favorable equipment expensing rules since the TCJA. This guide covers eligibility, calculations, vehicles, and claiming strategies for 2025 and beyond.

Last Updated: January 16 2026 | Tax Year: 2025

What Is the Section 179 Deduction?

The Section 179 deduction allows businesses to deduct the full purchase price of qualifying equipment and property in the year it’s placed in service, rather than depreciating it over several years.

Think of it this way: Buy a $100,000 piece of equipment, and you can potentially write off the entire $100,000 this year instead of spreading it across 5-7 years of depreciation.

Why it matters: Immediate expensing improves cash flow, reduces your tax bill faster, and lets you reinvest in your business sooner. For a business in the 32% tax bracket, a $100,000 Section 179 deduction could mean up to $32,000 in tax savings instead of spread over nearly a decade.

Key requirements:

• Property must be used more than 50% for business
• Property must be placed in service during the tax year (not just purchased)
• Property must be new to your business (used equipment qualifies if you haven’t owned it before)
• Your deduction can’t exceed your business taxable income for the year

For businesses considering entity structure alongside equipment purchases, our S-Corporation Tax Guide explains how pass-through taxation affects these decisions.

Section 179 Limits for 2025 (Post-OBBBA)

The One Big Beautiful Bill Act dramatically increased Section 179 limits for property placed in service in tax years beginning after December 31, 2024.

Both the maximum deduction and phase-out threshold are indexed for inflation starting in 2026.

How the Phase-Out Works

Once your total Section 179 property purchases exceed $4,000,000, your maximum deduction reduces dollar-for-dollar.

Example: A construction company buys $5,000,000 in equipment in 2025.

• They exceeded the threshold by $1,000,000 ($5M – $4M)
• Maximum Section 179 deduction: $2,500,000 – $1,000,000 = $1,500,000
• Remaining $3,500,000 can use bonus depreciation (now at 100%)

The deduction completely phases out at $6,500,000 in purchases ($4M threshold + $2.5M deduction = $6.5M).

For context on how this fits into overall business planning, see our guide on Small Business Tax Deductions.

Section 179 vs. Bonus Depreciation: What Changed in 2025

The OBBBA also restored 100% bonus depreciation for property acquired and placed in service after January 19, 2025. This matters because the two work together.

The Order of Operations

IRS rules require you to apply deductions in this order:

1. Section 179 first (up to limits)
2. Bonus depreciation on remaining basis
3. MACRS depreciation on any residual

Why this matters: If you have $3 million in equipment purchases:

• Apply Section 179: $2,500,000 deducted
• Remaining basis: $500,000
• Apply 100% bonus depreciation: $500,000 deducted
• Total first-year deduction: $3,000,000

Pre-OBBBA, you’d only get $1,250,000 from Section 179 plus 60% bonus ($1,050,000) = $2,300,000. That’s $700,000 more deduction this year under the new law.

What Property Qualifies for Section 179?

Eligible Property

Tangible Personal Property:

• Machinery and equipment
• Office furniture and fixtures
• Computers, peripherals, and off-the-shelf software
• Manufacturing equipment
• Agricultural equipment

Certain Improvements to Nonresidential Real Property:

• HVAC systems
• Roofing
• Fire protection and alarm systems
• Security systems

Business Vehicles (with special rules):

• Trucks and vans over 6,000 lbs GVWR
• SUVs over 6,000 lbs GVWR (subject to $31,300 limit)
• Qualified nonpersonal use vehicles

For detailed vehicle information including a list of qualifying models, see our Section 179 Vehicle Deduction Guide.

Property That Does NOT Qualify

• Land and land improvements (in most cases)
• Buildings (but certain improvements do qualify)
• Inventory
• Property used outside the U.S.
• Property acquired from related parties
• Property you already owned (no basis step-up tricks)
• Property used less than 50% for business

Section 179 Vehicle Rules for 2025

Vehicle deductions under Section 179 have special rules based on weight and classification.

Heavy Vehicles Over 6,000 lbs GVWR

Vehicles exceeding 6,000 pounds gross vehicle weight rating (GVWR) qualify for enhanced Section 179 benefits:

The SUV Limitation Explained

The $31,300 limit specifically applies to SUVs that:

• Have GVWR between 6,000 and 14,000 pounds
• Are NOT “qualified nonpersonal use vehicles”

Example: You buy a $75,000 Cadillac Escalade (7,400 lbs GVWR) used 100% for business.

• Section 179: $31,300
• Remaining basis: $43,700
• Bonus depreciation (100%): $43,700
• Total first-year deduction: $75,000

Vehicles That Avoid the SUV Limit

Trucks and vans over 6,000 lbs that have:

• A fully enclosed driver’s compartment with no seating behind the driver
• No body section more than 30 inches from the windshield
• Bed length at least six feet (pickup trucks)

These qualify for the full Section 179 deduction without the $31,300 cap.

Popular examples: Ford F-150 (select configurations), Ford F-250/F-350, RAM 2500/3500, Chevrolet Silverado 2500/3500, and most cargo vans.

Calculating Your Section 179 Deduction

Step-by-Step Calculation

Step 1: Total your qualifying Section 179 property placed in service in 2025

Step 2: Check if you exceed the phase-out threshold ($4,000,000)

• If no: Your maximum deduction is $2,500,000 (or total cost if less)
• If yes: Reduce maximum by dollar-for-dollar overage

Step 3: Compare to your business taxable income

• Section 179 can’t exceed your business income
• Excess carries forward to future years

Step 4: Apply bonus depreciation to remaining basis

Calculation Example

Scenario: A Texas manufacturing company purchases:

• CNC machine: $180,000
• Delivery truck (7,200 lbs): $65,000
• Office equipment: $25,000
• Business SUV (6,500 lbs): $72,000
• Total: $342,000

Calculation:

• Total is under $4M threshold (no phase-out)
• CNC machine: $180,000 Section 179
• Delivery truck: $65,000 Section 179
• Office equipment: $25,000 Section 179
• SUV: $31,300 Section 179 + $40,700 bonus depreciation

Total Section 179: $301,300 Total bonus depreciation: $40,700 Total first-year deduction: $342,000 (entire purchase price)

If this company has $400,000 in taxable business income, they can claim the full deduction. If they only had $200,000 in income, they’d claim $200,000 this year and carry forward $101,300 to 2026.

For help with business income calculations and entity planning, our S-Corp Tax Calculator can model different scenarios.

How to Claim Section 179 on Your Tax Return

Required Form: IRS Form 4562

Section 179 deductions are claimed on Form 4562 (Depreciation and Amortization), Part I.

What you’ll need:

• Description of each property
• Date placed in service
• Cost or other basis
• Business use percentage
• Elected Section 179 amount

Filing Deadlines

For complete deadline information, see our 2026 Federal Tax Deadline Guide.

Critical: “Placed in Service” Requirement

You must place property in service by December 31, 2025, to claim the deduction for 2025. “Placed in service” means:

• Ready and available for business use
• Not just ordered, paid for, or delivered

If you order equipment in November 2025 but installation isn’t complete until January 2026, you can’t claim Section 179 until your 2026 return.

Common Section 179 Mistakes to Avoid

Mistake 1: Exceeding the Phase-Out Threshold Unintentionally

The problem: You didn’t track total purchases and lost part of your deduction.

The fix: Track qualifying purchases throughout the year. If you’re approaching $4,000,000, consider spreading acquisitions across tax years.

Mistake 2: Business Use Drops Below 50%

The problem: If business use falls below 50% during the asset’s recovery period (usually 5 years), you face recapture. You’ll owe tax on previously claimed deductions.

The fix: Maintain detailed usage logs, especially for vehicles. Document business miles, purposes, and dates.

Mistake 3: Not Enough Business Income

The problem: Section 179 can’t exceed your business taxable income for the year. If income is $100,000 but you claimed $300,000 in Section 179, you only get $100,000 this year.

The fix: Time major purchases in profitable years, or use the carryforward for excess amounts. Bonus depreciation (which CAN create losses) might be more valuable in low-income years.

Mistake 4: Ignoring State Tax Implications

The problem: Many states don’t conform to federal Section 179 limits or bonus depreciation rules. California, New Jersey, and others have different limits.

The fix: Check your state’s rules. You may need to add back Section 179 on your state return and claim state-allowed depreciation instead.

Mistake 5: Missing the SUV Limit

The problem: You claimed full Section 179 on an SUV that’s subject to the $31,300 cap.

The fix: Verify GVWR before purchasing. If you need the full deduction, consider a truck or van configuration instead of an SUV.

For Texas-specific guidance on business tax planning, see our Texas Small Business Tax Guide.

Section 179 Record-Keeping Requirements

Proper documentation protects your deduction in case of an IRS audit.

Essential Records to Maintain

For all Section 179 property:

• Invoice showing date of purchase and cost
• Proof of payment
• Documentation of date placed in service
• Business use percentage (with supporting logs)
• Depreciation schedule (even if fully expensed)

For vehicles specifically:

• Mileage log with date, destination, business purpose
• Total miles driven (business and personal)
• Business use calculation (business miles ÷ total miles)

How Long to Keep Records

Keep Section 179 documentation for at least 7 years after filing the return claiming the deduction. If the asset’s recovery period extends beyond that, keep records until 3 years after you dispose of the property.

Consider cloud-based storage for receipts and digital mileage tracking apps for vehicles. Both make audit defense significantly easier.

Strategic Timing: When to Use Section 179 vs. Bonus Depreciation

When Section 179 Is Better

• State tax conformity: Most states follow Section 179 rules but decouple from bonus depreciation
• Control over deduction amount: You can elect exactly how much to expense
• Property improvements: Some qualified improvement property works better under Section 179
• When you need to match income: Precise control helps with tax planning

When Bonus Depreciation Is Better

• Exceeding Section 179 limits: No dollar cap on bonus depreciation
• Creating losses: Bonus depreciation can generate or increase NOLs
• Low-income years: Use bonus depreciation now, save Section 179 for later
• Large capital projects: When purchases exceed $4M threshold

The Combination Strategy

For most businesses, the optimal approach is:

1. Use Section 179 first (especially for items with mixed personal/business use)
2. Apply bonus depreciation to remaining basis
3. Consider state tax implications before finalizing

Our Tax Planning Strategies Guide covers how to coordinate equipment purchases with other year-end planning.

Frequently Asked Questions

What is the Section 179 deduction limit for 2025?

The Section 179 deduction limit for 2025 is $2,500,000. This was doubled from the previous $1,250,000 limit by the One Big Beautiful Bill Act signed July 4, 2025. The limit applies to property placed in service in tax years beginning after December 31, 2024, and is indexed for inflation in future years.

When does the Section 179 phase-out begin in 2025?

The Section 179 phase-out threshold for 2025 is $4,000,000. Once your total qualifying property purchases exceed this amount, your maximum Section 179 deduction reduces dollar-for-dollar. The deduction completely phases out at $6,500,000 in purchases.

Can I use Section 179 on a used vehicle?

Yes, Section 179 applies to used equipment and vehicles as long as the property is new to your business. This means you haven’t previously owned or used it. A used truck purchased from a dealership or auction qualifies if you’ve never owned that specific vehicle before. The property must still meet minimum business use requirements (over 50%).

What is the Section 179 SUV limit for 2025?

The Section 179 SUV limit for 2025 is $31,300. This applies to sport utility vehicles with a gross vehicle weight rating (GVWR) between 6,000 and 14,000 pounds that don’t qualify as “nonpersonal use vehicles.” Trucks and vans over 6,000 lbs that meet certain specifications can qualify for the full Section 179 deduction.

Can Section 179 create a business loss?

No, Section 179 cannot create or increase a net operating loss. Your Section 179 deduction is limited to your taxable business income for the year. However, any unused Section 179 deduction carries forward to future years. Bonus depreciation, by contrast, CAN create losses.

What is the difference between Section 179 and bonus depreciation?

Section 179 is an elected expense with a dollar cap ($2.5M) and income limitation. Bonus depreciation is an automatic deduction with no dollar cap that can create losses. Section 179 must be elected on your return; bonus depreciation applies automatically unless you opt out. Most states conform to Section 179 but many decouple from bonus depreciation.

Does a Ford F-150 qualify for Section 179?

Many Ford F-150 configurations qualify for Section 179 because they exceed 6,000 lbs GVWR. The key is checking the specific model’s GVWR on the door sticker or manufacturer specs. Some lighter F-150 configurations (like certain EcoBoost models) may fall under 6,000 lbs. Always verify before purchasing.

What qualifies as “placed in service” for Section 179?

“Placed in service” means the property is ready and available for business use. Simply ordering, paying for, or taking delivery of equipment isn’t enough. The property must be operational and available for your business by December 31 of the tax year you’re claiming the deduction. Installation delays can push the deduction to the following year.

Can I claim Section 179 if I finance the equipment?

Yes, you can claim Section 179 on financed equipment. The deduction applies to the full purchase price even if you’re making payments over time. However, true tax leases (where the lessor owns the property) typically don’t qualify since you don’t own the equipment.

How does the Section 179 carryforward work?

If your Section 179 deduction exceeds your business taxable income, the excess carries forward to future years. The carryforward doesn’t expire, but it must be used in the next year with sufficient income. Track carryforwards carefully because they affect your maximum deduction in subsequent years.

The OBBBA Bottom Line

The One Big Beautiful Bill Act created the most favorable equipment expensing rules in recent memory. The combination of:

• $2.5 million Section 179 limit (doubled)
• $4 million phase-out threshold (increased)
• 100% bonus depreciation (restored)

…means businesses can write off essentially any equipment purchase immediately, regardless of size. For capital-intensive businesses planning upgrades, 2025 and beyond offer unprecedented tax benefits.

The catch: These benefits require proper planning. You need sufficient business income to absorb Section 179 deductions, accurate record-keeping to survive audits, and coordination with state tax rules that may differ from federal treatment.

For a complete overview of how the OBBBA affects Texas businesses, see our guide: Trump’s Big Beautiful Bill: Complete Texas Small Business Tax Strategy.

Next Steps

Ready to maximize your Section 179 benefits? SDO CPA helps businesses:

• Calculate optimal Section 179 vs. bonus depreciation strategies
• Plan equipment purchases around tax brackets and income levels
• Navigate state tax conformity issues
• Document purchases properly for audit protection

Schedule a Tax Planning Assessment →

This guide provides general information about Section 179 deductions. Tax laws are complex and individual circumstances vary. Consult a qualified CPA before making significant equipment purchases or tax elections.