The deduction under Section 179 of the Internal Revenue Code (IRC) allows businesses to deduct the cost of eligible property as an expense in the year the property is first placed into service. Generally, when a company purchases fixed assets with a useful life beyond one year, it must capitalize and depreciate them under Modified Accelerated Cost Recovery System (MACRS).
The Section 179 deduction allows businesses to accelerate the depreciation expense in the first year, making it a form of accelerated depreciation.
The taxpayer may elect to treat the cost of any section 179 property as an expense which is not chargeable to capital accounts.1 Any cost so treated shall be allowed as a deduction for the taxable year in which the section 179 property is placed in service.2
What is Section 179 Property?
Section 179 property includes tangible property to which IRC Section 168 applies or computer software as defined in Section 179(e)(3)(B).3
Eligible property includes:
- Tangible personal property (machinery, equipment, vehicles, etc.)
- Single-purpose agricultural or horticultural structures
- Storage facilities (except the building and structural components) used in connection with distributing petroleum or any primary product of petroleum
- Off-the-shelf computer software
- Qualified section 179 real property
What are the Dollar Limitations?
The dollar limitations change on a year-to-year basis.
For the 2023 tax year, a business’s maximum section 179 expense is $1,160,000. A business reduces the maximum deduction by the amount by which section 179 property placed into service during the year exceeds $2,890,000. In other words, if a business placed $2,950,000 of section 179 property into service in 2023, it must reduce the maximum deduction by $60,000 ($2,950,000 – $2,890,000), so its adjusted maximum section 179 deduction is now $1,100,000 ($1,160,000 – $60,000).
The maximum section 179 expense and phaseout limit for the 2024 tax year are $1,220,000 and $3,050,000, respectively.
The general maximum section 179 expense limits do not apply to passenger automobiles. The 2023 maximum section 179 expense for a passenger automobile is $28,900. A passenger automobile is any 4-wheeled vehicle designed for use on public streets, and the vehicle weighs less than 6,000 pounds.4 If a business purchases a truck or SUV that weighs more than 6,000 pounds, it is not a passenger automobile for these rules and, thus, not subject to the reduced limit of $28,900.
Example Section 179 Deduction
Company Alpha, a U.S. corporation, is a Florida-based manufacturer. On January 1, 2023, Company Alpha purchased a piece of manufacturing equipment for $80,000. The company estimates the machine will last five years and have a salvage value of zero. The company’s taxable income before section 179 deductions is $600,000.
The company has several depreciation options. It could depreciate the property over a five-year period using the declining balance method under MACRS or depreciate the entire asset in year 1 by using the Section 179 deduction. The company elects to claim a Section 179 deduction on the entire purchase price of $80,000, reducing its taxable income to $520,000.
Other available U.S. federal tax depreciation methods include the following:
- Straight-line depreciation method
- Declining Balance Method (either 200% or 150%)
- Special Depreciation Allowance (i.e., Bonus Depreciation)
Other Information
The IRS Publication 946 (How to Depreciate Property) provides additional information about Section 179 deductions and other depreciation methods for business taxpayers.