Quick overview
Section 179 and Bonus Depreciation are two federal tax tools businesses use to recover the cost of qualifying property faster than regular MACRS depreciation. Section 179 is an election that lets you expense (write off) the cost of eligible property up to an annual limit, while Bonus Depreciation is an additional first-year depreciation allowance that applies automatically unless you elect out. Use them together or separately to accelerate deductions, but each has different limits, eligibility rules, and interactions with taxable income and state tax law (some states decouple from federal bonus rules).
(For official IRS guidance, see IRS Publication 946 and the IRS Section 179 guidance.)
Key differences at a glance
- Election vs. automatic: Section 179 is an election you make on your tax return (Form 4562). Bonus Depreciation generally applies automatically unless you elect out for a class of property.
- Dollar limits: Section 179 has an annual dollar cap and a phase-out above a threshold of total purchases. Bonus Depreciation does not have the same aggregate dollar cap but is subject to statutory percentage rules that have been phasing down.
- Business income limitation: Section 179 cannot create a net business loss — it is limited to taxable business income. Bonus Depreciation can create or increase a loss subject to other tax rules.
- New vs. used property: The Tax Cuts and Jobs Act expanded bonus depreciation to include used property acquired and placed in service after Sept. 27, 2017; Section 179 also covers new and used qualifying property but has its own eligibility rules.
Eligibility and what qualifies
Qualifying property commonly includes:
- Tangible personal property used in business (machinery, equipment, computers, office furniture).
- Certain software (off-the-shelf, not custom-developed software may qualify under Section 179; check rules).
- Qualified improvement property (subject to technical definitions and recent legislative changes).
- Certain vehicles (subject to passenger-vehicle limits and special rules for heavy vehicles).
Property must generally be placed in service during the tax year and used more than 50% for qualified business use to take Section 179. Bonus depreciation also requires qualifying property to be placed in service during the year and meet statutory definitions (see IRS Publication 946).
Note: Some categories of property (land, inventory, intangible assets like goodwill, and leased property treated as such) do not qualify for either deduction.
The law that matters and the current phase-down (what to expect in 2025)
The Tax Cuts and Jobs Act (TCJA) of 2017 expanded both Section 179-accessible property and bonus depreciation. Under current statutory rules, bonus depreciation was set at 100% for property placed in service after Sept. 27, 2017 and before Jan. 1, 2023; after that date the bonus percentage begins a scheduled phase-down: 80% for 2023, 60% for 2024, 40% for 2025, 20% for 2026, and 0% after 2026 unless Congress acts to extend or change the schedule (see IRS guidance and the TCJA legislative text).
Section 179 dollar limits are inflation-adjusted annually. For context, the Section 179 maximum and the phase-out threshold have been in the seven-figure range in recent years (for example, the maximum was $1,160,000 in 2023). Always check the current-year limits on the IRS Section 179 page because these figures change with inflation and new law.
Authoritative sources: IRS Publication 946 (How to Depreciate Property) and the IRS Section 179 guidance pages. State conformity may differ — some states do not follow the federal bonus depreciation rules, which affects state taxable income.
How to claim these deductions (forms and elections)
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Section 179: Elect the Section 179 deduction on Form 4562, Part I. You must list qualifying property, the cost, and the amount you elect to expense. The Section 179 deduction is limited to the business’s taxable income from the active conduct of the trade or business and subject to the phase-out threshold.
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Bonus Depreciation: Report bonus depreciation on Form 4562, typically in Part II (Special Depreciation Allowance) and other relevant parts for MACRS. Bonus depreciation generally applies automatically, but taxpayers can elect out of bonus depreciation for a class of property by attaching a statement to the return.
When both are available, many taxpayers apply Section 179 to specific assets (often to stay within the business income limit) and then take bonus depreciation on the remaining basis of eligible property.
Refer to Form 4562 instructions and IRS Publication 946 when preparing returns.
(See our FinHelp guide to Form 4562 for step-by-step help.)
Examples (illustrative; adjust for current-year limits)
Example 1 — Small equipment purchase (Section 179-focused)
A small bakery buys a $15,000 commercial oven and places it in service in the same tax year. If the baker’s business income supports the deduction, electing Section 179 to expense the $15,000 entirely may be straightforward and improve cash flow that year.
Example 2 — Larger equipment purchase (mixing Section 179 and Bonus)
A landscaping company purchases trucks and mowers costing $300,000 total. If Section 179 limits or the business-income cap would prevent expensing the entire amount, the owner might elect Section 179 on part of the cost (up to the taxable-income limit) and take bonus depreciation on the remainder (subject to the bonus percentage in the year placed in service).
Example 3 — Bonus phase-down effect (2025 illustration)
If the 2025 bonus percentage is 40% (per the scheduled phase-down), a $200,000 qualifying purchase placed in service in 2025 could have $80,000 of bonus depreciation in year one; the remainder is depreciated under regular MACRS unless Section 179 is elected for part of the cost.
Always run year-specific calculations because Section 179 limits and bonus percentages change.
Planning strategies and professional tips
- Coordinate purchases with taxable income. Section 179 cannot create a net business loss, so if you expect a low-profit year, reserve Section 179 for years with sufficient business income or use bonus depreciation, which can create a loss and carryforward consequences.
- Use a hybrid approach. Elect Section 179 for assets where immediate expensing yields maximum benefit and use bonus depreciation to capture additional first-year write-offs on remaining eligible property.
- Consider state tax treatment early. Some states do not follow federal bonus depreciation or apply different Section 179 rules; you may need to prepare state adjustments and track deferred taxable income at the state level.
- Watch the bonus phase-down timetable. If you are timing large purchases near a year when the allowed bonus percentage drops, crunch the numbers — buying earlier (when a higher bonus applies) can increase current-year deductions.
- Document business use. Maintain invoices, placement-in-service dates, and mileage or usage logs for items with mixed personal use to substantiate the >50% business-use requirement.
- Heavy vehicle rules. Certain SUVs, trucks, and vans have special limits under Section 179 and luxury-vehicle caps for depreciation; large GVWR vehicles may have favorable treatment.
From my experience advising owners across retail, contracting, and services, a simple calendar of expected purchases and a projection of taxable income for the next 12 months helps choose the best mix of Section 179 versus bonus depreciation.
Common mistakes and traps
- Failing to check current-year limits and the bonus-depreciation percentage before filing.
- Assuming state tax follows federal. Many states decouple from federal bonus depreciation or have their own Section 179 rules.
- Neglecting the business-use test. Personal use above 50% disqualifies property for Section 179.
- Using Section 179 to create an immediate loss — you can’t claim more than your business income allows; unused Section 179 amounts may be carried forward but are subject to rules.
- Forgetting Form 4562. Omitting required Form 4562 or the Section 179 election can prevent you from taking the deductions for the year.
Interactions with other tax items
- Net operating losses (NOLs): Aggressive use of bonus depreciation can create or enlarge NOLs; NOL treatment and carryforward rules are complex — consult a tax professional if NOLs may result.
- AMT: For corporations and individuals subject to AMT rules, depreciation conventions and timing can affect AMT calculations; check current AMT rules and consult a pro.
Where to get authoritative guidance
- IRS Publication 946, How to Depreciate Property (detailed rules on depreciable property and election mechanics).
- IRS Section 179 Expense Deduction page (current-year limits and phase-out thresholds).
- Instructions for Form 4562, Depreciation and Amortization.
Links on FinHelp you may find useful:
- Section 179 Deduction (FinHelp): https://finhelp.io/glossary/section-179-deduction/
- Bonus Depreciation (FinHelp): https://finhelp.io/glossary/bonus-depreciation/
- Form 4562 — Depreciation and Amortization (FinHelp): https://finhelp.io/glossary/form-4562-depreciation-and-amortization/
Bottom line
Section 179 and Bonus Depreciation are powerful, complementary tools for accelerating cost recovery on business property. Section 179 offers a targeted, elective expensing route limited by annual caps and business income; Bonus Depreciation provides an automatic first-year write-off whose percentage has been scheduled to phase down in the coming years. Effective use requires year-by-year planning, attention to state conformity, and accurate recordkeeping.
Professional disclaimer: This article is educational and not personalized tax advice. Rules change and limits are adjusted yearly; consult a CPA or tax advisor and the current IRS guidance before making tax elections.
