15.3 Section 179 Expense Deduction
Key Takeaways
- Tax Year 2025 §179 maximum deduction (post-OBBBA): $2,500,000 for property placed in service after January 19, 2025.
- Tax Year 2025 §179 phase-out threshold (post-OBBBA): $4,000,000 for property placed in service after January 19, 2025.
- Bifurcated 2025: property placed in service Jan 1–19, 2025 uses pre-OBBBA limits ($1,250,000 max / $3,130,000 phase-out).
- Cannot exceed taxable income from active business; excess carries forward indefinitely (does NOT create an NOL).
- Heavy SUV cap (GVWR 6,000–14,000 lbs) for 2025: $31,300.
- §179 limits indexed for inflation beginning 2026.
- Qualified real property: QIP, roofs, HVAC, fire protection, alarm, and security systems.
Why This Matters for the Exam
Section 179 is one of the most powerful business deductions — and one of the biggest changes for the 2026-2027 testing window. The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, permanently roughly doubled the §179 limits, retroactive to property placed in service after January 19, 2025.
Tax Year 2025 is bifurcated for §179, and the EA exam may test the cutoff date directly. Expect at least 4-5 questions on §179.
Section 179 Limits — Bifurcated 2025
| Period | Maximum Deduction | Phase-Out Threshold | Heavy SUV Cap |
|---|---|---|---|
| 2023 | $1,160,000 | $2,890,000 | $28,900 |
| 2024 | $1,220,000 | $3,050,000 | $30,500 |
| Jan 1 – Jan 19, 2025 (pre-OBBBA) | $1,250,000 | $3,130,000 | $31,300 |
| After Jan 19, 2025 (OBBBA — permanent) | $2,500,000 | $4,000,000 | $31,300 |
| 2026+ | Indexed for inflation | Indexed for inflation | Indexed |
Key takeaway: OBBBA roughly doubled the §179 maximum (from $1,250,000 to $2,500,000) and raised the phase-out start by nearly $1 million ($3,130,000 → $4,000,000). These figures are permanent and indexed for inflation starting in 2026.
Qualifying Property
| Type | Eligible? |
|---|---|
| Tangible personal property | Yes |
| Off-the-shelf software | Yes |
| Qualified real property (QIP, HVAC, roofs, fire protection, alarm, security) | Yes |
| Land | NO |
| Buildings (general) | NO |
| Residential rental real property | NO |
The Two Limitations
| Limitation | Description |
|---|---|
| Phase-Out | Maximum deduction reduced $1 for every $1 of §179 property purchased above the threshold |
| Taxable Income | Deduction cannot exceed aggregate taxable income from all active trades or businesses |
Phase-Out Calculation (post-Jan 19, 2025)
| Item | Amount |
|---|---|
| Total §179 property purchased | $4,500,000 |
| Threshold | $4,000,000 |
| Excess | $500,000 |
| Maximum deduction (before reduction) | $2,500,000 |
| Reduced by excess | $500,000 |
| Allowable §179 | $2,000,000 |
Taxable Income Limitation
| Rule | Effect |
|---|---|
| §179 deduction limited to | Aggregate active business taxable income |
| Excess | Carryforward indefinitely |
| Note | §179 alone does NOT create an NOL |
Ordering of Deductions
| Priority | Deduction |
|---|---|
| 1 | Section 179 (taxpayer election, asset-by-asset) |
| 2 | Bonus depreciation (remaining basis, by MACRS class) |
| 3 | MACRS regular depreciation (any remaining basis) |
Heavy SUV Rule (2025)
| Vehicle | Rule |
|---|---|
| GVWR 6,000–14,000 lbs | §179 capped at $31,300 (2025) |
| GVWR >14,000 lbs | No §179 cap |
| Qualified nonpersonal-use vehicle (e.g., delivery vans, ambulances) | No §179 cap |
The SUV cap was essentially unchanged (annual inflation bump from $30,500 in 2024 to $31,300 in 2025). OBBBA did NOT raise this number — only the overall §179 maximum.
Real-World Scenario (Tax Year 2025)
Scenario 1 — Bifurcation: Manufacturer places a $1,400,000 CNC machine in service January 15, 2025.
- Pre-OBBBA period (Jan 1 – Jan 19, 2025) applies.
- Maximum §179: $1,250,000 (NOT $2,500,000).
- The other $150,000 is depreciated via bonus + MACRS.
Scenario 2 — Post-OBBBA, income limit: Business has $400,000 taxable income from active trade. Buys $2,500,000 of qualifying equipment on March 1, 2025.
- Post-OBBBA limits apply.
- Maximum §179 dollar limit: $2,500,000.
- Phase-out: purchases ($2,500,000) below $4,000,000 threshold — no reduction.
- But §179 cannot exceed $400,000 of active business taxable income.
- §179 this year: $400,000.
- Carryforward: $2,100,000 (indefinite; available against future business income).
Scenario 3 — Phase-out: Business buys $4,500,000 of qualifying equipment on May 1, 2025.
- Post-OBBBA: maximum $2,500,000, threshold $4,000,000.
- Excess: $500,000.
- Allowable §179: $2,500,000 − $500,000 = $2,000,000.
On the Exam
Expect 4-5 questions on §179, typically:
- Limit Questions: "What is the §179 maximum for property placed in service after January 19, 2025?"
- Bifurcation Questions: "Equipment placed in service Jan 15, 2025 — which limit applies?"
- Phase-Out Questions: "What is the allowable §179 if total purchases are $4,500,000?"
- Income Questions: "What happens to §179 disallowed by the taxable income limitation?"
The key is to remember: $2,500,000 maximum / $4,000,000 phase-out (post-OBBBA, after Jan 19, 2025). Bifurcated 2025 — Jan 1–19 uses old $1,250,000 / $3,130,000 limits. Heavy SUV cap $31,300. Cannot exceed active business income; excess carries forward indefinitely.
Tax Year 2025: Business places $4,500,000 of qualifying equipment in service on May 1, 2025. What is the maximum §179 deduction (before any income limitation)?
Which nonresidential building improvement qualifies for §179?
§179 limited by taxable income. What happens to excess?
A manufacturer places $1,400,000 of qualifying equipment in service on January 15, 2025. What is the maximum §179 deduction?