15.3 Section 179 Expense Deduction
Key Takeaways
For tax years beginning in 2025, the Section 179 maximum deduction is $2,500,000.
Reduce the maximum dollar-for-dollar when qualifying property placed in service during the tax year exceeds $4,000,000.
The increased 2025 annual limits also cover January 1–19 placements; the January 19 acquisition cutoff applies to bonus depreciation, not Section 179.
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, effective for tax years beginning after December 31, 2024.
Apply one annual 2025 limit. Do not import the bonus-depreciation acquisition-date test into Section 179.
Section 179 Annual Limits
| 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 |
| Tax years beginning in 2025 (post-OBBBA) | $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 placed in service above the threshold |
| Taxable Income | Deduction cannot exceed aggregate taxable income from all active trades or businesses |
Phase-Out Calculation (2025)
| Item | Amount |
|---|---|
| Total §179 property placed in service | $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 — January placement: A calendar-year manufacturer places a $1,400,000 CNC machine in service on January 15, 2025. It has no other Section 179 property and at least that much active business taxable income.
- The annual $2,500,000 maximum applies even though placement preceded January 20.
- Total qualifying cost is below the $4,000,000 phaseout threshold.
- The manufacturer may elect to expense the full $1,400,000.
- A taxpayer cannot deduct more than the cost of the property merely because the annual maximum is higher.
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.
- The 2025 annual 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
Practice these applications of Section 179:
- Limit Questions: "What is the §179 maximum for property placed in service in a tax year beginning in 2025?"
- Placement Questions: "Equipment placed in service Jan 15, 2025 — which limit applies?"
- Phase-Out Questions: "What is the allowable §179 if total qualifying placements are $4,500,000?"
- Income Questions: "What happens to §179 disallowed by the taxable income limitation?"
Use the 2025 annual maximum of $2,500,000, the $4,000,000 phaseout threshold, and the $31,300 heavy SUV limit. January 15 equipment is eligible for the same annual limit as March equipment. Check qualifying use, placed-in-service cost, and business income before computing the deduction. Unused amounts limited by business income carry forward; a reduced dollar limit is not itself a carryforward. See the 2025 Form 4562 instructions.
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)?
$2,500,000
$2,000,000
$1,250,000
$500,000
Which nonresidential building improvement qualifies for §179?
New elevator
Building expansion
New HVAC system
New parking lot
§179 limited by taxable income. What happens to excess?
Lost forever
Carryback 2 years
Carryforward indefinitely
Convert to bonus
A calendar-year manufacturer places $1,400,000 of qualifying equipment in service on January 15, 2025. With sufficient active business income and no other Section 179 property, what maximum current deduction may it elect?
$1,400,000
$1,250,000
$1,220,000
$0
Sections you finish are checked off in the contents.