Section 179 Deduction Doubles Under OBBBA: $1.22M to $2.5M for Equipment Expensing
Section 179 expensing lets businesses elect an immediate tax deduction for qualifying property. Instead of depreciating asset costs over time, you can deduct the entire amount or partial amounts in the year of purchase.
Two major benefits come with this election. You receive an immediate upfront deduction instead of waiting years. You also avoid the administrative burden of maintaining depreciation records for these assets.
Part 1: OBBBA Doubles Section 179 Limits: $2.5 Million Cap and Phaseout Rules
The Section 179 deduction equals the property cost when you make the election. An annual cap applies to this deduction. The One Big, Beautiful Bill Act (OBBBA) substantially raised this cap:
Annual deduction limits:
Above certain spending thresholds, the deduction limit decreases dollar-for-dollar. The phaseout begins when your annual Section 179 equipment purchases exceed the threshold amounts shown above.
Special vehicle limits for 2025:
Two vehicle categories have special Section 179 expensing limits. Passenger automobiles with luxury car depreciation restrictions face lower caps, while heavier SUVs receive higher limits.
Part 2: Who and What Qualifies for Section 179
Eligible businesses:
Most business structures qualify for Section 179 expensing elections. Business owners, whether operating as sole proprietors or through corporate entities, can take advantage of this deduction. However, the tax code excludes certain entity types from making this election.
Section 179 eligibility by entity type:
The restriction on estates, trusts, and certain lessors ensures Section 179 benefits flow to active business operations rather than passive investment structures.
Property must be purchased for business use to qualify for Section 179 expensing. The tax code recognizes several property categories as eligible.
Qualifying property types:
Both new and used property qualify for Section 179 expensing. The property must serve an active business purpose, not passive investment.
Part 3: How Section 179 Works: Deduction Flexibility and Key Limitations
Strategic deduction control:
Section 179 allows strategic flexibility. Businesses select which qualifying assets to expense and determine partial versus full cost recovery for each item.
Example in action:
A business purchases a $5,000 computer. Under Section 179, the business can:
- Expense the full $5,000 in year one, OR
- Expense $3,000 in year one and depreciate $2,000 over subsequent years
Income limitation:
Beyond the annual dollar limit, a taxable income limitation applies. Your active business income for the year caps your total Section 179 deduction. Amounts exceeding this cap carry forward to future tax years.
Election timing and recapture:
The Section 179 election comes with timing deadlines and potential recapture obligations:
Section 179 expensing provides significant value and flexibility for business tax planning. This tool allows strategic timing of deductions for qualifying property based on your tax situation.
Part 4: Thinking Ahead to 2025 Purchases?
Section 179 offers flexibility, but the deduction is still subject to phaseouts and income limitations.
Before committing to a major equipment or vehicle purchase, make sure the numbers support the strategy.
If you’d like help reviewing your situation, our tax prep team can walk through it with you.
Related Articles: The One Big, Beautiful Bill Act (OBBBA): What Changed for Your 2025 Taxes
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