Section 179 Deduction
The Section 179 deduction allows businesses to immediately deduct the full purchase price of qualifying equipment and software in the year it is purchased, rather than depreciating it over several years.
Under normal depreciation rules, when your business buys equipment, you deduct the cost gradually over the asset's useful life (5, 7, or even 39 years depending on the asset). Section 179 lets you skip the wait and deduct the entire cost in the first year.
For 2025, the Section 179 deduction limit is $1,220,000, with a phase-out beginning at $3,050,000 in total equipment purchases. This means most small and mid-sized businesses can deduct virtually all of their equipment purchases immediately.
Qualifying assets include machinery, equipment, computers, off-the-shelf software, office furniture, certain vehicles (with limitations), and qualified improvement property. The asset must be used more than 50% for business purposes.
One important rule: the Section 179 deduction cannot create or increase a net operating loss. It is limited to your taxable business income. If your deduction would exceed your business income, you can carry the excess forward to future years.
For vehicles, SUVs over 6,000 pounds GVWR have a Section 179 limit of $28,900 (2025), while passenger vehicles have even lower limits. Heavy trucks and vans (over 14,000 lbs) have no such cap.
Practical Example
A construction company purchases a $95,000 excavator. Instead of depreciating it over 7 years ($13,571/year), they deduct the full $95,000 in year one using Section 179. In the 24% tax bracket, this creates an immediate tax savings of $22,800 compared to first-year depreciation alone.