Section 179 of the U.S. tax code offers a tax incentive to small and medium-sized businesses by allowing them to take a full deduction on tangible assets in the year items were purchased and put into service. The cost of such major purchases would generally have to be depreciated over time, but using the Section 179 deduction lowers the business taxable income in the purchase year.
This section of the tax code comes with limits on the total amount that can be written off as well as caps on the total amount of equipment that can be purchased. After those limits are reached, the deduction phases out on a dollar-for-dollar basis. In 2024, the deduction is limited to $1,220,000. It begins to decrease if more than $3,050,000 worth of property is placed in service, and it is entirely removed once $4,270,000 in purchases is reached. A business can combine multiple expenses to reach the deduction total.
A business can employ the Section 179 deduction even though the purchase will continue to have value in future years.
What’s covered
Many essentials that retain value over time are covered by Section 179:
Office furniture, computers and off-the-shelf software and similar business equipment, as long as it is not custom-made or modified specifically for your company; equipment may be new or new to you
Machinery and similar equipment
Livestock used for business purposes
Vehicles may be covered by Section 179, but the rules are very specific because early on, some business owners used the high limits to buy expensive trucks (thus the section’s nickname, the Hummer tax deduction). Vehicles must be used for business purposes over 50% of the time. SUVs have specific additional restrictions:
They must weigh between 6,000 and 14,000 pounds.
In 2024, they are subject to a deduction limit of $30,500.
Nontraditional vehicles, such as cargo vans or trucks with specific functional designs, may also qualify for Section 179 deductions, provided that they are able to seat more than nine people behind the driver’s seat and have a cargo compartment six or more feet long that isn’t accessible from the passenger seating area.
Section 179 doesn’t cover rent, real estate purchases or land improvements (paved parking areas, fences, etc.). But nonresidential property improvements may be eligible; these would include fire alarm systems, protection or security systems, and ventilation, heating and air conditioning systems. Certain improvements to lodging facilities (such as hotels or apartments) may take advantage of Section 179.
Section 179 deductions are limited to a business’s annual taxable business income, meaning that a business cannot deduct more than its net income. However, unused amounts may be carried over to future years.
