What is Section 179?
Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment and software purchased or financed during the tax year. Instead of spreading depreciation deductions over several years under normal MACRS rules, Section 179 lets you write off the entire cost in the year of purchase, up to a defined annual limit.
For 2024, the Section 179 deduction limit is \$1,220,000. This means a business can deduct up to \$1,220,000 of qualifying equipment costs in a single tax year, which can dramatically reduce taxable income and the resulting tax bill.
The deduction is designed to encourage small and medium-sized businesses to invest in tools, machinery, vehicles, and technology. It applies to new and used equipment, as long as the property is new to your business and used for business purposes more than 50% of the time.
The Phase-Out Threshold
The Section 179 deduction begins to phase out once total equipment purchases for the year exceed \$3,050,000 (2024). Above this threshold, the deduction is reduced dollar-for-dollar. For example, if you purchase \$3,200,000 of equipment, the deduction is reduced by \$150,000, leaving a maximum deduction of \$1,070,000.
Once your purchases exceed \$4,270,000 (\$3,050,000 + \$1,220,000), the Section 179 deduction is completely eliminated. At that point, bonus depreciation becomes the primary first-year depreciation tool.
The phase-out threshold makes Section 179 primarily a benefit for small and mid-sized businesses. Large corporations that regularly purchase millions of dollars in equipment each year often rely more heavily on bonus depreciation instead.
Bonus Depreciation in 2024
Bonus depreciation is a separate first-year depreciation allowance that applies to the basis remaining after the Section 179 deduction. In 2024, the bonus depreciation rate is 60%. This means 60% of the remaining cost basis after Section 179 can be deducted in the first year.
Bonus depreciation is scheduled to step down further over the coming years: 40% in 2025, 20% in 2026, and 0% in 2027 and beyond (unless Congress extends it). This makes 2024 and 2025 especially valuable years for purchasing business equipment.
Unlike Section 179, bonus depreciation is not subject to a dollar cap and is not limited by business taxable income. It can create or increase a net operating loss, which can be carried forward to future tax years.
How the Calculator Works
The Section 179 deduction calculator uses the following formulas based on IRS Publication 946 and the Tax Cuts and Jobs Act:
**Step 1 - Eligible cost:** Eligible cost = Equipment price x Business-use percentage
**Step 2 - Section 179 deduction:** Phase-out reduction = max(0, Eligible cost - \$3,050,000) Maximum Section 179 = max(0, \$1,220,000 - Phase-out reduction) Section 179 deduction = min(Eligible cost, Maximum Section 179)
**Step 3 - Remaining basis:** Remaining basis = Eligible cost - Section 179 deduction
**Step 4 - Bonus depreciation:** Bonus depreciation = Remaining basis x 60%
**Step 5 - Total first-year deduction and tax savings:** Total first-year deduction = Section 179 + Bonus depreciation Tax savings = Total first-year deduction x (Federal rate + State rate) Net cost = Purchase price - Tax savings
The remaining MACRS basis is then depreciated over the asset's recovery period in future years using the standard MACRS schedule.
What Qualifies for Section 179?
A wide range of business assets qualify for the Section 179 deduction, including:
- **Tangible personal property**: Machinery, equipment, tools, computers, office furniture, and similar items used in business operations. - **Business vehicles**: SUVs, trucks, vans, and cars used for business (special limits apply to passenger automobiles). - **Off-the-shelf software**: Computer software that is not custom-developed and is readily available to the general public. - **Qualified improvement property**: Improvements to the interior of a nonresidential building (excluding elevators, escalators, and structural components). - **Listed property**: Cell phones, computers, and similar items used more than 50% for business purposes.
Assets that do NOT qualify include land, inventory held for sale, property used for furnishing lodging, and property used outside the United States.
FAQs
Q: What is the 2024 Section 179 deduction limit? A: The 2024 Section 179 deduction limit is \$1,220,000. This amount applies to the total of all qualifying equipment and property placed in service during the 2024 tax year.
Q: Can the Section 179 deduction create a loss? A: No. Unlike bonus depreciation, the Section 179 deduction is limited to your business's taxable income for the year. It cannot create or increase a net operating loss. Any unused Section 179 deduction can be carried forward to future tax years, subject to the income limitation in those years.
Q: What is the phase-out threshold for Section 179 in 2024? A: The phase-out begins at \$3,050,000 in total equipment purchases for 2024. The deduction is reduced dollar-for-dollar for every dollar spent above this threshold, eliminating the deduction entirely once total purchases reach approximately \$4,270,000.
Q: How does bonus depreciation differ from Section 179? A: Section 179 is a business election with an annual dollar cap and an income limitation. Bonus depreciation has no dollar cap, can create or increase a net operating loss, and applies automatically unless you elect out. In 2024, bonus depreciation applies at a 60% rate to the cost basis remaining after any Section 179 deduction.
Q: Do I need to place the equipment in service to claim the deduction? A: Yes. To claim either Section 179 or bonus depreciation, the equipment must be purchased and placed in service (made operational for its intended use) during the tax year for which you are claiming the deduction.
Q: Can I use Section 179 for used equipment? A: Yes. Section 179 applies to both new and used business equipment, as long as the property is new to your business. However, the business use percentage must exceed 50% for the asset to qualify.
Q: Are there limits on vehicle deductions under Section 179? A: Yes. Passenger automobiles used for business are subject to luxury auto limits that cap annual depreciation deductions. Heavy SUVs with a GVWR over 6,000 pounds face a separate cap of \$28,900 under Section 179 for 2024. Large trucks and vans over 6,000 pounds GVWR are not subject to this special SUV limitation.
How to use
1. Enter the total purchase price of the equipment or business asset. 2. Set the business-use percentage using the slider. If you use the asset exclusively for business, leave this at 100%. 3. Select your federal marginal tax bracket from the dropdown. This is your highest federal income tax rate, not your effective rate. 4. Enter your state income tax rate. If your state has no income tax, enter 0. 5. Click "Calculate Deduction" to see your Section 179 deduction, bonus depreciation, total first-year write-off, estimated tax savings, and net cost after tax savings. 6. Review the full deduction breakdown table for a line-by-line summary of how your deduction was calculated.