Section 179 Expense

A person may elect to deduct all or part of the cost of Sec. 179 property acquired during the year, up to a maximum of $2,560,000 for 2026 ($2,500,000 for 2025). updated 2026

• Section 179 property is
  • Tangible personal property that is
    • Recovery property (depreciable) and
    • Section 1245 property (intangible or tangible personal property subject to depreciation or amortization)
  • Acquired
    • By purchase,
    • From an unrelated party, and
    • For use in the active conduct of a trade or business.
  • added 2026 Off-the-shelf computer software also qualifies.
• The definition of Sec. 179 property has been expanded to include
  • Certain depreciable tangible personal property used predominantly to furnish lodging or in connection with furnishing lodging and
  • Qualified real property, meaning qualified improvement property (see Depreciation Methods) and any of the following improvements to nonresidential real property placed in service after the date such property was first placed in service: updated 2026
    • Roofs
    • Security systems
    • Fire protection and alarm systems
    • Heating, ventilation, and air-conditioning property
• Section 179 expense is treated as depreciation. It reduces basis in the property (but not below zero) prior to computation of any other depreciation deduction allowable for the first year, but only if and to the extent that Sec. 179 deduction is elected.
  • It is subject to depreciation recapture under Sec. 1245.
• A deduction may be for no more than either
  • $2,560,000 minus the excess of Sec. 179 property placed in service for the year over $4,090,000 (no Sec. 179 deduction if total cost reaches $6,650,000), for 2026; for 2025 the figures are $2,500,000 and $4,000,000 (zero at $6,500,000), or updated 2026
  • Taxable income (TI) from the active conduct of any trade or business during the tax year.

    Note. The One Big Beautiful Bill Act (July 2025) raised the limits from $1,250,000 / $3,130,000 to $2,500,000 / $4,000,000 for tax years beginning after 2024, indexed for inflation thereafter.

• Other Sec. 179 limitations include the following:
  • Trusts and estates may not claim a Sec. 179 deduction.
  • Only the business-use portion of the cost of Sec. 179 property may be expensed.
  • No more than the statutory amount may be deducted as depreciation on cars and certain luxury items. Excess over the limit may not be expensed under Sec. 179.
  • added 2026 For a sport utility vehicle (any 4-wheeled vehicle rated over 6,000 but not over 14,000 pounds GVWR, with exceptions for vehicles seating more than nine behind the driver, cargo-area vehicles, and vehicles with no seating behind the driver), the Sec. 179 deduction is limited to $32,000 for 2026 ($31,300 for 2025). Bonus depreciation can take the rest.

• Current-year excess over TI may be carried forward and treated as Sec. 179 cost in a subsequent year.

100% Expensing (Bonus Depreciation)

• First-year bonus depreciation is 100% for qualified property (including certain planted or grafted plants bearing fruits and nuts) acquired after January 19, 2025, and placed in service after that date. The 100% rate is permanent; there is no longer a phase-down. updated 2026
  • The property is eligible for the additional depreciation if it is the taxpayer's first use. This allows for the property to be new or used.
  • Qualifying property must be new or used MACRS property with a 20-year or less recovery period.
  • Qualifying property includes qualified improvement property. updated 2026
  • The property cannot be acquired from a related party.
• Any deduction for bonus depreciation is taken before the regular depreciation is recalculated.
• Property acquired on or before January 19, 2025 (including property under a written binding contract entered into by that date) stays on the old phase-down schedule: updated 2026
  • 40% -- placed in service in 2025.
  • 20% -- placed in service in 2026.
  • 0% -- placed in service after 2026.
• added 2026 Transition election: for the first tax year ending after January 19, 2025, a taxpayer may elect 40% bonus depreciation (60% for long-production-period property and certain aircraft) instead of 100%.
• added 2026 A taxpayer may elect out of bonus depreciation for any class of property for the year. The election out is made on the return and is irrevocable without IRS consent.
• added 2026 Qualified production property (Sec. 168(n)). New nonresidential real property used as an integral part of manufacturing, production, or refining of tangible personal property in the U.S. may be expensed 100% in the year placed in service if construction begins after January 19, 2025 and before January 1, 2029, and the property is placed in service before January 1, 2031. Office, administrative, lodging, parking, sales, research, and software-development space is excluded. The deduction is recaptured as ordinary income if the property stops being used in a qualified production activity within 10 years.

Order of Deductions

• Any deduction for Sec. 179 is taken before any bonus (special) depreciation. Any deduction for bonus (special) depreciation is taken before the regular depreciation is recalculated.
• added 2026 Practical point: with 100% bonus permanent, Sec. 179 matters mainly where (a) the taxpayer wants to pick and choose assets rather than expense a whole class, (b) the state does not conform to bonus (Colorado conforms to federal), or (c) the asset is qualified real property such as a roof or HVAC, which is not bonus-eligible because it is 39-year property.

Recapture

• If Sec. 179 property is disposed of prior to the end of the MACRS recovery period, gross income includes any excess of Sec. 179 deduction over MACRS deductions allowable notwithstanding Sec. 179.

  Note. Recapture also applies when the business use of the Sec. 179 property changes to less than 50% of total use.

Energy Efficient Commercial Buildings (Sec. 179D)

• added 2026 The Sec. 179D deduction for energy efficient commercial building property is terminated for property whose construction begins after June 30, 2026.

Private reference, not client advice. Original notes written 2022–2023 while studying for the SEE Part 2; figures updated October 2026 (Rev. Proc. 2025-32, Rev. Proc. 2026-15, P.L. 119-21). Verify current-year amounts before relying on them.