Section 179 allows businesses to immediately deduct the full cost of qualifying assets, such as equipment, software, certain production property, and select real estate improvements in the year they're placed in service, instead of depreciating them over time.

Limits for the 2025 Tax Year and Beyond

The One Big Beautiful Bill Act (OBBBA), enacted in July 2025, permanently raises the maximum Section 179 deduction to $2.5 million, with the phase-out threshold set at $4 million in qualifying property placed into service. This expansion marks a dramatic increase from the previous $1.25 million cap and the $3.13 million phase-out limit. If a business's purchases exceed the $4 million threshold, the deduction is reduced on a dollar-for-dollar basis and fully phased out once total equipment spending reaches approximately $6.5 million.

Bonus Depreciation - 100% Restored

Under the same legislation, 100% bonus depreciation is now permanently reinstated for qualified property acquired and placed in service after January 19, 2025. This applies to both new and used tangible personal property with a recovery period of 20 years or less, including machinery, computers, furniture, and software. If property is acquired and placed in service on or before January 19, 2025, only a 40% bonus depreciation rate applies.

Vehicles & Listed Property Requirements

The Section 179 deduction for SUVs over 6,000 lbs GVWR is capped at $31,300 for 2025. Heavier work trucks, vans, and vehicles with beds at least 6 feet long may qualify for the full Section 179 expensing, subject to business-use requirements of more than 50%. To qualify for either deduction, property must be used predominantly for business purposes. For listed property, such as vehicles or technology that could have personal use, the business-use portion must be properly documented.

How These Provisions Work Together

Typically, Section 179 is applied first, up to the maximum deduction and subject to business income limitations. Bonus depreciation is then applied to the remaining qualified basis of the property. Because OBBBA removed the phase-down and reinstated full 100% bonus depreciation for qualifying assets, many businesses can often deduct the entire cost of purchases in the first year.

Other Notable Enhancements from OBBBA

OBBBA also broadens the scope of eligible property to include certain qualified production property and nonresidential improvements, such as roofs, HVAC systems, and security systems,  that may not have been eligible for bonus depreciation before. This opens strategic opportunities for manufacturers and businesses investing in real estate improvements.

Strategic Impacts and Tips

State conformity varies. While many states adopt Section 179 rules, they may not follow federal bonus depreciation guidelines. In such cases, businesses may favor Section 179 for state-level benefits. Taxpayers also have the option to elect out of bonus depreciation or choose a reduced percentage in a given year. This flexibility is useful for managing taxable income or net operating losses.