**Section 179 deduction (IRC Section 179)**: Immediate expensing election allowing businesses to deduct **100% of qualifying equipment cost** in the year placed in service (instead of depreciating over 5-20 years). **2025 limits**: **Maximum deduction**: **$1,220,000** (indexed for inflation from $1.16M in 2023). **Phaseout threshold**: **$3,050,000** total equipment purchases. **Phase-out mechanism**: Dollar-for-dollar reduction once total purchases exceed $3.05M. **Example**: Purchased $3.2M equipment in 2025.

Excess over threshold: $3.2M - $3.05M = $150k. **Reduced limit**: $1.22M - $150k = **$1.07M** (maximum Section 179 allowed). **Qualifying property**: ✅ **Eligible**: Machinery, equipment, vehicles (>6,000 lbs GVW for full deduction), computers, office furniture, software, qualified real property improvements (HVAC, roofs, fire protection, security systems). ❌ **Not eligible**: Buildings (structure itself), land, inventory held for sale, property used <50% business, property acquired from related parties. **Taxable income limitation**: Section 179 **cannot create a loss**.

Limited to taxable business income (before Section 179). **Example**: Business income: $500k.

Equipment purchase: $800k. **Section 179 allowed**: **$500k** (limited by income, cannot deduct full $800k). **Carryforward**: Unused $300k carries forward to 2026+ (until fully used or income sufficient). **Tax savings example** ($500k equipment, $600k business income, 35% tax rate): Section 179 deduction: **$500k** (full amount, within income limit).

Tax savings: $500k × 0.35 = **$175,000** (Year 1 cash benefit). **Without Section 179** (5-year MACRS depreciation): Year 1 depreciation: 20% × $500k = $100k.

Tax savings Year 1: $100k × 0.35 = $35,000. **Extra benefit**: $175k - $35k = **$140,000 extra cash flow** in Year 1 (time value of money advantage).

**Section 179 phase-out calculation** (2025 rules): **Threshold**: **$3,050,000** total qualifying property placed in service. **Phase-out**: **Dollar-for-dollar** reduction of $1.22M limit for every dollar over $3.05M. **Complete phase-out**: At **$4,270,000** total purchases ($1.22M + $3.05M), Section 179 = $0 (fully phased out). **Example scenarios**: **Scenario 1** (below threshold): Total 2025 purchases: **$2.5M** (below $3.05M). **Section 179 limit**: **$1.22M** (full limit available, no reduction). **Scenario 2** (partial phase-out): Total 2025 purchases: **$3.5M** (exceeds $3.05M by $450k). **Reduction**: $3.5M - $3.05M = **$450,000** excess. **Section 179 limit**: $1.22M - $450k = **$770,000** (reduced but still available). **Scenario 3** (complete phase-out): Total 2025 purchases: **$5M** (exceeds $3.05M + $1.22M). **Section 179 limit**: **$0** (fully phased out). **Must use**: 60% bonus depreciation + regular MACRS (no Section 179 benefit). **Strategic planning around threshold**: **Option 1: Split purchases across tax years**: Planned 2025 purchases: $4M total → Triggers phase-out. **Strategy**: Purchase $3M in 2025 (below threshold) + $1M in January 2026. **Result**: 2025 Section 179: $1.22M (full). 2026 Section 179: $1M+ (depends on 2026 limits). **Benefit**: Avoid phase-out, maximize deductions both years. **Option 2: Choose highest-value assets for Section 179**: Total 2025 purchases: $3.5M (phase-out applies, $770k limit available).

Asset A: $1M machinery.

Asset B: $800k vehicles.

Asset C: $1.7M computers/furniture. **Strategy**: Elect Section 179 for **Asset A** ($1M, highest value within $770k limit → Take $770k).

Use **60% bonus depreciation** for remaining $230k (Asset A) + full Assets B/C. **Calculation**: Section 179: $770,000 (Asset A partial).

Bonus (60%): Asset A remaining $230k + Asset B $800k + Asset C $1.7M = $2.73M × 0.60 = **$1,638,000**. **Total Year 1 deduction**: $770k + $1,638k = **$2,408,000** (68.8% of $3.5M). **Option 3: Accept phase-out, use bonus depreciation**: Total 2025 purchases: $5M (Section 179 fully phased out). **Strategy**: Skip Section 179 entirely, rely on bonus. **Bonus (60%)**: $5M × 0.60 = **$3,000,000** Year 1 deduction. **Remaining**: $2M depreciated via MACRS over recovery periods. **Key difference vs Section 179**: Bonus has **no taxable income limitation** (can create loss).

Section 179 **cannot exceed business income**. **Phase-out formula**: **Section 179 limit** = $1,220,000 - MAX($0, Total Purchases - $3,050,000). **Example**: $3.8M purchases.

Reduction: MAX($0, $3.8M - $3.05M) = $750k. **Limit**: $1.22M - $750k = **$470,000**.

**Section 179 vehicle deduction rules** (2025): **Full deduction (no $28,900 limit)**: Vehicles with **Gross Vehicle Weight Rating (GVWR) >6,000 lbs** used **>50% business**.

Includes: Trucks (F-150, Silverado, Ram 1500+), Large SUVs (Suburban, Expedition, Yukon, Tahoe, Sequoia, Armada), Vans (Sprinter, Transit, ProMaster). **Full deduction cap**: Up to **$1,220,000** Section 179 limit (or 60% bonus depreciation + MACRS). **Example**: 2025 Ford F-250 (GVWR 10,000 lbs), purchase price $80,000, business use 100%. **Section 179 deduction**: **$80,000** (full cost, Year 1). **Tax savings**: $80k × 35% = **$28,000** (immediate). **$28,900 limit** (luxury vehicle cap, applies to lighter vehicles): **Vehicles ≤6,000 lbs GVWR** (most passenger cars, crossovers, small SUVs): **Section 179 limit**: **$28,900** (2025, indexed annually). **First-year depreciation total cap**: $20,200 (Section 179 + bonus + regular depreciation combined, if bonus not elected). **With bonus depreciation**: $20,200 + ($80k - $20.2k) × 60% bonus = $20,200 + $35,880 = **$56,080** max Year 1. **Examples**: **Example 1** (luxury sedan, $70k): GVWR: 4,500 lbs (under 6,000 lbs). **Year 1 deduction**: Section 179: $28,900 (capped).

Remaining $41,100 → 60% bonus: $41,100 × 0.60 = $24,660. **Total Year 1**: $28,900 + $24,660 = **$53,560** (76.5% of cost, but capped by $20,200 + bonus rules). **Actual allowed**: $56,080 (combined cap with bonus). **Example 2** (heavy SUV, $90k): GVWR: 6,400 lbs (over 6,000 lbs → **Qualifies for full deduction**). **Year 1 deduction**: Section 179: **$90,000** (full cost, no $28,900 limit).

Tax savings: $90k × 35% = **$31,500**. **SUV special $28,900 sub-limit** (trap for >6,000 lbs SUVs): **Rule**: SUVs with GVWR 6,001-14,000 lbs → Section 179 capped at **$28,900** (not full cost). **Applies to**: Suburban, Tahoe, Yukon, Expedition, Sequoia, Land Cruiser (6,001-9,000 lbs GVWR range). **Does NOT apply to**: Trucks (F-150, Silverado, Ram), Vans (Sprinter, Transit), SUVs >14,000 lbs GVWR (rare). **Example**: 2025 Chevy Tahoe, $85,000, GVWR 7,300 lbs. **Section 179**: **$28,900** (SUV cap applies, even though >6,000 lbs). **Remaining**: $85k - $28.9k = $56,100.

Bonus (60%): $56,100 × 0.60 = $33,660. **Total Year 1**: $28,900 + $33,660 = **$62,560** (73.6% of cost). **Workaround**: Purchase **pickup truck** instead (same size/weight, no $28,900 limit).

Ford F-150, $85,000, GVWR 7,000 lbs → **Full $85,000** Section 179 (no SUV restriction). **Business use requirement**: **>50% business use** required for Section 179. **Calculation**: (Business miles ÷ Total miles) × 100%. **Example**: Total miles: 20,000.

Business miles: 12,000. **Business use**: 12k ÷ 20k = **60%** ✅ (qualifies). **Deduction**: $80k vehicle × 60% = **$48,000** (only business portion deductible). **Listed property rules**: Vehicles ≤6,000 lbs = "listed property" → Strict recordkeeping (mileage log required).

Vehicles >6,000 lbs = NOT listed property → Less strict (but still must substantiate >50% business use).

**Coordination of Section 179 + Bonus + MACRS** (2025 stacking order): **Step 1: Section 179** (elect first, taxable income limited): Maximum deduction: **$1,220,000** (2025 limit). **Cannot exceed**: Taxable business income (cannot create loss).

Unused amount **carries forward** to future years. **Step 2: Bonus depreciation** (60% in 2025, no income limit): Applies to **remaining basis** after Section 179.

Rate: **60%** of cost (phasing down to 40% in 2026, 0% in 2027+). **Can create loss** (no taxable income limitation, unlike Section 179). **Step 3: Regular MACRS** (remaining basis): Depreciates leftover basis after Section 179 + Bonus.

Uses normal MACRS schedules (5/7/15/27.5/39-year). **Example calculation** ($800k equipment, $500k business income): **Scenario A: Section 179 only** (income-limited): Section 179 elected: $800,000. **Income limit**: Business income $500,000 → **Deduction capped at $500k**. **Carryforward**: $800k - $500k = **$300k** (unused, carries forward to 2026). **Year 1 deduction**: **$500,000** (all from Section 179). **Scenario B: Section 179 + Bonus (optimal strategy)**: **Step 1 - Section 179**: Elect $500,000 (max allowed by income limit). **Remaining basis**: $800k - $500k = $300,000. **Step 2 - Bonus (60%)**: $300k × 0.60 = **$180,000** (no income limit, creates loss). **Remaining basis**: $300k - $180k = $120,000. **Step 3 - MACRS** (5-year property, 20% Year 1): $120k × 0.20 = **$24,000**. **Total Year 1**: $500k (179) + $180k (bonus) + $24k (MACRS) = **$704,000** (88% of $800k). **Tax savings**: $704k × 35% = **$246,400** (Year 1 cash benefit). **Advantage over Scenario A**: $704k vs $500k = **$204k extra deduction** in Year 1 (bonus depreciation allows exceeding income limit). **Example with high income** ($1.5M equipment, $2M business income): **Step 1 - Section 179**: Elect **$1,220,000** (2025 max limit, well below $2M income). **Remaining**: $1.5M - $1.22M = $280,000. **Step 2 - Bonus (60%)**: $280k × 0.60 = **$168,000**. **Remaining**: $280k - $168k = $112,000. **Step 3 - MACRS** (5-year, 20%): $112k × 0.20 = **$22,400**. **Total Year 1**: $1.22M + $168k + $22.4k = **$1,410,400** (94% of $1.5M). **When to use Section 179 vs Bonus**: ✅ **Prefer Section 179 if**: Business has **adequate income** to absorb full deduction.

Want **simplicity** (no depreciation tracking after Year 1, fully expensed).

Asset cost **<$1.22M** (can elect full amount). **Phaseout avoided** (total purchases <$3.05M). ✅ **Prefer Bonus if**: Business has **low/no income** (bonus can create NOL carryforward, Section 179 cannot). **Large equipment purchases** (>$1.22M, bonus has no dollar limit).

Want to **preserve Section 179** for specific assets (vehicles, computers) and use bonus for bulk machinery. **Strategic combination** (use both): **Example**: $2M equipment purchase, $800k business income. **Strategy**: Section 179: $800k (use full income limit for highest-priority assets).

Bonus (60%): ($2M - $800k) = $1.2M × 0.60 = **$720k** (no income limit). **Total Year 1**: $800k + $720k = **$1,520,000** (76% of $2M). **If using Section 179 alone**: Limited to $800k (income cap) → Lose $720k deduction in Year 1. **Bonus depreciation phase-out timeline**: 2023: 80% (expired). 2024: 80%. 2025: **60%** ← Current. 2026: **40%**. 2027+: **0%** (unless Congress extends). **Action**: Maximize equipment purchases in 2025 (60% bonus) before 2026 reduction (40%).

**Qualifying tangible personal property** (full Section 179 deduction): ✅ **Machinery & equipment**: Manufacturing equipment, construction equipment, restaurant equipment (ovens, refrigerators), medical equipment, agricultural machinery. ✅ **Vehicles**: Trucks/vans >6,000 lbs GVWR (full deduction), SUVs 6,001-14,000 lbs ($28,900 limit), cars/small SUVs ≤6,000 lbs ($28,900 limit). ✅ **Office equipment**: Computers, printers, copiers, desks, chairs, filing cabinets. ✅ **Technology**: Software (off-the-shelf, purchased), servers, networking equipment, point-of-sale systems. ✅ **Storage**: Shelving, racking systems, grain bins/silos (agricultural). **Qualified Real Property** (limited Section 179, since 2018 TCJA): ✅ **Eligible improvements** (to **nonresidential buildings** only, after initial occupancy): **HVAC**: Heating, ventilation, air conditioning systems (replacements/upgrades). **Roofs**: Roof replacements, repairs (not part of new building construction). **Fire protection/alarm systems**: Sprinklers, fire alarms, smoke detectors. **Security systems**: Burglar alarms, surveillance cameras, access control. **Example**: Restaurant replaces HVAC system ($150k) and installs new security cameras ($20k) in 2025. **Section 179**: $150k + $20k = **$170,000** (full deduction, Year 1). **Tax savings**: $170k × 35% = **$59,500**. ❌ **NOT eligible real property**: **Building structure itself** (walls, floors, foundation) → Must use 39-year MACRS. **Elevators/escalators** → Not qualified real property. **Internal structural framework** → Not qualified. **Land improvements** (parking lots, sidewalks, landscaping) → Not qualified for Section 179 (but may qualify for 15-year MACRS + bonus depreciation). **Example**: $2M new office building construction. **Section 179**: **$0** (building structure not eligible). **Depreciation**: 39-year straight-line MACRS = $51,282/year. **If** same $2M includes $400k HVAC + $100k fire/security systems → Those portions eligible for Section 179. **Section 179 for HVAC**: $400k (Year 1 deduction). **Building structure**: $1.5M ÷ 39 years = $38,462/year. **Total Year 1**: $400k + $38,462 = **$438,462** (vs $51,282 without Section 179 = **8.5x higher** Year 1 deduction). **"After placed in service" requirement**: Qualified real property must be **improvement to existing building** (not part of original construction). **Example 1** (qualifies): Building constructed 2020, HVAC replaced 2025 → **Qualifies** for Section 179. **Example 2** (does NOT qualify): New building construction 2025, includes HVAC as part of original buildout → **Does NOT qualify** (use 39-year depreciation). **Workaround**: Complete building shell first (original construction, 39-year).

Install HVAC/fire/security as **separate contract** after occupancy → Qualifies for Section 179 (treated as "improvement"). **Software deduction rules**: ✅ **Off-the-shelf software** (purchased): **Section 179 eligible** (up to $1.22M). **Example**: QuickBooks, Microsoft Office, Adobe Creative Cloud ($10k) → Full Section 179 Year 1. ❌ **Custom software** (developed internally): **Not eligible** for Section 179 (amortized over 36 months or capitalize). **Cloud/SaaS subscriptions**: **Not depreciable** (expensed as ordinary business expense on Schedule C, not Section 179). **Used property** (since 2018 TCJA change): ✅ **Now eligible** for Section 179 (pre-2018: new property only). **Requirement**: Cannot be purchased from **related party** (family member, >50% common ownership entity). **Example**: Purchase used forklift ($30k) from unrelated party → **Section 179: $30,000** (full deduction). **Business use requirement**: **>50% business use** required for Section 179. **Example**: Equipment used 40% business, 60% personal → **Not eligible** (must use regular depreciation, business portion only). **Recapture risk** (if business use drops ≤50% in later years): **Year 1**: 100% business use, claim $100k Section 179. **Year 3**: Business use drops to 40% (<50%). **Recapture**: Must **repay tax benefit** on excess depreciation (difference between Section 179 taken vs MACRS allowed). **Calculation**: Section 179 taken: $100,000.

MACRS allowed (3 years at 40% business): Year 1-3 MACRS = $28k total. **Recapture income**: $100k - $28k = **$72,000** (added to Year 3 taxable income). **Prevention**: Maintain detailed usage logs proving >50% business use throughout asset life.

**Mistake #1: Exceeding taxable income limit** (most common): **Error**: Electing $1M Section 179 when business only has $400k taxable income. **Consequence**: **$600k disallowed** in Year 1 (carries forward to 2026+, but delays cash benefit). **Correct strategy**: Elect **$400k** Section 179 (match taxable income).

Use **60% bonus depreciation** for remaining $600k ($600k × 0.60 = $360k, no income limit). **Total Year 1**: $400k + $360k = **$760k** (vs $400k if using Section 179 alone). **Mistake #2: Ignoring $28,900 SUV limit**: **Error**: Assuming heavy SUV (7,000 lbs GVWR) qualifies for **full** Section 179 deduction. **Reality**: SUVs 6,001-14,000 lbs → **$28,900 cap** (only trucks/vans get full deduction). **Example**: $90k Suburban (7,200 lbs GVWR). **Incorrect assumption**: $90,000 Section 179. **Actual allowed**: $28,900 (Section 179) + $36,660 (60% bonus on remaining $61,100) = $65,560 total. **Lost deduction**: $90k - $65.6k = **$24,400 Year 1** (must depreciate over 5 years). **Fix**: Purchase **pickup truck** instead (F-150, Silverado, Ram) → Same weight class, **no $28,900 limit**, full Section 179 allowed. **Mistake #3: Forgetting to elect Section 179 on tax return**: **Error**: Purchasing $500k equipment but **not filing Form 4562** (Depreciation and Amortization). **Default**: IRS treats as regular MACRS depreciation (5-year property = $100k Year 1, 20%). **Lost benefit**: $500k - $100k = **$400k** less deduction in Year 1 = $140,000 extra tax (35% bracket). **Fix**: **Form 4562 required**: List each Section 179 asset (description, cost, business use %).

Must be filed **with original tax return** (not amended return, unless timely filed). **Deadline**: Tax return due date (March 15 for S-corps/partnerships, April 15 for sole proprietors). **Mistake #4: Buying assets in December without considering phase-out**: **Error**: Purchasing $3.5M equipment all in December 2025 (triggers phase-out). **Phase-out calculation**: Excess: $3.5M - $3.05M = $450k. **Section 179 limit**: $1.22M - $450k = **$770k** (reduced by $450k). **Lost opportunity**: If split $1.75M in 2025 + $1.75M in January 2026 → Full $1.22M limit both years = **$2.44M total** (vs $770k + bonus). **Fix**: Monitor cumulative purchases quarterly, plan year-end timing. **Mistake #5: Claiming Section 179 on ineligible property**: **Error**: Electing Section 179 on **building structure** ($500k commercial building). **Reality**: Buildings (walls, foundation, structure) = **Not eligible** (must use 39-year MACRS = $12,821/year). **Allowed**: HVAC ($100k), fire/security ($50k) = **$150k** eligible for Section 179. **IRS adjustment**: $500k claimed - $150k allowed = **$350k disallowed** + penalties. **Fix**: Separate construction invoices (building structure vs HVAC/mechanical/security). **Maximization strategies**: **Strategy #1: Coordinate with bonus depreciation**: **Scenario**: $2M equipment, $1M taxable income. **Optimal**: Section 179: $1M (use full income).

Bonus (60%): ($2M - $1M) × 0.60 = $600k. **Total Year 1**: $1.6M (80% of cost). **Suboptimal**: Section 179 only: $1M (capped by income). **Lost**: $600k deduction delayed to future years. **Strategy #2: Allocate Section 179 to highest-value assets**: **Scenario**: $1.5M purchases (within $3.05M threshold), $800k income.

Asset A: $600k machinery.

Asset B: $500k vehicles.

Asset C: $400k computers. **Optimal**: Section 179 for **Asset A** ($600k, highest value, uses most of $800k income limit).

Bonus (60%) for B+C: ($900k) × 0.60 = $540k. **Total Year 1**: $600k + $540k = **$1,140,000** (76%). **Strategy #3: Maximize business use percentage**: **Scenario**: Vehicle used 48% business (does not qualify for Section 179). **Strategy**: Increase business use to **51%** (purchase second personal vehicle for non-business use, shift all business to primary vehicle). **Result**: Qualifies for Section 179 → Deduct $80k × 51% = **$40,800** Year 1 (vs $4,080 MACRS). **Tax savings**: $36,720 extra = **$12,852** (35% bracket). **Strategy #4: Time purchases around phase-out threshold**: **Scenario**: Planned $3.3M equipment (would trigger $250k phase-out). **Strategy**: Purchase **$3M in 2025** (below $3.05M threshold) + **$300k in Jan 2026**. **Benefit**: 2025 Section 179: $1.22M (full). 2026 Section 179: $300k (or 2026 limit if higher). **Vs original**: $970k (phased-out 2025) + bonus/MACRS on remainder. **Extra deduction**: $250k Section 179 preserved = **$87,500 tax savings**.