Section 179 Deduction: How It Works, What Qualifies - NerdWallet (2024)

Section 179 deduction definition

Section 179 outlines which major purchases can be used to lower a business’s taxable income in the year the purchased items are put into service.Items that fall under Section 179 may be deductible at full value rather than depreciated.

For example, if you buy a new piece of machinery for your factory, and begin using it right away, you may be able to deduct the entire cost from your business’s taxable income when you file taxes the next year. This is true even though the purchase will continue to have value to you in future years.

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How the Section 179 tax deduction works

Office furniture, computers and off-the-shelf software are among the business equipment covered by Section 179. It doesn’t generally cover real estate. While some vehicles, such as cargo vans, are eligible Section 179 expenses, the federal government has narrowed businesses’ ability to write off vehicles traditionally used for personal transportation.

Another thing to remember when considering business costs for tax purposes is that many expenses are immediately deductible, regardless of whether they qualify for Section 179. These include rent, office supplies, insurance and some startup costs. In contrast, Section 179 mostly deals with assets that will retain value after you begin using them and would otherwise be written off gradually during the course of their time in service.

What expenses qualify for Section 179?

Let’s get one thing out of the way: Section 179 is for business income, not personal income. If you personally bought a piece of equipment last year, that doesn’t count.

However, because many people earn business income through activities such as freelance work or consulting, Section 179 is relevant to many households. There are many ways of setting up a business, all of which can affect taxes, but in general, the following types of purchases could be eligible for a Section 197 deduction.

Other types of products may also be eligible for Section 179 deduction, depending on the nature of your business and how you use the equipment. However, some categories of expenses should be considered carefully before you claim a Section 179 deduction.

2024 Section 179 deduction limit

In 2024 (taxes filed in 2025), the maximum deduction under Section 179 is limited to $1,220,000. A business can combine multiple expenses to reach that total, but there is an overall limit on how much eligible equipment you can buy and still receive a deduction. The maximum deductible amount begins to decrease if more than $3,050,000 worth of property is placed in service.

The 2024 Section 179 deduction limit for SUVs is $30,500.

2023 Section 179 deduction limit

The maximum deduction under Section 179 is $1,160,000 for the 2023 tax year (taxes that were due in 2024). If you placed more than $2,890,000 worth of property in service that would be eligible under Section 179, your maximum deduction begins to decline by the amount in excess of that cap.

And again, keep in mind the lower deductibility for SUVs: $28,900 in 2023.

‘Hummer tax deduction’: Which vehicles does Section 179 cover?

Section 179 was once jokingly referred to as the “Hummer tax deduction” because some business owners could use the high limit on applicable expenses to buy expensive trucks.

Section 179 deductions are limited to vehicles under 6,000 pounds, which would affect tax considerations for many expensive cars. But large SUVs can be heavy, so they weren’t covered by those rules. That’s why the lower limit for SUVs is now part of Section 179.

So how do you know if your passenger vehicle qualifies for the Section 179 deduction? Here are some major factors that determine whether a vehicle is subject to the limit for SUVs.

Does Section 179 cover real estate?

Broadly speaking, Section 179 doesn’t cover real estate purchases. If you bought a new headquarters for your business, you may have to rely on depreciation to receive a tax benefit from that transaction.Land and land improvements, such as “swimming pools, paved parking areas, wharves, docks, bridges, and fences,” also aren't eligible, according to the IRS.

However, there are a few special types of property that may qualify as a Section 179 expense:

What if you don’t qualify for Section 179?

Section 179 will be increasingly important for businesses starting in the 2023 tax year because tax laws expanding the immediate deductibility of other business purchases are phasing out.

The Tax Cuts and Jobs Act allowed a practice known as “bonus depreciation” to expand for several years. Through the 2022 tax year, people could use bonus depreciation to write off eligible assets right away. It’s similar to how Section 179 works, but it covers a wider range of expenses.

In 2023, the portion of an eligible expense that can be claimed in the year you start using it dropped to 80%. In 2024, it drops to 60%, and it will decline each year until it is zero in 2027.

One source of comfort might be that there are no major changes in the works for common business deductions, such as office supplies. But if you’re purchasing a more substantial business asset that doesn't qualify for Section 179, you may not be able to find an immediate way to write off some business costs.