February 1, 2023

The Firstbase guide to section 179 deductions

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With tax season rapidly approaching, it’s important to be aware of the tax deductions that could help your business save money. Section 179 is one such case. 

Section 179 was created by the U.S. government to encourage small business owners to invest in themselves. It allows business owners to deduct the purchase price of equipment and property from their taxes at the end of the year.  

In this guide, we’ll tell you what you need to know about Section 179, the types of purchases that qualify, and how to file. 

What is Section 179? 

Section 179 of the IRS tax code allows businesses to deduct up to 100% of the value of a piece of business equipment in the first year of purchase. 

This differs from other forms of depreciation, in which a portion of the equipment’s value is deducted over several years. For small business owners looking to make substantial investments into their company, the ability to immediately write off the entire purchase price is especially beneficial. 

Business owners may deduct up to $1,160,000 in the 2023 tax year.

If your business spends more than $2,890,000 on equipment, however, your available deduction will begin to be reduced on a dollar by dollar basis. Businesses that spend more than $4,050,000 on equipment won’t receive any deduction from Section 179. 

Keep in mind that the Section 179 deduction can’t create negative income. For example, let’s say you run a small online crafts business that does about $5,000 in revenue each year, and brings you $3,000 in income. You won’t be able to deduct more than $3,000 from your taxes. 

What qualifies for deduction? 

Many types of equipment and property qualify for deductions under Section 179, including:

  • Vehicles, including passenger vehicles 
  • Software
  • Equipment  
  • Most other tangible business-use goods 

Land, land improvements and intellectual property are not eligible for deduction under Section 179. 


Passenger vehicles qualify for deduction under Section 179, but there are a few details to be aware of. 

Once a notorious tax loophole, Section 179 had historically been exploited by some business owners, enabling them to write off the purchase of SUVs and other large vehicles. The government has since introduced limits on how much of a passenger vehicle’s value can be deducted. 

The exact amount depends on when the vehicle was purchased and put into service. A full breakdown of the limits on deductions for passenger vehicles is available on the IRS website.  

Additionally, some discretion is recommended when it comes to the type of purchased vehicle. Would you really be able to justify the purchase of a $190,000 Bentley SUV as a business expense if your business is a small-scale bake shop?

  • Using Section 179 inappropriately like this could get you into trouble with the IRS, and lead to — at the very least — a reduction in your tax deduction. 

Keep in mind that assets you use Section 179 to write off are subject to tax, should you decide to sell them in the future.

  • Let’s say you purchase a lightly used pickup truck for your landscaping company for $35,000, and use Section 179 to write it off. The next year you sell the truck for $25,000 because you want to purchase a different model. This represents a $25,000 gain, rather than a $10,000 loss, because the $35,000 purchase price was deducted in the same year the truck was acquired. You’ll have to pay what’s called depreciation recapture tax on this $25,000. 

Work vehicles — that is, vehicles which have no or virtually no personal use — generally qualify for a full deduction. Examples may include:

  • Forklifts
  • Shuttles or vans that can fit nine or more passengers 
  • Cargo vans
  • Tractors 
  • Hearses 

50% Business Use 

In order to qualify for the Section 179 deduction, the equipment or property purchased must be used for the business at least 50% of the time. 

The amount you can deduct depends on the percentage of business use. For example, if you use a pickup truck for your business 80% of the time and for personal use 20% of the time, you may deduct 80% of the purchase price. It is illegal to overstate the business use of equipment or property. 

How do I file?

Section 179 deductions are indicated on Form 4562, which deals with depreciation and amortization. 

Each part of the form covers different types of depreciation — for example, Part III focuses on MACRS (modified accelerated cost recovery system) depreciation, which sets out specific depreciation schedules for various assets.

Remember that any piece of equipment you’re writing off must already be in use by your business in order to qualify.

Need more help? Firstbase Autopilot and Payroll members can now access exclusive discounts on tax services through our partnership with Bookmate. Click here to take control of your company’s compliance and tax obligations.

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