The Firstbase Guide to Section 179 Deductions

With tax season rapidly approaching, it’s important to be aware of the tax deductions that could help your business save money. Our goal is to help you get the best possible deal on your taxes so that you can save money to grow your business.

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. 

TL;DR – Section 179 Cheat Sheet

• Lets small businesses expense up to 100 % of qualifying equipment/software in year 1.
• 2024 limits: $1.22 M deduction, phase-out starts at $3.05 M, gone at $4.27 M; SUV cap $30.5 k.
• Covers new/used tangible assets and work-only vehicles; must be >50 % business use.
• Cannot create negative taxable income—excess shifts to bonus depreciation (60 % in 2024).
• Beware of recapture tax if you sell assets later.
• File on IRS Form 4562; keep purchase and usage records.
• Strategy: claim Section 179 first, then bonus depreciation to maximize cash savings before step-downs.

What is Section 179? 

Section 179 of the IRS tax code allows businesses to deduct up to 100% of the value of equipment in the first year after buying it. You can deduct as much as 100% of the asset's value if you make a qualifying 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 in their company, the ability to immediately write off the entire purchase price is especially beneficial. 

Many founders think Section 179 sounds too good to be true. But honestly, it's one of the simplest tax breaks out there. If you bought equipment for your business this year, you can probably write off 100% of it. We're talking computers, software, servers, productivity software, or other tech gear. The government wants you to do this – it's designed to help small businesses invest in themselves. Just ask yourself: Did I buy something I use for business at least 50% of the time? If yes, you probably qualify. - Filipe, COO Firstbase

2024-25 Section 179 Limits & Phase-Out Threshold

For 202, the maximum deduction is $1,220,000, and it begins to phase out once the cost of Section 179 property placed in service tops $3,050,000; the benefit disappears completely at $4,270,000.  The SUV “luxury auto” cap is $30,500 for the year. 

Inflation indexing raises the numbers for 2025: the deduction climbs to $1,250,000, the phase-out starts at $3,130,000 and ends at $4,380,000, while the SUV cap becomes $31,300. 

💡 Tip: The phase-out is dollar-for-dollar above the threshold, so spreading purchases across years can preserve the full write-off; any overflow can still claim bonus depreciation. 

If your business spends over $2,890,000 on equipment, your available deduction will begin to be reduced on a dollar-by-dollar basis. Businesses that spend over $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. In other words, you can only use the Section 179 deduction to bring your total income down to zero.

What Qualifies For a 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.

Vehicles

These categories are generally self-explanatory, but vehicles in particular have led to a variety of controversies.

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. Let's take a closer look at how Section 179 deductions apply to vehicles.

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. Speak to a tax professional if you have any questions about specific 179 deductions.

Keep in mind that the assets you use Section 179 to write off are subject to tax if you sell them later on.

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% of the business use requirement

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.

Again, you may be tempted to claim 100%, but you should be careful to only do so if it accurately represents the way the equipment is used. It is illegal to overstate the business use of equipment or property. As mentioned above, you would likely have to pay the tax on top of additional penalties if you misrepresent your equipment use.

Section 179 vs. Bonus Depreciation — Which First?

Availability

Section 179 covers new or used tangible business assets and off-the-shelf software, but it cannot exceed current-year taxable business income. Bonus depreciation applies to the same property classes and has no income cap.

Percentage allowed 

Bonus depreciation is already down to 60% in 2024 and falls to 40% in 2025, 20% in 2026, and 0% after 2026 under existing law. Section 179 remains at a 100 % write-off (subject to its dollar limits).

Smart ordering strategy

1. Claim Section 179 first to absorb taxable income while its cap and phase-out room remain. 
2. Apply bonus depreciation to the remainder, because it ignores income limits, it can drive taxable income below zero, and create an NOL carry-forward.
3. Blend in big-spend years. When purchases exceed the Section 179 phase-out, elect bonus depreciation on the excess at the prevailing percentage (40 % in 2025) to keep cash flow strong. 

Bottom line: Lead with Section 179 to lock in today’s full deduction on priority assets, then layer the dwindling bonus-depreciation percentage on any overflow to squeeze every possible tax-savings dollar while the incentive still exists. 

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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