When you buy equipment, vehicles, or machinery for your business, the IRS typically requires you to spread the cost over several years through depreciation. But Section 179 of the Internal Revenue Code offers an alternative: you can deduct the full purchase price of qualifying assets in the year you place them in service. Thanks to the One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, the Section 179 deduction limits are now significantly higher than in prior years.

What Is the Section 179 Deduction?

Section 179 allows business owners to elect to deduct the full cost of certain tangible property in the tax year it is placed in service, rather than recovering the cost through annual depreciation deductions under the Modified Accelerated Cost Recovery System (MACRS). The provision is designed to encourage small and mid-sized businesses to invest in equipment and grow their operations. By front-loading the deduction, Section 179 reduces taxable income in the year of purchase, which lowers the tax burden and keeps more cash available for reinvestment or distributions to owners.

2025 and 2026 Section 179 Deduction Limits

The OBBBA roughly doubled the Section 179 limits beginning with tax year 2025. These amounts are adjusted for inflation each year starting with tax year 2026, as specified in IRS Revenue Procedure 2025-32.

  • Tax year 2025: Maximum Section 179 deduction of $2,500,000. The deduction begins to phase out dollar for dollar when the total cost of qualifying Section 179 property placed in service during the year exceeds $4,000,000.
  • Tax year 2026: Maximum deduction of $2,560,000. The phase-out threshold increases to $4,090,000. The deduction is fully eliminated when total qualifying purchases exceed $6,650,000.

Before the OBBBA, the 2024 inflation-adjusted limit was $1,220,000 with a phase-out starting at $3,050,000. The increase gives small businesses substantially more room to expense qualifying purchases upfront.

What Property Qualifies for Section 179?

To qualify for the Section 179 deduction, property must meet all of these requirements:

  • It must be tangible personal property (or certain real property improvements) purchased for use in a trade or business.
  • It must be placed in service during the tax year in which the deduction is claimed. "Placed in service" means the asset is ready and available for use in the business.
  • The asset must be used for business purposes more than 50% of the time. The deduction is proportional to the business-use percentage. If business use drops to 50% or below in a later year, part of the deduction may need to be recaptured.

Examples of qualifying property include:

  • Machinery and manufacturing equipment
  • Office furniture and fixtures
  • Computers and off-the-shelf software
  • Business vehicles (subject to separate limits discussed below)
  • Certain improvements to nonresidential real property, including roofs, HVAC systems, fire protection and alarm systems, and security systems

Land, inventory held for sale, and property used outside the United States generally do not qualify. For a full list of eligible property categories, see IRS Publication 946, How To Depreciate Property.

Vehicle Deduction Rules Under Section 179

Vehicles are among the most common assets claimed under Section 179, but the IRS imposes specific limits based on the vehicle's gross vehicle weight rating (GVWR):

  • Passenger vehicles under 6,000 lbs GVWR: Subject to annual luxury auto depreciation limits. For tax year 2026, the first-year Section 179 deduction for these vehicles is capped at $12,200 (with an additional $8,000 available through bonus depreciation, for a combined first-year maximum of $20,200).
  • Heavy SUVs and trucks (6,000 to 14,000 lbs GVWR): For tax year 2026, the Section 179 deduction is capped at $32,000 for SUVs. However, the remaining cost may qualify for 100% bonus depreciation, effectively allowing a full write-off of the purchase price.
  • Vehicles over 14,000 lbs GVWR: No Section 179 dollar cap applies. These heavy commercial vehicles can be fully expensed up to the overall Section 179 limit.

All vehicles must be used more than 50% for business to qualify. The deduction is reduced proportionally for personal use. If you are evaluating a vehicle purchase for tax savings, our guide to the 6,000 lb. vehicle tax deduction covers the GVWR categories in detail.

Section 179 vs. Bonus Depreciation

Section 179 and bonus depreciation both allow businesses to accelerate deductions, but they work differently:

  • Section 179 is an election made on a per-asset basis. It has an annual dollar limit ($2,560,000 for 2026), a phase-out threshold, and requires the business to have taxable income at least equal to the deduction (the deduction cannot create a business loss).
  • Bonus depreciation applies automatically to all eligible property in the year it is placed in service unless the taxpayer elects out. Under the OBBBA, 100% bonus depreciation is permanently available for property acquired after January 19, 2025. Bonus depreciation can create or increase a net operating loss.

Many businesses use both provisions together. A common approach is to apply Section 179 first (choosing the assets where you want certainty of the deduction), then allow bonus depreciation to cover remaining qualifying property. Your tax advisor can model the most effective combination for your situation.

How to Claim the Section 179 Deduction

To claim this write-off, file IRS Form 4562, Depreciation and Amortization, with your federal return for the year the asset was placed in service. Part I of Form 4562 is specifically for the Section 179 election. You must identify each qualifying asset, its cost, and the date it was placed in service.

Key procedural points:

  • The election is made on the return for the tax year in which the property is placed in service. You generally cannot go back and amend a prior-year return to add a Section 179 election you did not originally make.
  • Keep records of each asset, including invoices, the date you started using the property for your trade or profession, and documentation of business-use percentage.
  • The deduction cannot exceed the aggregate taxable income from all of the taxpayer's active trades or businesses. Any amount that exceeds this limitation can be carried forward to future years.
  • If you finance an equipment acquisition through a loan or lease arrangement, you may still claim Section 179 on the full cost in the year the asset is placed in service, provided you are considered the owner for tax purposes. Financing does not reduce the deductible amount. See IRS Tax Topic 704 for more on depreciation basics.

Arizona Considerations

Arizona generally conforms to the Internal Revenue Code for purposes of computing adjusted gross income, which means the Section 179 write-off flows through to your Arizona return without additional adjustments in most cases. Arizona adopted TCJA provisions (including the earlier Section 179 expansion) through its rolling conformity process.

However, Arizona's conformity date can lag behind new federal changes. When provisions like the OBBBA are enacted, the Arizona Legislature must formally adopt them. In some cases, this creates a gap where the federal and state amounts differ for a filing season. Check the Arizona Department of Revenue website or consult your tax advisor to confirm that the latest federal limits have been adopted for Arizona purposes before filing. If Arizona has not yet conformed, you may need to add back the difference between the federal and Arizona-allowed amounts on your state return.

Practical Example

Suppose an Arizona small business owner buys $180,000 worth of new equipment in December 2026, including a commercial truck with a GVWR over 6,000 lbs ($65,000) and manufacturing machinery ($115,000). The owner's net income from the trade before the write-off is $200,000.

  • Total qualifying purchases ($180,000) are well below the $4,090,000 phase-out threshold, so no reduction applies.
  • The owner elects Section 179 on the full $180,000. Because $180,000 is less than the $200,000 of net income, the taxable income limitation does not restrict the write-off.
  • The entire $180,000 is deducted in 2026, saving the owner an effective amount based on their combined federal and Arizona rate. At the 24% federal bracket plus Arizona's 2.5% flat rate, the estimated savings would be roughly $47,700 in reduced taxes for that year.

If the same owner had spread those costs over standard MACRS recovery periods (5 to 7 years for most equipment), the first-year write-off would have been substantially smaller, and the full benefit would not be realized until years later.

Frequently Asked Questions

Can I use Section 179 on used equipment?

Yes. Section 179 applies to both new and used property, as long as the asset is new to your business (you did not previously own it or acquire it from a related party).

Is there a limit on how many assets I can expense?

You can expense as many qualifying assets as you want, up to the annual dollar limit ($2,560,000 for tax year 2026). The deduction phases out if total qualifying purchases exceed $4,090,000 and is fully eliminated at $6,650,000.

What happens if my business use drops below 50%?

If the business-use percentage falls to 50% or below in any year during the MACRS recovery period, you must recapture part of the Section 179 deduction. The recaptured amount is added back to your taxable income in the year the use drops.

Can I combine Section 179 with bonus depreciation?

Yes. You can apply Section 179 to specific assets and let bonus depreciation cover the remaining eligible property. This approach is especially useful when the Section 179 taxable income limitation would otherwise restrict your deduction.

Does Section 179 apply to real estate?

Section 179 generally does not apply to buildings or their structural components. However, certain qualified improvement property (QIP), such as interior improvements to nonresidential buildings, along with roofs, HVAC, fire protection, and security systems added to nonresidential real property, can qualify.

How K&R Strategic Partners Can Help

Deciding how to structure equipment purchases, choosing between Section 179 and bonus depreciation, and coordinating the deduction with your overall tax planning strategy requires careful analysis. At K&R Strategic Partners, we help Arizona business owners maximize their deductions while staying compliant with both federal and state rules. Whether you are planning a major equipment purchase, evaluating a cost segregation study, or reviewing your business financials, our team can identify the right approach for your situation.

Call us at 866-402-8990 or contact us online to schedule a consultation.