Tax
Section 179 Expensing
A tax election that lets a business immediately expense the full cost of qualifying equipment, software, and certain real-property improvements in the year placed in service, up to an annual dollar cap that phases out at higher spend levels.
Section 179 is the small-business equivalent of an accelerated equipment write-off. Instead of depreciating a $30,000 machine over seven years (~$4,300 per year under MACRS), an eligible business elects to deduct the full $30,000 in year one against ordinary income. For a business in the 24% federal bracket, that pulls roughly $7,200 of federal tax savings forward.
The 2026 limits (adjusted annually): up to $2.56M of qualifying property expensable, with a dollar-for-dollar phase-out as total qualifying purchases exceed $4.09M. A business that buys more than $6.65M of qualifying property in one year loses §179 entirely for that year and must depreciate under MACRS or use bonus depreciation instead.
Qualifying property includes new or used tangible personal property purchased for business use (equipment, furniture, computers, off-the-shelf software, qualifying vehicles above 6,000 lbs GVW), plus certain real-property improvements to non-residential buildings: HVAC systems, roofs, fire protection and alarm systems, and security systems installed after the building was first placed in service. Buildings themselves and structural components do not qualify.
Two crucial mechanics: (1) 'placed in service' is what matters, not purchase date — buying a machine in December but not installing and using it until January means §179 is a next-year deduction, not this-year. (2) §179 is limited to the business's aggregate net income (across all trades or businesses of the taxpayer). It cannot create or increase a net operating loss; any excess §179 is carried forward. Bonus depreciation has no income limit, which is why the two are often coordinated: §179 first up to the income limit, then bonus depreciation for the rest.
State conformity is uneven. California caps §179 at $25,000 with a $200,000 phase-out threshold — a fraction of federal. Modeling federal-state separately is essential for California businesses.
Common pitfalls
- Buying equipment in December for the deduction but not placing it in service until the next year; 'placed in service' is what counts
- Trying to expense a luxury SUV under the light-vehicle rules; heavy-SUV expensing (6,000-14,000 lb GVW) has its own $30,300 cap for 2026, and passenger cars under 6,000 lb are capped even lower
- Stacking Section 179 with bonus depreciation in the wrong order; §179 applies first (to the extent income allows), then bonus depreciation on the remainder
- Assuming state tax mirrors federal; California caps §179 at $25,000, which routinely surprises Bay Area buyers of six-figure equipment
- Electing §179 in a low-income year when the deduction gets stuck at the income limit; the carryforward is fine but the immediate cash benefit was the whole point
Related service
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Federal, state, and local returns prepared and reviewed by a licensed CPA, with the planning done before year-end rather than after it.