Section 179 Deduction is a powerful tax tool that helps small and medium-sized businesses reduce their taxable income by expensing the full purchase price of qualifying equipment in the year it's bought. This deduction is especially beneficial for businesses looking to invest in machinery, vehicles, or other tangible assets without waiting years to see a return on their investment.
The deduction is named after Section 179 of the U.S. Internal Revenue Code and is designed to encourage business growth by allowing immediate tax savings. However, it’s important to note that the benefit is limited and phases out for larger purchases above $2.62 million. Most large corporations don’t qualify for this deduction because they typically exceed these thresholds.
Normally, capital assets like heavy machinery are depreciated over several years, meaning only a portion of the cost is deductible each year. Section 179 changes that by letting you deduct the entire cost upfront, which can significantly lower your tax liability right away.
This provision is especially popular during the fourth quarter when businesses look to optimize their tax strategies by purchasing equipment before the end of the fiscal year. The ability to write off the full cost immediately gives companies more cash flow to reinvest in other areas like hiring, research, or expansion.
In addition to Section 179, businesses can also take advantage of bonus depreciation, which allows them to deduct an additional percentage of the asset’s value in the first year. Tax professionals often recommend using Section 179 first, then applying bonus depreciation to the remaining balance.
Overall, Section 179 plays a key role in stimulating economic growth by encouraging businesses to invest in productive assets. It supports job creation, innovation, and long-term business development.
To help you calculate your potential Section 179 Deduction, our team at Equipment Radar has created a free spreadsheet. You can download and use it to estimate how much you can save based on your business’s equipment purchases.
Here are the links to the calculator:
We recommend downloading the Microsoft Excel version so you can customize the spreadsheet with your own numbers. The cells that you should adjust are highlighted in light green. Make sure to input accurate figures to get the most precise results.
To be eligible for the Section 179 Deduction, a business must not spend more than $3.67 million on qualifying equipment in a single year. The maximum deduction per year is $1.05 million. Once total purchases exceed $2.62 million, the deduction begins to phase out dollar-for-dollar until it reaches zero at $3.67 million.
This means that if your business spends just under $2.62 million, you can still take the full deduction. But once you go beyond that threshold, the deduction decreases proportionally. For example, if you spend $3 million, your deduction would be reduced by $380,000.
The IRS provides a chart to help visualize how the deduction phases in and out depending on your equipment purchases. This can be a useful tool when planning your tax strategy.
Source: Equipment Radar and IRS
The IRS provides detailed guidelines on Section 179 deductions in Publication 946, "Depreciation and Amortization." This document outlines what qualifies for the deduction, how to apply it, and the rules surrounding its use. It’s essential to review the latest edition each year since the rules can change.
Most tangible property used in a business qualifies for Section 179, including machinery, vehicles, furniture, and even computer software. However, land and farmland do not qualify because they aren’t subject to depreciation.
To qualify, the property must meet certain criteria: it must be owned by the business, used in the business, have a determinable useful life, and be expected to last more than one year.
Vehicles, such as SUVs, have special rules. For example, the IRS limits the deduction for heavy SUVs to $25,900 in 2020 and beyond. This rule applies to vehicles primarily used on public roads and weighing between 6,000 and 14,000 pounds.
While land itself cannot be depreciated, some costs associated with preparing land for business use—like landscaping or grading—can be. These costs are typically tied to other depreciable assets and must have a measurable useful life.
If you buy a used Caterpillar D8 crawler dozer for $150,000 and use it 100% for business, you can fully deduct the cost under Section 179, assuming your total purchases for the year are below the $1.05 million limit.
If you buy a tractor for both business and personal use, you can only deduct the percentage used for business. For instance, if it’s used 80% for business, you can deduct 80% of the cost.
Only the business that owns the equipment can claim the Section 179 deduction. So, if you rent a power generator, you can’t deduct its cost. However, the rental company may be able to.
Whether new or used, excavators qualify for Section 179. As long as the cost is under $1.05 million, you can deduct the full amount in the year of purchase.
Transportation costs for heavy equipment, like cranes, can be included in the purchase price for Section 179 purposes. So, if you buy a crane from another state, you can add the shipping cost to the total.
This blog post is for informational purposes only and should not be considered tax advice. Always consult a qualified tax professional for guidance tailored to your specific situation. Laws and regulations can change, and it’s important to stay informed about the latest updates.
Remember, Section 179 is a valuable tool for small and medium-sized businesses. By taking advantage of this deduction, you can improve your cash flow and support long-term growth.
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What Is Section 179 Deduction?
Section 179 Deduction Calculator
Calculator Directions
Understanding Deduction Limitations
Tip: The deduction resets every tax year, so it’s important to review your eligibility annually. If you’re close to the limit, consider spreading your purchases across two tax years to maximize your benefits.
Historical Section 179 Deduction Limits
Year
Section 179
Deduction
Deduction
Limit
2021
$1,050,000
$2,620,000
2020
$1,040,000
$2,590,000
2019
$1,000,000
$2,500,000
2018
$1,000,000
$2,500,000
2017
$500,000
$2,000,000
2016
$500,000
$2,000,000
2015
$500,000
$2,000,000
2014
$500,000
$2,000,000
2013
$500,000
$2,000,000
2012
$500,000
$2,000,000
2011
$500,000
$2,000,000
2010
$500,000
$2,000,000
2009
$250,000
$800,000
2008
$250,000
$800,000
2007
$125,000
$500,000
IRS Publication 946 – Key Guidelines
Where to Find Official IRS Guidance
What Equipment Qualifies?
Land and Farmland
Examples of Section 179 in Action
Example 1: Used Construction Crawler Dozer
Example 2: Compact Tractor for Mixed Use
Example 3: Rental Equipment
Example 4: New Excavator Purchase
Example 5: Transporting Heavy Equipment
Important Note
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