Want the full IRC §179 walkthrough, the qualifying property tests, the heavy-SUV cap details, the bonus-depreciation order of operations, and the Form 4562 line-by-line? Read the companion guide.
Read the Section 179 Deduction Guide →
Short Answer
For tax years beginning in 2026, IRC §179 lets a business immediately expense up to $2,560,000 of qualifying property cost (up from $2,500,000 in 2025), with the maximum reduced dollar-for-dollar when total qualifying property placed in service exceeds $4,090,000 (up from $4,000,000) and eliminated entirely at $6,650,000. Heavy SUVs (GVWR 6,001-14,000 lb) are capped at $32,000 of §179 expense under §179(b)(5)(A). The deduction cannot exceed aggregate taxable income from active trades or businesses under §179(b)(3); excess carries forward indefinitely. Property must be used more than 50% for business in the year of election or no §179 is allowed. Section 179 stacks with 100% bonus depreciation under §168(k) (made permanent for property acquired and placed in service after January 19, 2025 by OBBBA §70401): §179 election first, bonus depreciation absorbs the residual.
Key Takeaways
- 2026 limits (Rev. Proc. 2025-32 §4.24): $2,560,000 max election, $4,090,000 phase-out threshold, $6,650,000 full elimination, $32,000 heavy-SUV cap.
- 2025 limits (OBBBA §70301): $2,500,000 / $4,000,000 / $6,500,000 / $31,300 SUV cap. Both years are 2.5x the pre-OBBBA $1,000,000 / $2,500,000 baseline.
- 50% business-use requirement under §179(d)(1) is a hard gate - 50% or less business use disqualifies §179 entirely for that property in that year (MACRS only).
- Taxable income limit under §179(b)(3) applies at the individual level: aggregate active trade-or-business income (Schedule C + W-2 + partnership/S-corp K-1 ordinary income) before §179. Excess carries forward indefinitely.
- Heavy-SUV cap under §179(b)(5)(A) at $32,000 / $31,300; pickup trucks with 6+ ft cargo bed, vans seating 10+, and qualified non-personal-use vehicles are exempt.
- Coordinates with 100% bonus depreciation under OBBBA §70401: §179 elected first, §168(k) absorbs the residual on property acquired AND placed in service after January 19, 2025.
- Pass-through entities: election at entity level (Form 1065 line 12 / Form 1120-S line 11), passed through on K-1 line 12 / line 11; owner aggregates K-1 amounts at individual level for the per-year dollar limit.
- QIP under §179(f): roofs, HVAC systems, fire protection, alarm systems, and security systems on nonresidential real property qualify; residential rental does NOT qualify under §179.
- Related-party disqualification under §179(d)(2): property acquired from a controlled corporation, sibling, parent, child, spouse, or related entity under §267(b) or §707(b) is not §179-eligible.
- Form 4562 Part I election by listing on lines 6 and 7; revocable in subsequent years under §179(c)(2) with IRS consent (Rev. Proc. 2008-54).
How This Calculator Works
Step 1 - Apply the Rev. Proc. 2025-32 dollar limit by year
For 2026 the maximum §179 election is $2,560,000 and the phase-out threshold is $4,090,000 (Rev. Proc. 2025-32 §4.24). For 2025 the figures are $2,500,000 and $4,000,000 (OBBBA §70301; both indexed for inflation in subsequent years). The calculator picks the correct dollar limit based on the selected tax year.
Step 2 - Compute the phase-out reduction under §179(b)(2)
If total qualifying property placed in service during the year exceeds the threshold ($4,090,000 for 2026), the maximum dollar limit is reduced dollar-for-dollar by the excess. The reduced limit cannot go below zero. At $6,650,000 of placed-in-service property, the §179 deduction is fully phased out. Formula: Reduced limit = max(0, Max Limit - max(0, Total PIS - Phase-out Threshold)).
Step 3 - Check the 50% business-use threshold and apply the SUV cap
Business use must exceed 50% in the year of election. If business use is 50% or less, §179 is disallowed for the property and basis must be recovered through straight-line MACRS over the property's recovery period. For heavy SUVs with GVWR between 6,001 and 14,000 pounds, the deduction on the SUV is capped at $32,000 for 2026 ($31,300 for 2025) under §179(b)(5)(A). The SUV cap is applied AFTER the dollar-limit reduction. Pickup trucks with a cargo bed of 6+ feet, vans seating 10+ passengers behind the driver, and qualified non-personal-use vehicles bypass the SUV cap.
Step 4 - Apply the taxable-income limitation under §179(b)(3)
The total §179 deduction allowed in any year cannot exceed the taxpayer's aggregate taxable income from the active conduct of any trade or business, computed without the §179 deduction itself. For individuals, this aggregates Schedule C income, W-2 wages from any employer (treated as a trade or business per Reg. §1.179-2(c)(6)), Schedule F income, and partnership / S-corp ordinary income. Any amount disallowed under the income cap carries forward to future years indefinitely and is deductible in any future year against active trade-or-business income (subject to the same per-year limit).
Step 5 - Coordinate with 100% bonus depreciation and compute first-year deduction
After §179 is computed, the residual basis (cost minus §179 elected minus any prior basis adjustments) is offered to 100% bonus depreciation under §168(k). Under OBBBA §70401, qualifying property acquired AND placed in service after January 19, 2025 is eligible for 100% bonus permanently. Used property qualifies if it is new to the taxpayer. If bonus is elected out (or property is ineligible), the residual recovers basis through MACRS over the asset's class life (5-year for vehicles and computers; 7-year for office furniture and machinery; 15-year for QIP). The calculator sums §179 + 100% bonus depreciation + first-year MACRS (half-year convention) to produce the total first-year deduction, then computes the cash tax savings at the marginal federal rate.
Worked Example: Sole Prop Buys $80,000 in Equipment + a $75,000 Heavy SUV in 2026
Daniel is a self-employed general contractor filing Schedule C. In June 2026 he purchases a $75,000 heavy-duty pickup truck (GVWR 7,400 lbs) used 80% for business and a $80,000 sheet-metal brake press machine for the shop, used 100% for business. Total qualifying property placed in service in 2026 = $155,000. Daniel's projected Schedule C net income before §179 = $200,000. Marginal federal rate 24%, SE tax additional approx 14.13%.
Inputs and Dollar Limit
Tax year2026
Entity typeSole prop / Schedule C
Property 1 - Brake press machine$80,000 / 100% biz
Property 2 - Heavy SUV pickup truck$75,000 / 80% biz / 6+ ft bed
Total qualifying property placed in service$155,000
§179 max election (2026)$2,560,000
Phase-out threshold (2026)$4,090,000
Phase-out reduction (155K is below threshold)$0
Reduced §179 dollar limit$2,560,000
Property 2 - Truck Treatment (6+ ft Bed - NOT SUV-capped)
Truck cost$75,000
Business-use %80%
Business basis (75K x 80%)$60,000
SUV cap applies? (6+ ft bed exempts)No
§179 elected on truck$60,000
Property 1 - Brake Press Machine (Full Expensing)
Machine cost$80,000
Business-use %100%
§179 elected on machine$80,000
Year-1 Total Deduction + Tax Savings
Total §179 elected$140,000
Taxable income limit (Sch C $200K)$200,000 (not binding)
§179 deduction allowed$140,000
Federal income tax savings (24%)$33,600
SE tax savings (~14.13%)$19,782
Combined federal tax savings$53,382
Why §179 wins for Daniel: Both assets are placed in service in 2026 with active trade-or-business income exceeding $140,000. The taxable-income limit ($200,000 Sch C plus any W-2 income) does not bind. Full first-year expensing accelerates $53,382 of cash tax savings - effectively a 34% rebate on the property cost in year-one alone. The 100% bonus depreciation alternative would produce the same first-year deduction on these assets, but §179 was preferred here for two reasons: (1) Daniel can fine-tune the election asset-by-asset (e.g., partially expense the truck to manage QBI deduction interaction), and (2) state conformity is cleaner for §179 in several states (e.g., Pennsylvania caps §179 at $25,000 but conforms differently to bonus depreciation; California disallows bonus depreciation but allows §179 up to $25,000).
What changes if the truck has a short bed: If Daniel had bought a heavy SUV (Tahoe / Suburban / Expedition / G-Wagen / Land Rover / Cybertruck-style short-bed) instead of a 6+ ft bed pickup, the §179 deduction on the SUV would have been capped at $32,000 under §179(b)(5)(A). The remaining basis ($60,000 business basis - $32,000 = $28,000) is then offered to 100% bonus depreciation under §168(k) (truck used 80% for business, eligible). Same year-1 result: $60,000 fully expensed in year 1. The SUV cap rarely produces a deferred deduction in 2026 because 100% bonus absorbs the residual immediately.
Quick Facts: 2026 Section 179 Deduction
Section 179 Dollar Limits by Tax Year
| Tax Year |
Max Election §179(b)(1) |
Phase-Out Threshold §179(b)(2) |
Heavy-SUV Cap §179(b)(5)(A) |
Source |
| 2026 | $2,560,000 | $4,090,000 | $32,000 | Rev. Proc. 2025-32 §4.24 |
| 2025 | $2,500,000 | $4,000,000 | $31,300 | OBBBA §70301 |
| 2024 (pre-OBBBA) | $1,220,000 | $3,050,000 | $30,500 | Rev. Proc. 2023-34 |
| 2018 (post-TCJA) | $1,000,000 | $2,500,000 | $25,000 | TCJA §13101 |
| 2017 (pre-TCJA) | $510,000 | $2,030,000 | $25,000 | PATH Act of 2015 |
Section 179 vs 100% Bonus Depreciation Comparison
| Feature |
Section 179 §179 |
Bonus Depreciation §168(k) |
| Statutory basis | IRC §179 | IRC §168(k) (OBBBA §70401) |
| 2026 maximum | $2,560,000 | 100% of basis (no dollar cap) |
| Can create or increase a loss | NO (§179(b)(3) income limit) | YES (no income limit) |
| Default treatment | Elected asset-by-asset on Form 4562 | Automatic; opt-out by class of property |
| Phase-out at high acquisition | Yes (above $4,090,000) | No phase-out |
| Heavy-SUV cap | $32,000 (2026) | No SUV cap (but luxury auto cap §280F) |
| QIP eligibility | Yes under §179(f) (roofs, HVAC, fire, alarm, security) | Yes for QIP under §168(e)(6) |
| Used property | Yes (must be new to taxpayer + not from related party) | Yes (must be new to taxpayer) |
| Carryforward of disallowed amount | Yes (indefinite, income-limited) | N/A (creates NOL instead) |
| State conformity | Varies (some cap at $25,000 - CA, PA) | Lower conformity (CA / NY decouple) |
| Recapture trigger | Business use drops to 50% or less | Sale before recovery period ends |
Practitioner Insight
The single most common §179 election error I see at intake is the W-2-employee-with-side-LLC client who has been expensing equipment under §179 against just the side-LLC's small net income, missing the fact that the §179(b)(3) income limit at the individual level aggregates W-2 wages from any employer (Reg. §1.179-2(c)(6)) plus all Schedule C income plus K-1 ordinary income. The full W-2 + side-LLC stack often supports much larger §179 elections than the client realized. A $180,000 W-2 day-job + a side LLC that net-zeroes at $0 still permits a $180,000 §179 election on side-LLC equipment - and the deduction is reported on the side-LLC return, flowing through to reduce Schedule C income to a loss that offsets W-2 wages dollar-for-dollar. The second common error is the high-acquisition client who didn't realize the §179(b)(2) phase-out exists: a $4.3 million qualifying-property placement in 2026 triggers $210,000 of phase-out reduction (4.3M minus 4.09M), leaving a $2,350,000 reduced limit on the table - still useful but no longer the headline $2.56M. The third error is the client who placed property in service before January 19, 2025 and assumed 100% bonus applied - it does not. The OBBBA §70401 100% bonus restoration only covers property both acquired AND placed in service after January 19, 2025; property placed in service January 1-19, 2025 is stuck on the 40% TCJA-phasedown rate (TCJA bonus was scheduled to drop to 40% in 2025 before OBBBA repealed the phasedown going forward, but the pre-1/19 window is locked in at 40%). For those orphaned 2025-Q1 acquisitions, §179 election is often the cleanest fix - and the higher OBBBA §70301 $2,500,000 dollar limit applies to those same orphan acquisitions because §70301 is effective for property placed in service in tax years beginning after December 31, 2024 (no January 19 cutoff for §179).
Real-World Scenario: Pass-Through S-Corp Buys $300K of Equipment Plus a Cybertruck
Maria operates a custom cabinetry shop as an S-corp in Texas, owning 100% of the stock. In Q3 2026 the shop purchases a $220,000 CNC routing center (machinery, 7-year MACRS), a $80,000 paint-booth and finishing system (7-year), and a $98,000 Tesla Cybertruck (GVWR 6,603 lbs - heavy SUV under §179(b)(5)(A) because the bed is under 6 ft; used 90% for business). Total qualifying property placed in service: $398,000. Maria's S-corp ordinary income before §179 is projected at $260,000. Maria also has $50,000 in W-2 wages from a separate consulting employer. She files MFJ with her spouse who has $90,000 in W-2 income. Marginal federal rate 24%.
Why §179 is the right tool for the equipment: The $300,000 in CNC + paint-booth is general tangible personal property with 100% business use and no SUV cap. At the S-corp level, §179 election on Form 1120-S line 11 picks up the full $300,000. The 2026 dollar limit ($2,560,000) is way above this election so no phase-out. The $300,000 passes through to Maria on K-1 line 11; she must then apply the §179(b)(3) income limit at her personal level.
Cybertruck SUV cap mechanics: The Cybertruck has a GVWR of 6,603 lbs (heavy enough for §179) but the cargo bed is 6 ft 4 in - technically exempt from the SUV cap under the 6 ft pickup-bed exception per Reg. §1.280F-6(c). Different practitioners interpret the bed-length test differently (some include the tailgate, some don't); the conservative position treats the Cybertruck as SUV-capped at $32,000 (2026), with the residual ($98,000 x 90% - $32,000 = $56,200) absorbed by 100% bonus depreciation. The aggressive position takes the full $88,200 business basis as §179. Maria's CPA should document the position taken and the bed-length measurement.
Computation under the conservative SUV-cap position: S-corp §179 = $300,000 (CNC + paint booth) + $32,000 (Cybertruck SUV cap) = $332,000 elected. S-corp ordinary income before §179 = $260,000. Income limit at the S-corp level = $260,000 (entity-level cap under Reg. §1.179-3). S-corp passes through $260,000 of §179 and $72,000 of carryover at the entity level (not at the shareholder level). Maria's K-1 shows $260,000 of §179 deduction. Maria's individual income limit aggregates her S-corp ordinary income ($260K minus the $260K of §179 reduces to $0), her W-2 wages ($50,000), and her spouse's W-2 ($90,000 if filing jointly and spouse's wages count toward the same limit). Note: spouse's wages on a joint return are added per Reg. §1.179-2(c)(6)(iv) only if the spouse is also a co-shareholder or partner in the business; otherwise spouse's wages are not added. Conservative reading: Maria's individual limit is $50,000 of her own W-2 plus $0 of post-deduction S-corp income = $50,000. She can deduct $50,000 of the $260,000 K-1 amount; $210,000 carries forward at the individual level. Total federal tax savings year 1: $50,000 x 24% = $12,000. Carryforward: $210,000 at individual level plus $72,000 at S-corp level.
Strategic alternative - elect 100% bonus instead: Bonus depreciation has no income limit. Electing bonus on the same property generates a $332,000 deduction at the S-corp level, dropping S-corp ordinary income to ($72,000) - a passthrough loss that flows to Maria's individual return and offsets her W-2 wages, the spouse's W-2 wages, and other passive income. Maria's individual tax savings year 1: $332,000 x 24% = $79,680 (without the income-limit handcuff). The lesson: for a passthrough owner whose entity income would be capped, 100% bonus often outperforms §179. The exception is state tax conformity - California decouples from §168(k) bonus entirely, so a CA shareholder would see no state benefit from bonus and would prefer §179. Texas has no income tax, so Maria is indifferent on state.
When This Calculator Does Not Cover Your Situation
- Property placed in service before January 19, 2025: 100% bonus depreciation under OBBBA §70401 applies only to property both acquired AND placed in service after January 19, 2025. Property placed in service in January 1-19, 2025 is on the TCJA-scheduled 40% bonus rate (the OBBBA repeal of the phasedown is not retroactive). The calculator's bonus toggle should be set to "No" or the result manually adjusted to 40% for those Q1-2025 orphan acquisitions; §179 election is often the better fix in that narrow window.
- Section 280F luxury-auto cap (in addition to or instead of SUV cap): Passenger vehicles under 6,000 lbs GVWR are subject to the §280F luxury-auto annual depreciation cap ($20,400 year 1 with bonus, $12,400 without bonus for 2025 / 2026 - confirm with Rev. Proc. 2025-32 final figures). For vehicles in this category, the §280F cap binds before §179 or bonus, producing a much smaller first-year deduction than the calculator shows. Use Form 4562 Part V for §280F-limited vehicles.
- Related-party purchase disqualification: Section 179(d)(2) and the cross-reference to §267(b) and §707(b) disqualify property acquired from a controlled corporation, sibling, parent, child, grandparent, grandchild, spouse, or related entity (50%+ common ownership). The calculator does not flag this; check Form 4562 instructions before electing on a related-party purchase.
- State conformity decoupling: California limits §179 to $25,000 (Cal. Rev. & Tax. Code §17255) and disallows bonus depreciation entirely. Pennsylvania mirrors federal §179 but caps phase-out at lower levels. New York decouples from bonus depreciation but conforms to §179. Hawaii conforms to neither. The calculator computes federal only - check state instructions before finalizing the election.
- Section 179 recapture under §179(d)(10): If business use drops to 50% or less in a year before the property's MACRS recovery period ends, prior §179 deductions are recaptured - the excess of the §179 expense over what straight-line MACRS would have allowed in the elapsed years is included in income on Form 4797. The calculator computes only year-1; check Form 4797 for recapture in any year the use percentage changes.
- Pass-through entity-level vs owner-level income limits: S-corps and partnerships apply the §179(b)(3) income limit at the entity level FIRST under Reg. §1.179-3, then the owner applies the limit AGAIN at the personal level on the K-1 amount. The calculator's entity-type select adjusts the income limit but does not double-stack the limit - for partnership / S-corp filers, run the calculator at the entity level then run it again at the owner level with the K-1 amount as the elected amount.
- Residential rental real estate ineligible: Section 179(d)(1) excludes residential rental property entirely. Roofs and HVAC on residential rental do not qualify even under §179(f). Bonus depreciation under §168(k) is the workhorse for residential rental personal property (appliances, carpeting, depreciable improvements). The calculator assumes a qualifying trade or business; do not use for pure residential rental Schedule E activity.
- Multiple-asset interaction with QBI deduction §199A: A large §179 deduction reduces qualified business income (QBI), which can lower the §199A 20% deduction. For taxpayers near the §199A phase-in threshold ($201,750 / $403,500 for 2026 per Rev. Proc. 2025-32 §4.26), partial §179 election may produce a better overall result than full expensing. The calculator does not project the §199A interaction. Run the QBI Deduction Calculator alongside to optimize.
- Section 163(j) business-interest limitation interaction: Bonus depreciation reduces adjusted taxable income (ATI), which tightens the §163(j) interest-deduction limit. Section 179 election arguably does NOT reduce ATI (treated more like an election than an automatic deduction under the §163(j) regulations). For highly leveraged taxpayers with significant interest expense, this can flip the §179-vs-bonus calculus.
- Inventory and intangibles excluded: Inventory held for sale, goodwill, customer lists, patents, copyrights, and other intangibles are NOT §179-eligible. Off-the-shelf software is the narrow exception that IS §179-eligible under §179(d)(1)(A)(ii). The calculator does not check property eligibility - verify under §179(d)(1) before electing.
FAQ: 2026 Section 179 Deduction
What is the 2026 Section 179 expensing limit?
Under Rev. Proc. 2025-32 section 4.24 (verified for tax years beginning in 2026), the section 179(b)(1) maximum election is $2,560,000. The deduction begins to phase out dollar-for-dollar under section 179(b)(2) when total qualifying property placed in service during the year exceeds $4,090,000, and is fully eliminated at $6,650,000 of placed-in-service property. The section 179(b)(5)(A) heavy-SUV sublimit (for SUVs with gross vehicle weight rating between 6,001 and 14,000 pounds used more than 50 percent for business) is $32,000 for 2026. These amounts are increases from the 2025 limits of $2,500,000 / $4,000,000 / $31,300 set by OBBBA section 70301 (Public Law 119-21), and are now permanently indexed to inflation.
What does OBBBA change about Section 179 for 2025 and 2026?
OBBBA (Public Law 119-21, signed July 4, 2025) section 70301 raised the section 179(b)(1) maximum from $1,000,000 to $2,500,000 and the section 179(b)(2) phase-out threshold from $2,500,000 to $4,000,000, both effective for property placed in service in tax years beginning after December 31, 2024. Both numbers are indexed for inflation in subsequent years; Rev. Proc. 2025-32 section 4.24 applied the first inflation step for 2026 ($2,560,000 / $4,090,000 / $32,000 SUV cap). OBBBA section 70401 separately restored 100% bonus depreciation under IRC section 168(k) for qualified property both acquired AND placed in service after January 19, 2025, and made the 100% rate permanent (no further phasedown). The two provisions stack: section 179 is elected first up to the dollar limit, then 100% bonus depreciation absorbs the remaining basis on eligible property.
What property qualifies for Section 179?
Section 179(d)(1) qualifying property includes (a) tangible personal property used in the active conduct of a trade or business (machinery, equipment, computers, off-the-shelf software, furniture, fixtures, and most business vehicles); (b) qualified improvement property under section 168(e)(6) (interior nonresidential building improvements placed in service after the building was placed in service); and (c) under section 179(f), specified improvements to nonresidential real property - roofs, HVAC systems, fire protection and alarm systems, and security systems. The property must be acquired by purchase from an unrelated party, placed in service during the tax year, and used more than 50 percent for business in the year of election. Inventory held for sale, land, residential rental property, and intangibles other than off-the-shelf software do not qualify.
What is the heavy SUV cap under Section 179?
IRC section 179(b)(5)(A) caps the section 179 deduction at $32,000 (2026; $31,300 for 2025) for any sport utility vehicle with a gross vehicle weight rating (GVWR) above 6,000 pounds and not more than 14,000 pounds. The cap was enacted to close the so-called Hummer loophole and applies to a vehicle designed to carry passengers on streets that has a GVWR in this range. Pickup trucks with a cargo bed of at least 6 feet, vans seating 10+ passengers behind the driver, vehicles modified for cargo with no seating behind the driver, and qualified non-personal-use vehicles (delivery vans, ambulances, hearses, taxi cabs) are exempt from the SUV cap and can use the full section 179 limit. Remaining basis after the $32,000 cap can still be absorbed by 100% bonus depreciation under section 168(k), so the SUV cap rarely produces a deferred deduction in practice for 2026.
How does the Section 179 taxable income limitation work?
IRC section 179(b)(3) limits the section 179 deduction in any tax year to the aggregate taxable income from active trades or businesses of the taxpayer (computed without the section 179 deduction itself). For individuals, the limit is computed at the taxpayer level and includes Schedule C net income, W-2 wages from any employer (treated as a trade or business under Regulation section 1.179-2(c)(6)), Schedule F farm income, and partnership / S-corp pass-through ordinary income, all before the section 179 deduction. The limit cannot create or increase a net loss for the year. Any section 179 amount disallowed under the income limit is carried forward indefinitely and may be deducted in any future year against active trade-or-business income (subject to the same per-year limit). The phase-out under section 179(b)(2) is applied BEFORE the income limit.
How does Section 179 interact with bonus depreciation?
The order of operations is: (1) Section 179 election first - the taxpayer chooses how much of the qualifying basis to expense under section 179, up to the per-year dollar limit and subject to the taxable income limit. (2) Section 168(k) bonus depreciation second - applies automatically to the basis remaining after the section 179 election. Under OBBBA section 70401, qualified property acquired and placed in service after January 19, 2025 is eligible for 100% bonus depreciation, permanently. (3) MACRS regular depreciation third - applies to any residue (for 2026 this is typically zero on bonus-eligible property because 100% bonus absorbs it all). The strategic case for using section 179 instead of, or alongside, 100% bonus depreciation: section 179 is elected asset-by-asset and class-by-class, so the taxpayer can fine-tune the deduction to optimize against the section 199A QBI deduction, the section 163(j) interest limitation, or state conformity issues. Bonus depreciation defaults to automatic and is an all-or-nothing election by class of property to opt out.
What is the 50% business-use requirement?
To elect section 179 for any property, the taxpayer must use the property more than 50 percent for business in the year the property is placed in service. If business use is 50% or less, NO section 179 deduction is allowed for that property in that year - the taxpayer must instead recover the basis through ordinary MACRS depreciation. If business use exceeds 50%, the section 179 deduction is limited to the business-use percentage of the cost. Under section 179(d)(10), if business use falls to 50% or less in a later year (before the property's MACRS recovery period ends), the prior section 179 deduction is recaptured - the excess of the section 179 amount taken over what straight-line MACRS would have allowed in the prior years is included in income in the year of the use change. The recapture is reported on Form 4797.
Can I elect Section 179 on equipment used in rental real estate?
Generally no for the rental real estate itself (residential rental is not qualifying property under section 179(d)(1)). However, section 179(f) allows the deduction on roofs, HVAC, fire protection and alarm systems, and security systems installed on nonresidential real property after the building was first placed in service. Equipment used in connection with rental real estate is qualifying only if the rental activity rises to a section 162 trade or business under the standards of Hazard v. Commissioner and subsequent case law (typically requiring active management, multiple properties, and substantial owner involvement). Pure passive residential rental activities reported on Schedule E typically do NOT qualify for section 179 because they are not an active trade or business; bonus depreciation under section 168(k) is the workhorse for those activities.
Can S-corps and partnerships pass through Section 179?
Yes. The section 179 election is made at the entity level (Form 1065 line 12 for partnerships, Form 1120-S line 11 for S-corps), and the entity-level dollar limit ($2,560,000 for 2026) applies to the entity. The partner's or shareholder's share is reported on Schedule K-1 line 12 (partnerships) or K-1 line 11 (S-corps). The owner then applies the section 179 taxable-income limit at the owner level to the K-1 amount - the owner's individual share is limited to that owner's aggregate active trade-or-business taxable income for the year. C-corps elect at the corporate level on Form 1120 with no pass-through. A key trap: a taxpayer's per-year section 179 limit ($2,560,000) is computed at the individual level by aggregating all K-1 section 179 allocations plus any direct sole-prop section 179 - so an owner active in multiple pass-through entities can exhaust the limit fast.
What is reported on Form 4562?
Section 179 elections are reported on Part I of IRS Form 4562 (Depreciation and Amortization). Line 1 is the maximum dollar limit ($2,560,000 for 2026); line 2 is the total cost of qualifying property placed in service; line 3 is the phase-out threshold ($4,090,000 for 2026); line 4 reduces the dollar limit by the phase-out (cost over $4,090,000); line 5 is the resulting reduced limit; lines 6 and 7 list the specific property elected (description, cost, elected amount); line 11 is the business-income limit from active trade-or-business sources; line 12 is the allowed section 179 deduction (the smaller of line 5 or line 11 across all elected property); line 13 is the carryover from the income limit. Part II reports 100% bonus depreciation under section 168(k). The election is made by listing the property on lines 6 and 7 and by attaching Form 4562 to the original timely filed return (including extensions); a section 179 election made on a late return is generally not valid unless the IRS grants relief under section 179(c)(2).
Official Sources
- IRC §179 - Election to Expense Certain Depreciable Business Assets (Cornell LII) - Statutory authority; subsections (b)(1) max dollar limit, (b)(2) phase-out reduction, (b)(3) taxable income limit, (b)(5) heavy-SUV cap, (c) election mechanics, (d) definitions (qualifying property + related-party rule), (f) qualified real-property improvements.
- Revenue Procedure 2025-32 (PDF) - Section 4.24: 2026 inflation-adjusted Section 179 amounts. $2,560,000 maximum / $4,090,000 phase-out threshold / $32,000 heavy-SUV cap. Effective for tax years beginning in 2026.
- One Big Beautiful Bill Act (OBBBA), P.L. 119-21 - Section 70301 increased Section 179 maximum from $1M to $2.5M and phase-out from $2.5M to $4M effective for property placed in service in tax years beginning after December 31, 2024; both inflation-indexed thereafter. Section 70401 restored 100% bonus depreciation under §168(k) for property both acquired AND placed in service after January 19, 2025, and made the 100% rate permanent.
- About Form 4562 (IRS) - Depreciation and Amortization (Including Information on Listed Property). Part I §179 election; Part II bonus depreciation; Part V listed property and §280F vehicle limits.
- 2025 Instructions for Form 4562 (IRS) - Line-by-line guidance for §179 election, phase-out, SUV cap, qualifying property, and bonus depreciation coordination.
- IRC §168 - Accelerated Cost Recovery System (Cornell LII) - Statutory authority for MACRS depreciation and §168(k) bonus depreciation. Subsection (k)(2) qualified property definition; (k)(6) phasedown schedule (now superseded by OBBBA §70401 for property acquired and placed in service after January 19, 2025); (e)(6) qualified improvement property.
- Treas. Reg. §1.179-1 (Cornell LII) - Election to expense; general rule for qualifying property and election timing.
- Treas. Reg. §1.179-2 (Cornell LII) - Limitations on amount; taxable-income limit framework. Subsection (c)(6) aggregates W-2 wages as trade-or-business income for individual income limit.
- Treas. Reg. §1.179-3 (Cornell LII) - Carryover of disallowed deduction; entity-level vs owner-level income limit application for pass-throughs.
- Treas. Reg. §1.179-4 (Cornell LII) - Definitions; qualifying property tests including 50% business-use requirement and related-party disqualification.
- Treas. Reg. §1.179-5 (Cornell LII) - Time and manner of making election; revocation procedures (Rev. Proc. 2008-54).
- Treas. Reg. §1.280F-6 (Cornell LII) - Listed property; passenger automobile definition; 6-ft pickup bed exception from heavy-SUV cap.
- IRC §267 - Losses, Expenses, and Interest with Respect to Related Taxpayers (Cornell LII) - Related-party definition referenced by §179(d)(2).
- IRS Publication 946 - How to Depreciate Property; comprehensive coverage of MACRS, §179 expensing, and bonus depreciation with chapter examples.
Decision Step: Should You Elect Section 179, Bonus Depreciation, or Both?
Route A - High Active Income, Single-Asset Purchase, Want Full Expensing
Elect §179 on the full asset cost. Best fit when active trade-or-business income (Schedule C + W-2 + K-1 ordinary) clearly exceeds the asset cost. Form 4562 Part I election; result flows to Schedule C, Schedule F, Form 1065 line 12, Form 1120-S line 11, or Form 1120 line 20 depending on entity. Read the Section 179 Deduction Guide for the Form 4562 walkthrough and the §199A interaction caveats.
Route B - Pass-Through Owner Constrained by Entity-Level Income Limit
Skip §179 and elect 100% bonus depreciation under §168(k) on the same property. Bonus has no income limit and can create or increase a passthrough loss that offsets the owner's W-2 wages, spouse's wages, and other income. Best for S-corp and partnership owners whose entity ordinary income is small relative to the asset cost. Confirm property is bonus-eligible (acquired AND placed in service after January 19, 2025 under OBBBA §70401). Run the QBI Deduction Calculator alongside - large bonus often reduces §199A.
Route C - Mixed Strategy for Optimal §199A QBI Deduction
Partially elect §179 to bring taxable income exactly to the §199A phase-in threshold ($201,750 single / $403,500 MFJ for 2026 per Rev. Proc. 2025-32 §4.26) without going further. Combine with partial bonus or MACRS on the residual. Best for high-income passthrough owners straddling the §199A phase-in. The math is iterative - work the calculator alongside the QBI Deduction Calculator until the marginal §199A loss from each additional dollar of §179 equals the marginal tax savings from that dollar.
Route D - State Tax Conformity Decoupling
If you file in a state that decouples from bonus depreciation (California, New York, New Jersey, Massachusetts, Wisconsin, others) but conforms to §179 up to a state-specific cap, elect §179 first up to the state cap (e.g., $25,000 in California under Cal. Rev. & Tax. Code §17255) and bonus on the residual for the federal benefit. This optimizes for both federal and state. The calculator computes federal only - verify state-specific limits before finalizing.
This calculator is for educational and illustrative purposes only. It does not constitute tax, legal, or financial advice. The Section 179 deduction interacts with the §168(k) bonus depreciation rules, the §199A QBI deduction, the §163(j) business-interest limitation, the §280F luxury-auto cap, the §179(d)(2) related-party rules, the §179(d)(10) business-use recapture rule, the §280A self-rental rules, and state-tax conformity issues that this tool does not fully model. Consult a qualified tax professional before electing §179 on a related-party purchase, on property near the phase-out threshold, or on property used 50-60% for business. Tax laws are subject to change.