Section 179 & Bonus Depreciation: Writing Off Equipment

Depreciation normally spreads the cost of equipment over years. Two provisions let a business take much or all of it in year one: the §179 election (you choose it, asset by asset) and bonus depreciation under §168(k) (it applies automatically to whole classes of property unless you elect out). The order on the return is §179 first, then bonus, then regular depreciation on what is left.

SECTION 179 — THE LIMITS, WITH A MID-2025 TWIST: the IRS originally published 2025 limits of a $1,250,000 cap with a phase-out starting at $3,130,000 of property placed in service (Rev. Proc. 2024-40). The One Big Beautiful Bill Act (P.L. 119-21, §70302) then RAISED them for tax years beginning in 2025: the cap is now $2,500,000 and the phase-out starts at $4,000,000 (see the 2025 Form 4562 instructions). A special cap applies to SUVs: $31,300 for 2025. Two §179 limits never changed: the property must be placed in service during the year and used more than 50% for business, and the deduction cannot exceed the business's taxable income — §179 cannot create a loss, though the excess carries forward.

BONUS DEPRECIATION — 100% IS BACK: the 2025 law (§70301) permanently restored 100% bonus depreciation for qualified property ACQUIRED after January 19, 2025. Watch the seam: property acquired on or before January 19, 2025 and placed in service in 2025 still gets only the old 40% rate. Bonus has no dollar cap and no income limit — it CAN create a loss. It covers MACRS property with a recovery period of 20 years or less, off-the-shelf software, and qualified improvement property — never the building itself (27.5- and 39-year real property is excluded).

Common mistakes: buying equipment on December 31 but not placing it in service until January (no year-one deduction for the earlier year); expecting the building to qualify; and forgetting that states may not follow the federal rules — Florida has no state income tax, but owners with income in other states must check conformity there.