The Section 179 deduction lets a US business deduct the cost of qualifying property, such as equipment, vehicles and off-the-shelf software, in the year it's placed in service instead of depreciating it over several years. As of October 2026, IRS Publication 946 gives a maximum deduction of $2,500,000 for tax years beginning in 2025 and $2,560,000 for tax years beginning in 2026.
If you bought a laptop, camera kit, machinery or a work vehicle this year, Section 179 is the reason your accountant asks exactly when it was placed in service. The deduction is an election, it has two separate limits, and it only works for property used mostly for business. Here's how it works, straight from IRS Publication 946.
Section 179 limits for 2025 and 2026
| Limit | Tax years beginning in 2025 | Tax years beginning in 2026 |
|---|---|---|
| Maximum Section 179 deduction | $2,500,000 | $2,560,000 |
| Phase-out starts when Section 179 property placed in service exceeds | $4,000,000 | $4,090,000 |
| Maximum for sport utility vehicles | $31,300 | $32,000 |
The phase-out works dollar for dollar: the IRS says the maximum is reduced by the amount by which the cost of Section 179 property placed in service in the year exceeds the threshold. For most small businesses the ceiling is far away; the limit that bites is the business income one.
The business income limit
This is the rule people miss. After the dollar limit, Publication 946 says you must apply a business income limit to work out your actual deduction, and it's figured after subtracting allowable charitable contributions. In plain terms, Section 179 can't create a loss from your business. Any amount you elected but couldn't deduct because of the business income limit can be carried over to later years.
What qualifies
- Tangible property you use in your business, such as machinery, equipment, furniture and vehicles
- Off-the-shelf computer software, which the IRS lists as qualifying property
- Certain qualified real property, if you elect to treat it as Section 179 property
- Property bought for business, not from a related person: the IRS gives the example of buying from your father, which doesn't qualify
Land never qualifies. The IRS says you can't depreciate land because it doesn't wear out, become obsolete or get used up.
The more than half business use rule
If you use something for both business and personal purposes, the IRS says you can elect Section 179 only if business use is more than half in the year you place it in service. You then multiply the cost by your business use share. A car used mostly for the school run doesn't qualify, however you log it.
How to claim it
- Place the property in service in the tax year: bought isn't enough, it has to be ready and available for use.
- Check business use is more than half.
- Choose how much to elect: the IRS says you don't have to claim the full amount, and you can spread it across items any way you like within the limit.
- Apply the dollar limit, then the business income limit.
- Claim it on Form 4562 and attach it to your return; the IRS says you need a separate Form 4562 for each business or activity.
Section 179 or bonus depreciation?
Publication 946 also covers the special depreciation allowance, often called bonus depreciation. It says the One Big Beautiful Bill Act reinstated the full special allowance for certain qualified property acquired and placed in service after January 19, 2025. The two can work together, and which order suits you depends on your income and state rules, so this is where a tax adviser earns their fee.
Common Section 179 mistakes
- Claiming it for something bought in December but not set up until January: the IRS says property is placed in service when it's ready and available for a specific use, so the later date counts.
- Forgetting the business income limit and expecting Section 179 to create a loss.
- Electing it on mixed-use property where business use is half or less.
- Buying from a relative: the IRS says property from a related person doesn't qualify.
- Leaving Form 4562 off the return, or using one form for two different businesses.
Most of these come down to records. Keep the invoice, a note of the date each item was ready to use, and a simple log of business use for anything you also use personally. If HMRC rules are what you're working under instead, the UK has its own capital allowances, so don't apply US limits to a UK company.
A worked example from the IRS
Publication 946 gives this example for 2025: you buy and place in service $2,500,000 of machinery and a $25,000 circular saw. You can elect to deduct $2,475,000 for the machinery and the full $25,000 for the saw, a total of $2,500,000, and depreciate the rest of the machinery cost normally. The point is the flexibility: you choose which items take the deduction.
Section 179 sits alongside the other small business deductions: the simplified home office deduction for workspace, the standard mileage rate if you'd rather not depreciate a vehicle, and the QBI deduction for pass-through income.
My verdict
For a small business, Section 179 mostly means you can write off this year's equipment and software this year, as long as you use it more than half for business and have the business income to absorb it. Keep the purchase date and the placed in service date, log business use for anything mixed, and let your accountant decide between Section 179 and bonus depreciation before you file.
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Frequently asked questions
What is the Section 179 limit for 2026?
IRS Publication 946 says the maximum Section 179 deduction for tax years beginning in 2026 is $2,560,000, reduced once Section 179 property placed in service exceeds $4,090,000.
What was the Section 179 limit for 2025?
The IRS says the maximum for tax years beginning in 2025 is $2,500,000, with the phase-out starting at $4,000,000.
Does software qualify for Section 179?
Yes. The IRS lists off-the-shelf computer software as qualifying property for the Section 179 deduction.
Can I take Section 179 if my business made a loss?
The deduction is limited by your business income. Amounts you can't deduct because of the business income limit can be carried over.
Does an SUV qualify for Section 179?
It can, but the IRS caps the deduction for sport utility vehicles at $31,300 for tax years beginning in 2025 and $32,000 for 2026.
What form do I use to claim Section 179?
Form 4562, attached to your tax return. The IRS says you need a separate Form 4562 for each business or activity that requires one.
Does the property have to be used only for business?
No, but the IRS says business use must be more than half in the year you place it in service, and you can only deduct the business use share.
