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Section 179 §179
Also called Section 179 deduction, IRC 179, first-year expensing.
The Internal Revenue Code election letting a business deduct the full cost of qualifying equipment in the year it is placed in service, subject to an inflation-indexed dollar cap, a phase-out threshold and a taxable income limit.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
What it means
Instead of depreciating a machine over several years, you elect to deduct its cost now. That is the whole idea, and everything difficult about it is in the conditions.
Placed in service, not purchased
The asset must be installed and ready for its intended use inside the tax year. Ordered, paid for, delivered and sitting on a pallet does not qualify. This one point causes more disappointment than every other rule combined.
The three limits
What qualifies
Tangible personal property used more than 50 percent in the business: machinery, most equipment, off-the-shelf software, business vehicles subject to separate limits for passenger autos, and certain improvements to non-residential real property. Not land, not most building structure. Recapture applies if business use later drops below the threshold.
How financing interacts
A machine bought with an equipment loan or a dollar-buyout lease is generally treated as purchased, so the full cost is available for the election even though you paid almost nothing in cash. A true fair market value lease is rent — you have not bought anything, so there is nothing to expense, and you deduct the payments as you make them instead. Bonus depreciation is a separate provision with its own schedule and no taxable income limitation; the two interact, and the order in which they apply matters. See IRS Publication 946.
Where this one catches people
"You write the whole thing off, so it's basically free" is a sales line and it is wrong in three separate ways.
A deduction is not a credit. It reduces taxable income, so the cash benefit is the deduction multiplied by your marginal rate — not the purchase price. The taxable income limitation means a break-even or loss year produces no current deduction at all, only a carryforward, and the business most likely to be sold the deduction as a reason to buy is the one least likely to have income to shelter. And the December rush routinely produces equipment that is delivered but not commissioned by 31 December, so the deduction lands in the following tax year while the finance payments start this one.
Two more worth knowing. If you were sold an FMV lease, there is generally no Section 179 election available to you at all, whatever the vendor said. And taking the full deduction in year one leaves no depreciation shelter in later years, while the finance payments continue — a timing trade, not a saving.
Worked through
Illustrative, using invented figures to show the shape of the calculation rather than to state current law.
Suppose a machine costs 80,000, is installed and running in November, qualifies in full, and the business has ample taxable income and a combined marginal rate of 24 percent.
The deduction cuts taxable income by 80,000 and cuts tax by 80,000 × 0.24 = 19,200. The machine still cost 80,000; the after-tax cost is 60,800. Real, and not the same as free.
Now suppose the business breaks even for the year. Taxable income is zero, the current deduction is limited to zero, and the entire 19,200 of benefit moves to a future year that may or may not arrive — while the first twelve finance payments go out regardless.
Now suppose the machine ships on 20 December and is commissioned on 6 January. It was not placed in service in the tax year. The deduction belongs to next year in every scenario above.
Check the current cap, phase-out threshold and your own marginal rate before applying any version of this.
Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.
Where you will meet this term
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Section 179 — common questions
What does section 179 mean?
The Internal Revenue Code election letting a business deduct the full cost of qualifying equipment in the year it is placed in service, subject to an inflation-indexed dollar cap, a phase-out threshold and a taxable income limit.
Where does section 179 catch people out?
"You write the whole thing off, so it's basically free" is a sales line and it is wrong in three separate ways.
Is section 179 the same as an interest rate?
Section 179 is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does section 179 apply to?
Term Loan, SBA Loan, Equipment Financing.
Is there a worked example of section 179?
Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.
What else should I read alongside section 179?
Capital lease, End-of-term option, Equipment finance agreement, Equipment financing, Equipment lease.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.