{"id":204051,"date":"2024-11-06T12:00:50","date_gmt":"2024-11-06T20:00:50","guid":{"rendered":"https:\/\/www.nationalfunding.com\/blog\/?p=204051"},"modified":"2025-03-11T12:17:02","modified_gmt":"2025-03-11T19:17:02","slug":"a-guide-to-the-section-179-deduction-and-its-changes","status":"publish","type":"post","link":"https:\/\/www.nationalfunding.com\/blog\/a-guide-to-the-section-179-deduction-and-its-changes\/","title":{"rendered":"A Plain English Guide to the Section 179 Deduction"},"content":{"rendered":"

Updated on November 6, 2024.<\/em><\/span><\/p>\n

Section 179 is a tax deduction for business-related equipment expenses, allowing owners to deduct the entire cost of large expenses such as machinery, office furniture, and even vehicles from their annual tax bill immediately instead of with traditional depreciation, which spaces it out over time.<\/p>\n

It is similar to depreciation in that you\u2019re taking tax deductions on assets that depreciate like software or a vehicle, but different in that you can take the full amount in the first year (or a few years when there are limits) vs. always having to divide it up over multiple years. And this is where you, as a business owner, can choose which option works for your business needs.<\/p>\n

Section 179 offers significant financial relief for owners of small and medium-sized businesses, incentivizing them to offset their tax burden by investing in these types of assets. While capital asset purchases like machinery or software are allowed under Section 179, it doesn\u2019t include things like real estate, inventory, or office supplies.<\/p>\n

This deduction is designed as a way to reduce your business\u2019s total tax bill by deducting eligible equipment purchases, so that you can save money and bolster your company\u2019s capital assets.<\/p>\n

First enacted in 1958, Section 179 allows you to immediately deduct the cost of these assets during the year in which they are put into service. It is an alternative to the system known as depreciation, which trickles out your federal tax benefits on large purchases over a period of years.<\/p>\n

Section 179 has grown exponentially in recent years, bumping from just $10,000 in maximum expenses in 1992 to $1,220,000 for 2024.<\/p>\n

How Section 179 Deductions Work<\/h2>\n

The Section 179 tax deduction works by letting you deduct the full amount of depreciation during the first year rather than spreading it over multiple years.\u00a0 When you buy large business equipment<\/a> or permanent assets, like real estate, you\u2019re not allowed to deduct the entire purchase within a single tax filing year.<\/p>\n

Instead, you need to spread the deduction over the expected life of the asset (as determined by the IRS), through a system known as depreciation. We\u2019ll use a tractor as an example.<\/p>\n

The IRS classifies a tractor as a three-year asset property. If you buy one for $60,000, you can typically only deduct $20,000 per year for three years under this system. With the Section 179 equipment deduction<\/a> exception, you\u2019re able to deduct the full purchase price of that tractor from your taxes in the first tax year.<\/p>\n

Suppose you have a tax liability of $100,000 and the vehicle from above that depreciates over 3 years at $20,000. By taking the Section 179 selection, your tax liability this year becomes $40,000 instead of $80,000, so you pay less now so you can have more cash on hand to reinvest in your business this year. But make sure you talk with your accountant about this as part of a long-term strategy since taking the full Section 179 selection this year means you won\u2019t have any depreciation deduction for the tractor next year or the year after.<\/p>\n\n\n\n\n\n\n\n\n\n
<\/td>\nWithout Section 179<\/strong><\/td>\nWith Section 179<\/strong><\/td>\n<\/tr>\n
Liability Before Deduction<\/td>\n$100,000<\/td>\n$100,000<\/td>\n<\/tr>\n
This Year\u2019s Deduction<\/td>\n$20,000<\/td>\n$60,000<\/td>\n<\/tr>\n
Next Year\u2019s Deduction<\/td>\n$20,000<\/td>\n0<\/td>\n<\/tr>\n
Third Year\u2019s Deduction<\/td>\n$20,000<\/td>\n0<\/td>\n<\/tr>\n
Tax Liability for This Year<\/td>\n$80,000<\/td>\n$40,000<\/td>\n<\/tr>\n
If Taxes are 30%, you owe this much in taxes this year:<\/td>\n$24,000<\/td>\n$12,000<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

The Section 179 deduction exception has limits, though:<\/p>\n