Section 179 is the Internal Revenue Code provision that lets a taxpayer elect to treat the cost of qualifying business property as a current expense rather than as a capital outlay recovered over years of depreciation. A taxpayer may elect to treat the cost of any section 179 property as an expense which is not chargeable to capital account, and any cost so treated is allowed as a deduction for the taxable year in which the section 179 property is placed in service (26 U.S.C. 179(a)).
Three separate limitations then run on the aggregate cost elected, and they run in a fixed order. A further cap applies per vehicle rather than in aggregate, and a separate rule allocates the limits between spouses filing apart. Reading only the first of them is the most common way a section 179 figure on a return turns out to be wrong.
The Election Names the Property, and the Revocation Is Final
This is an election, not an automatic allowance, and the statute says what the election has to contain. It must specify the items of section 179 property to which the election applies and the portion of the cost of each of such items which is to be taken into account under subsection (a), and it must be made on the taxpayer’s return of the tax imposed by that chapter for the taxable year (26 U.S.C. 179(c)(1)).
The revocation rule reads in a way that surprises people the first time. Any election made under this section, and any specification contained in any such election, may be revoked by the taxpayer with respect to any property, and such revocation, once made, shall be irrevocable (26 U.S.C. 179(c)(2)). The election can be undone. The undoing cannot.
What Counts as Section 179 Property
The definition opens with its own scope words, and they matter, because the term is used elsewhere in the Code with different work to do. For purposes of this section, the term section 179 property means property which is either tangible property to which section 168 applies or computer software as defined in section 197(e)(3)(B) that is described in section 197(e)(3)(A)(i) and to which section 167 applies, which is either section 1245 property as defined in section 1245(a)(3) or, at the election of the taxpayer, qualified real property as defined in subsection (e), and which is acquired by purchase for use in the active conduct of a trade or business (26 U.S.C. 179(d)(1)).
All three of those conditions have to hold at once. The property class test, the character test and the acquisition test are limbs of one definition rather than alternative routes into it, and the last of them is the one that fails quietly, because property bought and then held rather than put to work in an active trade or business never satisfied it. What section 1245 property is, and why the same classification decides the recapture answer later, is set out in 1245 property.
Qualified real property is a defined term rather than a general one. For purposes of this section it means any qualified improvement property described in section 168(e)(6), and any of the following improvements to nonresidential real property placed in service after the date such property was first placed in service: roofs, heating, ventilation, and air-conditioning property, fire protection and alarm systems, and security systems (26 U.S.C. 179(e)). That list is closed. An improvement to nonresidential real property that is not on it, and that is not qualified improvement property, is outside the election however plainly it is an improvement.
Purchase is also defined, and it is defined negatively. Acquisitions from related persons whose relationship would trigger the loss disallowance rules of section 267 or 707(b), acquisitions by one component member of a controlled group from another, and acquisitions whose basis carries over from the transferor or is determined under section 1014(a) are all excluded (26 U.S.C. 179(d)(2)).
Three Limits, Applied in Order
First, the Dollar Limitation
The aggregate cost which may be taken into account under subsection (a) for any taxable year shall not exceed $2,500,000 (26 U.S.C. 179(b)(1)). That figure is the amount Public Law 119-21 substituted for the previous one, and the change applies to property placed in service in taxable years beginning after December 31, 2024 (26 U.S.C. 179, Editorial Notes and Effective Date of 2025 Amendment).
The statutory figure is then indexed. For taxable years beginning in 2026, under section 179(b)(1), the aggregate cost of any section 179 property that a taxpayer elects to treat as an expense cannot exceed $2,560,000 (IRS, Rev. Proc. 2025-32, section 4, paragraph .24).
Second, the Reduction for Heavy Buyers
The second limit is not a ceiling on the deduction. It is a reduction of the first ceiling, driven by total buying rather than by the amount elected. The limitation under paragraph (1) for any taxable year shall be reduced, but not below zero, by the amount by which the cost of section 179 property placed in service during such taxable year exceeds $4,000,000 (26 U.S.C. 179(b)(2)).
Its indexed form moves with the first. For taxable years beginning in 2026 the $2,560,000 limitation under section 179(b)(1) is reduced, but not below zero, by the amount by which the cost of section 179 property placed in service during the 2026 taxable year exceeds $4,090,000 (IRS, Rev. Proc. 2025-32, section 4, paragraph .24).
The word to read closely is placed in service, not elected. Property the taxpayer placed in service and chose to depreciate normally still counts toward the threshold that erodes the ceiling. Because the reduction is dollar for dollar, the ceiling reaches zero once total placements run far enough past the threshold, and a business that crosses that point gets no section 179 deduction at all no matter how little it elected.
Third, the Taxable Income Limitation
The third limit is a wall rather than a taper, and the statute is explicit that it comes last. The amount allowed as a deduction under subsection (a) for any taxable year, determined after the application of paragraphs (1) and (2), shall not exceed the aggregate amount of taxable income of the taxpayer for such taxable year which is derived from the active conduct by the taxpayer of any trade or business during such taxable year (26 U.S.C. 179(b)(3)(A)).
That income figure is computed on its own terms. For purposes of this paragraph, taxable income derived from the conduct of a trade or business shall be computed without regard to the deduction allowable under this section (26 U.S.C. 179(b)(3)(C)). The deduction is measured against income figured before the deduction, so the calculation does not chase itself.
What the third limit blocks is not lost. The amount allowable as a deduction for any taxable year is increased by the lesser of two figures: the aggregate amount disallowed under subparagraph (A) for all prior taxable years, to the extent not previously allowed as a deduction by reason of that subparagraph, or the excess of the limitation of paragraphs (1) and (2), or if lesser the aggregate amount of taxable income referred to in subparagraph (A), over the amount allowable as a deduction under subsection (a) for such taxable year without regard to that subparagraph (26 U.S.C. 179(b)(3)(B)). In working terms, the blocked amount carries forward and is taken in a later year that has room under both the dollar limits and its own business income.
So an unprofitable year does not waste the election. It defers it. That is the practical difference between the third limit and the second: the second destroys ceiling, the third only postpones deduction.
One allocation rule sits alongside the three. In the case of a husband and wife filing separate returns for the taxable year, such individuals are treated as 1 taxpayer for purposes of paragraphs (1) and (2), and unless such individuals elect otherwise, 50 percent of the cost which may be taken into account under subsection (a) for such taxable year, before application of paragraph (3), is allocated to each such individual (26 U.S.C. 179(b)(4)). The couple shares one ceiling and one threshold, and the default split of what runs through them is even.
A Worked Example, With All Three Limits Live
Say a client places qualifying equipment in service in a taxable year beginning in 2026, elects section 179 on as much of it as the statute will carry, and has active trade or business income for the year, figured before this deduction, well below the ceiling the first two limits leave.
Cost of section 179 property placed in service 4,300,000
Threshold for the 2026 taxable year 4,090,000
Excess over the threshold 210,000
Dollar limitation, 2026, before reduction 2,560,000
less reduction, dollar for dollar 210,000
Ceiling after limits one and two 2,350,000
Active trade or business taxable income 900,000
Deduction allowed this year, the lesser figure 900,000
Disallowed by the income limit, carried forward 1,450,000Limits and threshold: IRS, Rev. Proc. 2025-32, section 4, paragraph .24. Ordering and carryover: 26 U.S.C. 179(b)(2), (b)(3)(A) and (b)(3)(B).
Three different numbers, and only the last one reaches the return. Anyone reading only the headline ceiling would have expected a deduction almost three times the size of the real one.
The Vehicle Cap Clients Ask About
There is a separate cap sitting inside the same subsection. The cost of any sport utility vehicle for any taxable year which may be taken into account under this section shall not exceed $25,000 (26 U.S.C. 179(b)(5)(A)), and that figure is indexed too: for taxable years beginning in 2026, under section 179(b)(5)(A), the cost of any sport utility vehicle that may be taken into account under section 179 cannot exceed $32,000 (IRS, Rev. Proc. 2025-32, section 4, paragraph .24).
Sport utility vehicle is a defined term here, and it opens with its own scope words. For purposes of subparagraph (A), the term means any 4-wheeled vehicle which is primarily designed or which can be used to carry passengers over public streets, roads, or highways, except any vehicle operated exclusively on a rail or rails, which is not subject to section 280F, and which is rated at not more than 14,000 pounds gross vehicle weight (26 U.S.C. 179(b)(5)(B)(i)).
Three vehicles are then carved out of the definition: one designed to have a seating capacity of more than 9 persons behind the driver’s seat, one equipped with a cargo area of at least 6 feet in interior length which is an open area or is designed for use as an open area but is enclosed by a cap and is not readily accessible directly from the passenger compartment, and one which has an integral enclosure fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver’s seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield (26 U.S.C. 179(b)(5)(B)(ii)).
The reference to section 280F is what produces the weight folklore clients arrive with. Except as provided in subparagraph (B), the term passenger automobile there means any 4-wheeled vehicle which is manufactured primarily for use on public streets, roads, and highways and which is rated at 6,000 pounds unloaded gross vehicle weight or less, and in the case of a truck or van that second clause is applied by substituting gross vehicle weight for unloaded gross vehicle weight (26 U.S.C. 280F(d)(5)(A)). A vehicle heavy enough to fall outside that definition is not subject to section 280F, which satisfies the second of the three conditions in the sport utility vehicle definition and satisfies only that one. Whether the vehicle then meets the section 179 cap turns on the other two conditions and on the carve-outs: it has to be rated at not more than 14,000 pounds gross vehicle weight, and it must not be one of the three body types the statute excludes (26 U.S.C. 179(b)(5)(B)). Escaping section 280F is a move from one restriction toward another rather than out of all of them.
Where a Pass-Through Applies the Limits
The limits do not apply once. In the case of a partnership, the limitations of subsection (b) shall apply with respect to the partnership and with respect to each partner, and a similar rule applies in the case of an S corporation and its shareholders (26 U.S.C. 179(d)(8)). A partner with elections coming from two partnerships can therefore be inside the limit at each entity and over it personally.
One class of taxpayer is outside the section altogether. This section shall not apply to estates and trusts (26 U.S.C. 179(d)(4)). How the entity itself is classified before any of this is reached is set out in pass-through entities and LLC.
How Section 179 Sits Next to Bonus Depreciation
They are different deductions taken in a set order rather than two versions of one thing, and the order is what decides the basis each one runs on. The comparison, the ordering on Form 4562 and a worked example running both provisions on the same asset are in bonus depreciation, which reads that ordering off the form’s own instructions (IRS, Instructions for Form 4562, 2025). What is left after both is recovered under the general system set out in MACRS.
Common Questions
Tangible property to which section 168 applies, or qualifying computer software, that is also section 1245 property or elected qualified real property, and that was acquired by purchase for use in the active conduct of a trade or business (26 U.S.C. 179(d)(1)). Property acquired from a related person, from another member of the same controlled group, or with a carried-over basis is excluded by the definition of purchase (26 U.S.C. 179(d)(2)).
Two of them are structural. The deduction cannot exceed active trade or business taxable income for the year, so a loss year gets nothing currently and carries the balance forward instead (26 U.S.C. 179(b)(3)(A) and (b)(3)(B)). And the ceiling itself shrinks dollar for dollar once total property placed in service passes the threshold, whether or not the taxpayer elected on that property (26 U.S.C. 179(b)(2)). Expensing basis now also removes it from later years, and it sets up the recapture the statute directs the Secretary to provide for by regulations with respect to any property which is not used predominantly in a trade or business at any time (26 U.S.C. 179(d)(10)).
An LLC treated as a partnership can, and the limits are then tested twice, once at the entity and once at each member, because the limitations of subsection (b) apply with respect to the partnership and with respect to each partner (26 U.S.C. 179(d)(8)). A single-member LLC treated as disregarded reaches the section through its owner’s return. Which of those an LLC is depends on its federal classification rather than on its state-law form, a split set out in LLC.
No, where the relationship is one that would disallow losses under section 267 or 707(b), because such an acquisition is not a purchase for this purpose. The statute narrows the family test as it applies it, treating section 267(c)(4) as providing that an individual’s family includes only that individual’s spouse, ancestors and lineal descendants (26 U.S.C. 179(d)(2)).
Accountably places trained offshore accountants and tax preparers inside US CPA and EA firms, and a firm can put a real block of its own fixed-asset and depreciation work through a trial task before a client file depends on it.
