Section 179 and Bonus Depreciation: How to Deduct Business Equipment

When you buy equipment for your business, you don't have to spread the deduction over years. Section 179 and bonus depreciation let you deduct the full cost immediately — which can significantly reduce your tax bill in the year of purchase.

Normally, business assets are depreciated over their "useful life" as defined by the IRS — computers over 5 years, office furniture over 7 years, etc. This spreads the deduction over multiple years.

Section 179 allows you to deduct the full purchase price of qualifying equipment in the year it's placed in service.

2024 limits:

• Maximum deduction: $1,220,000
• Phase-out begins at: $3,050,000 in total equipment purchases

What qualifies:

• Machinery and equipment
• Computers and software
• Office furniture
• Vehicles (with limits for passenger vehicles)
• Improvements to non-residential property (HVAC, roofing, etc.)

Key limitation: Your Section 179 deduction can't exceed your business's taxable income. You can't use it to create a loss.

Bonus depreciation allows an additional first-year deduction on qualifying property. For 2024, the bonus depreciation rate is 60% (it was 100% through 2022 and is phasing down 20% per year).

Unlike Section 179, bonus depreciation can create or increase a business loss.

Use Section 179 first (up to your taxable income limit), then bonus depreciation for any remaining amount. Your tax preparer can optimize the combination for your situation.

If you're planning a major equipment purchase, timing matters. Buying before December 31 lets you take the deduction this year. Waiting until January pushes it to next year. Talk to your tax advisor before making large purchases.

Want to make sure you're maximizing equipment deductions? The Gap ProAdvisors prepares business tax returns with a focus on legitimate tax savings. Contact us or pay for your tax prep online.