§179 — Expensing Rules and Boundaries
Section 179 lets a business elect to expense qualifying property up to an annual limit. It differs from bonus depreciation in scope, dollar limits, the taxable-income cap, and the property it covers. Limits are stated by tax year. Educational information, not tax advice.
Educational information, not tax advice.
Updated 2026-10-14
Key takeaways
- For tax years beginning in 2026, the federal limit is $2,560,000, reduced dollar for dollar above $4,090,000 of qualifying property (Rev. Proc. 2025-32).
- For tax years beginning in 2025, the figures are $2,500,000 and $4,000,000.
- Property must be acquired by purchase for use in the active conduct of a trade or business.
- Qualified real property includes QIP, roofs, HVAC, fire protection and alarm, and security systems — but not land improvements.
- §179 is taken first on Form 4562, then bonus depreciation, then regular MACRS.
Section 179 allows a taxpayer to elect to deduct the cost of §179 property in the year it is placed in service, up to an annual dollar limit. Public Law 119-21 raised the statutory limit to $2,500,000 with a $4,000,000 phase-out threshold for property placed in service in taxable years beginning after December 31, 2024. With inflation adjustment under Rev. Proc. 2025-32, the figures for tax years beginning in 2026 are $2,560,000 and $4,090,000. The cap for certain sport utility vehicles is $32,000 for tax years beginning in 2026 and $31,300 for tax years beginning in 2025.
Unlike bonus depreciation, §179 requires use in the active conduct of a trade or business, which can exclude some passive rental activities. The deduction for a year cannot exceed the taxpayer’s taxable income from the active conduct of a trade or business. Disallowed amounts carry forward. The dollar limit applies at both the entity and owner level for partnerships and S corporations.
Section 179 property is tangible property to which §168 applies, or certain computer software, that is either §1245 property or, by election, qualified real property, and that is acquired by purchase for use in the active conduct of a trade or business. “Purchase” excludes acquisitions from certain related persons, acquisitions between members of the same controlled group (using a more-than-50-percent test), and property with carryover basis or a §1014 basis from a decedent.
The election specifies the items and the portion of cost treated as an expense. It is made on the return for the year the property is placed in service. A revocation of the election or of a specification, once made, is irrevocable. Estates and trusts cannot elect §179. Noncorporate lessors face additional limits.
This page is educational information, not tax advice. Whether to expense an item under §179, take bonus depreciation, or recover it under regular MACRS is a return decision for the taxpayer’s CPA. State rules can differ from the federal limits.
Qualified real property
Section 179(e) lets a taxpayer treat certain improvements to nonresidential real property as §179 property: qualified improvement property described in §168(e)(6), and roofs, heating, ventilation, and air-conditioning property, fire protection and alarm systems, and security systems placed in service after the building was first placed in service.
Publication 946 notes that land and land improvements, such as paved parking areas and fences, do not qualify. A 15-year parking lot identified in a cost segregation study is not §179 qualified real property. QIP can be, if the taxpayer elects to treat it as such and the other §179 tests are met.
Qualified real property is still subject to the same dollar limit, phase-out, and taxable-income limit as other §179 property. Treating a roof as §179 property does not create a second limit.
How it interacts with a study
A cost segregation study identifies property in shorter classes. Whether to expense some of it under §179, take bonus depreciation, or depreciate normally is a return decision. On Form 4562, §179 is taken first, then the special depreciation allowance, then regular MACRS on remaining basis.
Reclassified 5-year and 7-year personal property often meets the §1245-property prong of the definition. That does not mean it must be expensed. Bonus depreciation, as of October 16, 2026, is 100 percent for qualified property acquired after January 19, 2025, and does not have a §179-style dollar cap.
A look-back study on a building placed in service in an earlier year does not, by itself, create a current-year §179 election for that old basis. Section 179 applies to property placed in service in the election year. Catch-up depreciation from a method change is a §481(a) question, not a §179 election on prior-year assets.
Boundaries
Property acquired from certain related parties does not qualify. Publication 946 gives the example of machines bought from one’s father. The family circle for this purpose is limited to spouse, ancestors, and lineal descendants. Controlled-group and carryover-basis acquisitions are also outside “purchase.”
Estates and trusts cannot elect §179. The dollar limit of a controlled group is shared. Partners and S corporation shareholders apply the limit at both the entity and the owner.
Many states do not follow the federal limits. California’s 2025 Form FTB 3885 instructions state that California does not conform to the enhanced federal §179 election. California’s own maximum is $25,000, reduced if the cost of §179 property placed in service exceeds $200,000. Other states are not listed on this page.
Sport utility vehicles and listed property
Section 179(b)(5) caps the cost of a sport utility vehicle that may be taken into account. The statutory cap is $25,000, inflation-adjusted. Rev. Proc. 2025-32 sets $32,000 for tax years beginning in 2026. The 2025 figure in Publication 946 is $31,300.
The statutory definition is a four-wheeled passenger vehicle that is not subject to §280F and is rated at not more than 14,000 pounds gross vehicle weight, with listed exclusions for certain passenger-capacity, cargo, and integral-enclosure vehicles. Whether a particular vehicle is in that category is a CPA question.
Listed property used 50 percent or less for business does not qualify for the §179 deduction. That business-use test is separate from the dollar limit.
Sources
- 1
- 2Public Law 119-21 (July 4, 2025), §§70301, 70306, 70307(opens in a new tab)
The 2025 reconciliation law, which the IRS describes as commonly known as the One, Big, Beautiful Bill Act.
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- 4IRS Publication 946 — How To Depreciate Property (2025)(opens in a new tab)
Appendix B reproduces the Rev. Proc. 87-56 class lives.
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