Plain-English definition
Section 179 of the Internal Revenue Code lets a taxpayer elect to treat the cost of qualifying property as an expense in the year of purchase, rather than depreciating it over the MACRS recovery period. The election is bounded by an annual dollar limit, an investment phase-out, and a taxable-income cap.
For 2026, the dollar limit is $1,290,000. The phase-out begins at $3,220,000 of qualifying investment placed in service during the year and ends at $4,510,000.
What the law says
“A taxpayer may elect to treat the cost of any section 179 property as an expense which is not chargeable to capital account. Any cost so treated shall be allowed as a deduction for the taxable year in which the section 179 property is placed in service.”
The election is made on Form 4562 attached to the tax return for the year the property is placed in service. The election is revocable only with IRS consent under Rev. Proc. 2015-13.
Qualifying property
§179 property includes tangible personal property used in a trade or business, plus several specific real-property categories added by the TCJA:
| Category | §179 eligible? |
|---|---|
| Equipment, machinery, vehicles, computers, office furniture | Yes |
| Off-the-shelf computer software | Yes |
| Qualified Improvement Property (QIP) | Yes |
| Roofs on nonresidential buildings (post-2017) | Yes |
| HVAC on nonresidential buildings (post-2017) | Yes |
| Fire protection and alarm systems on nonresidential buildings | Yes |
| Security systems on nonresidential buildings | Yes |
| Real property (buildings, structural components other than the four categories above) | No |
| Property used in lodging (other than hotels/motels) | No (unless §179(d)(1) exception applies) |
| Property used outside the U.S. | No |
The roof/HVAC/fire/security categories under §179(f) are a meaningful expansion — a small business that replaces a $200K HVAC system can §179-expense it, where pre-TCJA the same expenditure would have depreciated over 39 years.
The three limitations
§179 is bounded by three separate limits that must each be applied:
1. Dollar limit ($1,290,000 for 2026)
The maximum aggregate §179 deduction across all qualifying property in a single year. Inflation-indexed under §179(b)(6).
2. Investment phase-out (begins at $3,220,000)
If the taxpayer places more than $3,220,000 of qualifying property in service during the year, the §179 dollar limit is reduced dollar-for-dollar above that threshold. At $4,510,000 of investment, §179 is fully phased out.
The phase-out applies on a total investment basis, not a §179-elected basis. Even if a taxpayer elects §179 on only $500K of property, placing $4M in service triggers the full $780K phase-out, leaving $510K of §179 capacity.
3. Taxable-income limit
§179 cannot create a net loss. The deduction is limited to the taxpayer’s aggregate taxable income from the active conduct of any trade or business — across all activities, not just the activity in which the §179 property is used.
Excess §179 carries forward indefinitely under §179(b)(3) and can be used in any future year when sufficient taxable income exists.
§179 vs §168(k) bonus depreciation
The two regimes are often compared because they both produce first-year deductions. The key distinctions:
| Feature | §179 | §168(k) bonus |
|---|---|---|
| Dollar cap | $1,290,000 (2026) | None |
| Investment phase-out | $3,220,000–$4,510,000 | None |
| Taxable-income limit | Yes — cannot create loss | None — can create loss |
| Election required | Yes (Form 4562) | Default — opt-out election required to skip |
| Asset-by-asset election | Yes — choose specific assets | Class-by-class only |
| Eligible property | Personal property + QIP + 4 building components | Personal property, QIP, certain real property components — 20-yr or less recovery |
| Carryforward | Excess carries forward | N/A — no excess |
When §179 is the better choice:
- Small-business owner with stable income near the §179 dollar limit
- Wanting to elect specific assets (e.g., §179 on the vehicle, bonus on the equipment)
- Investment well below the $3.22M phase-out threshold
When bonus is the better choice:
- Investment exceeds the §179 phase-out (any §179 election will be reduced or eliminated)
- Real estate professional using depreciation to create active-income offsets
- Cost segregation studies on real estate where the bulk of accelerated buckets are 15-year property
- Large equipment purchases above the §179 dollar limit
In practice, both are typically used in combination: §179 elected on the optimal mix of assets (often older or shorter-life property where §179 specificity is useful), with §168(k) bonus applied to the residual.
Special rules
Vehicle deduction limits. Passenger automobiles weighing 6,000 lbs or less are subject to the §280F luxury auto caps that limit annual depreciation (including §179 and bonus). Heavy SUVs (>6,000 lbs gross vehicle weight) have their own §179 cap of $30,500 for 2026 — between the regular §179 limit and the §280F luxury caps.
Trade-in or like-kind exchange. Pre-TCJA, like-kind exchanges of personal property received nonrecognition treatment under §1031. Post-TCJA, only real property qualifies for §1031, so personal property exchanges are taxable events — and the new property qualifies for §179 (and bonus) on its full basis.
Recapture. §179 deductions are recaptured if business use of the property drops to 50% or less during the recovery period. The recapture amount is the §179 deduction minus the depreciation that would have been allowed under MACRS without the §179 election. Recapture is reported on Form 4797.
Recapture treatment at disposition
When §179 property is sold or otherwise disposed of, the depreciation taken (including the §179 expensing) is recaptured under IRC §1245. The gain on disposition is treated as ordinary income up to the cumulative §179 + depreciation taken, with any excess as capital gain.
There is no special “§179 recapture” — it follows the normal §1245 mechanics.
Common errors
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Treating §179 as automatic. Unlike bonus depreciation, §179 must be elected on Form 4562. Skipping the election forfeits the deduction.
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Forgetting the taxable-income limit. A taxpayer expecting to use §179 on a $1.29M equipment purchase but with only $400K of taxable income can deduct only $400K — the remaining $890K carries forward. Modeling the §179 deduction without the income cap overstates the immediate benefit.
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§179 on real property where it doesn’t qualify. Roofs, HVAC, fire, and security are eligible — but only on nonresidential buildings. The same components on a residential rental are not §179-eligible (though they may still qualify for 100% bonus depreciation if reclassified to a 15-year MACRS life through cost segregation).
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Investment phase-out miscalculation. The phase-out reduces §179 by total qualifying-property investment, not §179-elected amount. A taxpayer placing $5M in qualifying property in service can’t elect §179 on $1.29M — the phase-out has already zeroed out the dollar limit.
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Mixing §179 and bonus on the same asset without optimization. Where §179 is elected on an asset, bonus applies to the residual basis. The order matters for taxable-income optimization — and the optimal split is sometimes counter-intuitive.
Sources
- Statute: 26 U.S.C. § 179 — Cornell LII
- Regulations: Treas. Reg. § 1.179-1 through § 1.179-6
- IRS publications: Pub. 946 — How to Depreciate Property; Pub. 535 — Business Expenses; Form 4562 Instructions
- Inflation adjustments: Rev. Proc. 2025-32 (2026 dollar and phase-out figures)
Modeling §179 + bonus together on a specific property? The two deductions stack but in a specific order, and the optimal allocation depends on the taxpayer’s other income and projected future-year position. A worked depreciation model for a W-2 high-income filer shows how the §179 and §168(k) sequencing affects current-year tax owed.