Quick definitions
Section 179: Lets you immediately expense up to $1,160,000 of qualifying property in the year you put it in service (2025 cap). Limited by your business taxable income — you can't use it to create a loss.
Bonus depreciation: Lets you immediately expense a percentage of the cost. In 2023 it was 80%, 2024 was 60%, 2025 is 40%, 2026 will be 20%, 2027 is zero. Can create a loss.
The 2025 phase-down is the key context
Through the TCJA sunset, bonus depreciation drops 20 percentage points each year. 2025 = 40%. 2026 = 20%. 2027 = 0%. If Congress doesn't extend it (uncertain), Section 179 becomes the dominant accelerated-deduction tool going forward.
Side-by-side on a $20,000 equipment purchase
| Method | Year 1 deduction | Notes |
|---|---|---|
| Section 179 (full) | $20,000 | Limited to business taxable income |
| Bonus depreciation 2025 (40%) | $8,000 + ~$1,714 regular dep. = $9,714 | Can create a loss |
| Regular MACRS only (5-year) | $4,000 (20%) | Full cost recovered over 5 years |
When Section 179 wins
- You have profitable business income that exceeds the purchase
- You want the full deduction this year
- You're in a higher tax bracket this year than you expect next year
- You bought less than the $1.16M limit (almost everyone)
When bonus depreciation wins
- You have a loss year or low profit, and Section 179 would be limited
- You want to spread the deduction across multiple years (the bonus + regular MACRS split)
- You bought qualified improvement property (QIP) on commercial real estate — Section 179 has limits here that bonus doesn't
- The asset will be used less than 50% for business (Section 179 disqualified; bonus allowed with limits)
The catch with Section 179: income limit
You can't use Section 179 to create a net operating loss. If your business income before the deduction is $15,000 and you 179'd $20,000 of equipment, only $15,000 deducts. The remaining $5,000 carries forward to next year.
Bonus depreciation has no such limit. It can drive your business to a loss that offsets other income (like a W-2 job).
Combining them (yes, you can)
The standard playbook: use Section 179 first, up to the taxable income limit. Then apply bonus depreciation to what's left over. Then regular MACRS on any remaining basis.
Section 179: $30,000 (capped at income)
Remaining basis: $20,000
Bonus 40%: $8,000
Regular MACRS on $12,000 (5-year, half-year): $2,400
Total Year 1 deduction: $40,400
Vehicles: the luxury auto limits
Both 179 and bonus are capped for passenger vehicles. For 2025, the Year 1 cap (with bonus) is roughly $20,400. SUVs over 6,000 lbs GVWR have a higher Section 179 cap of $30,500 but don't escape the luxury auto rules entirely.
The "heavy SUV loophole" is real but smaller than the Instagram finance accounts claim.
How to decide, fast
- Did the purchase exceed your business's profit for the year? → Use bonus first (Section 179 would be limited)
- Otherwise, prefer Section 179 (simpler, larger deduction in most cases)
- If the asset is mixed-use and under 50% business, Section 179 is off the table — bonus only
- Real estate improvements (HVAC, roof, new interior)? Compare carefully — rules differ by property type
We cross-check your Section 179 and bonus entries.
Picking the wrong method (or leaving Section 179 unclaimed) can cost 5–15% of a large equipment purchase.