Section 179 Deduction Sets Record in 2024
The Section 179 deduction reached a record of $1.22 million in 2024, representing the largest deduction the IRS has ever offered to companies. Section 179 is one of the tools that businesses can use to reduce their tax liabilities while acquiring essential equipment.
Internal Revenue Code Section 179 permits businesses to expense the entire purchase price of qualifying equipment or software acquired during the tax year. Purchase or finance the eligible new or used equipment and ensure it is placed into service by December 31 of the current year. To claim your Section 179 deduction, simply use Form 4562.
Section 179 is designed to encourage small and mid-sized organizations to invest in their growth by acquiring the equipment they need.
The Section 179 deduction applies to new and used equipment that meets specific criteria, including tangible personal property used in business, computer software and improvements to non-residential property.
What is Bonus Depreciation?
According to the Internal Revenue Service (IRS), bonus depreciation is an additional first-year depreciation allowance for the cost of qualifying business property, beyond normal depreciation allowances. It’s intended to encourage businesses of all sizes — small, mid-sized and large — to invest in new assets by providing tax relief.
Previously, bonus depreciation only applied to new equipment, but thanks to the Tax Cuts and Jobs Act, it now covers used equipment as well, as long as it’s the first time the purchasing business is using it. However, it’s important to note that this benefit is gradually phasing out in the coming years.
How can Section 179 and Bonus Depreciation work together?
Both Section 179 and bonus depreciation offer valuable ways for businesses to reduce the cost of qualifying property purchases. When used together, these tax deductions can provide maximum savings. In most cases, IRS rules require businesses to apply Section 179 first, followed by bonus depreciation.
Using Multiple Deductions
Here’s why you might consider using both deductions:
- Limited stand-alone benefits for Section 179.
The 2024 limits for Section 179 are $1.22 million for the deduction and $3.05 million for the phase-out threshold (both inflation-adjusted). While these limits are now permanent parts of the tax code, bonus depreciation’s inclusion of used equipment means that Section 179 may only apply to benefits in specific situations. - Consistency with bonus depreciation limits.
Bonus depreciation allows businesses to deduct 60% of eligible property costs in 2024, with the percentage decreasing in future years. This makes it a greater incentive to act sooner rather than later on capital investments. - Broader coverage of qualifying equipment.
Both deductions cover more than just physical assets. For example, software is also eligible, making it useful for businesses with digital or technology needs, not just those investing in heavy equipment. Additionally, for equipment investments over $4.27 million, while Section 179 no longer applies, bonus depreciation may still offer tax savings.
The benefits for businesses through Section 179 are scheduled to decline in future years as the deduction and bonus depreciation limits and phase out, making 2024 a key year to maximize the opportunity. Learn more about year-end planning tools to consider.