What is the Section 179 deduction and how does it work for equipment?

Section 179 of the IRS code allows businesses to deduct the full cost of qualifying equipment and software in the year of purchase, rather than spreading the deduction over multiple years through regular depreciation. **2025 Section 179 limits:** - Maximum deduction: $1,220,000 - Phase-out begins when purchases exceed $3,050,000 - The deduction cannot exceed your business's taxable income **Eligible assets:** Machinery and equipment, computers, software, office furniture, vehicles (with limits), and qualifying improvement property. **Vehicle limits under Section 179 (2025):** - Standard passenger vehicles: $12,400 maximum Section 179 deduction - Vehicles over 6,000 lbs GVWR (SUVs, trucks): $30,500 SUV limit, no limit for trucks/vans with full business use - Heavy SUVs and trucks are subject to the $30,500 SUV cap if GVWR > 6,000 lbs **Bonus Depreciation (2025):** OBBBA 2025 restored 100% bonus depreciation for qualifying property placed in service in 2025. This allows first-year deduction of the full cost of most new and used equipment without the Section 179 income limitation. **Section 179 vs. Bonus Depreciation:** Section 179 is limited by business income (cannot create a loss), while bonus depreciation can create or increase a business loss. **Example:** You buy a $4,000 laptop for your freelance business. You can deduct the full $4,000 in 2025 using Section 179 or bonus depreciation — rather than depreciating $800/year over 5 years.

• Section 179 2025: deduct up to $1,220,000 of equipment in the year of purchase
• Cannot create a net loss (unlike bonus depreciation)
• Bonus depreciation (100% in 2025 per OBBBA): deduct full cost of qualifying assets
• Vehicle Section 179: capped at $12,400 for passenger cars, $30,500 for SUVs
• Both methods reported on Form 4562