Definition
Section 179 allows a taxpayer to elect to deduct the cost of qualifying property, such as equipment and certain software and improvements, instead of depreciating it. For 2026 the maximum is $2,560,000, and the amount is reduced dollar for dollar once the cost of section 179 property placed in service exceeds $4,090,000. For 2025 the figures were $2,500,000 and $4,000,000. The deduction is also limited to taxable income from the active conduct of a trade or business, with any excess carried forward. The election is made on Form 4562.
Why it matters in an audit or review
It affects tax depreciation, the deferred tax liability, and state returns, since many states cap the deduction below the federal amount. Auditors check the total placed in service against the phase-out, the income limitation, the carryforward, and whether an election was made on the return.
Example
Illustrative, 2026: a client places $4,290,000 of property in service. That is $200,000 over the threshold, so the maximum falls to $2,560,000 - $200,000 = $2,360,000. The client elects $2,000,000, but business income is $1,800,000, so the deduction is $1,800,000 and $200,000 carries forward.
Common mistakes
- Applying the phase-out to the amount elected rather than total property placed in service.
- Forgetting that the section 179 amount reduces the basis left for bonus depreciation and MACRS.
Sources
- Internal Revenue Code section 179 and Public Law 119-21 (2025), section 70306
- IRS, Revenue Procedure 2025-32 (2026 inflation adjustments)
- IRS, Publication 946, How To Depreciate Property: https://www.irs.gov/publications/p946
Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error