SECTION 179 AND BONUS DEPRECIATION FOR EQUIPMENT OWNERS
Equipment is one of the asset classes for which the tax code contains provisions allowing a purchaser to recover a substantial portion of the purchase price in the year the asset is placed in service. Two provisions are commonly discussed: Section 179 expensing and bonus depreciation under Section 168(k). They are often referred to interchangeably. They are not the same, and the differences affect how the provisions operate in any given case.
Nothing below is tax, legal, or accounting advice. It is a general description of how the provisions operate as a matter of statute. Entity type, income character, business use, and state conformity all affect the result, and any application to a specific situation is a question for the reader's own tax and legal advisors.
Where the law stands
The One Big Beautiful Bill Act, signed July 4, 2025, restored 100% bonus depreciation permanently for qualifying property acquired and placed in service after January 19, 2025, and raised the Section 179 limit to $2.5 million with a $4 million phase-out threshold, both indexed for inflation. The phase-down schedule that had been stepping first-year expensing toward zero was eliminated.
The IRS maintains the current mechanics for both provisions in Publication 946 and a plain-language summary of Section 179 in the Section 179 deduction overview. For background on the same bill in a market context, see The Big Beautiful Bill and the equipment cycle.
Section 179 compared with bonus depreciation
Section 179 is an election, capped in dollars, and limited by business income — it generally cannot create or increase a net operating loss. It applies per taxpayer, so the ceiling is shared across qualifying purchases in the year. Bonus depreciation has no dollar cap, is not limited by business income, and generally applies automatically unless the taxpayer elects out by class of property.
Ordering is defined by statute. Section 179 is applied first, then bonus depreciation on remaining basis, then regular MACRS on any remaining basis. Much heavy equipment falls in the five- or seven-year MACRS classes.
Because Section 179 is elective asset by asset and dollar by dollar while bonus depreciation is not income-limited, the two provisions interact differently depending on the taxpayer's active business income and whether the activity is passive. Which provision applies, and to what extent, is fact-specific and a question for the taxpayer's own advisors.
The placed-in-service date
The provisions attach to the year property is placed in service, not the year it was ordered, financed, or paid for. Property held in dealer inventory is generally not in service. Property delivered, commissioned, and available for its assigned use generally is, whether or not it has billed an hour.
Acquisition, delivery, and commissioning dates are recorded per serial number and presented to the participant. Placement records, hours, maintenance logs, and insurance in the participant's own entity name are among the materials a participant and their advisors may rely on when documenting the in-service date. The records provided, and the obligations of each party, are governed by the definitive written agreements.
Direct title and pooled structures
A pooled fund generally computes depreciation at the fund level and passes through whatever survives its structure, allocations, and basis limitations. Where a business holds title directly to a serial-numbered machine, depreciation is computed on that entity's own return for the year that machine is placed in service. The same statutory provision can produce different results depending on how the asset is held — see how ownership is structured in the program.
Limitations to review with an advisor
Passive activity limits. Where an activity is passive to the taxpayer, deductions generally offset passive income and the remainder is suspended. This is a common reason a projected first-year result does not occur; the IRS covers the rules in Publication 925.
Business income limitation on 179. The election is limited to aggregate active business income, and amounts above that limit generally carry forward.
State conformity. Several states decouple from federal bonus depreciation, and some cap Section 179 below the federal limit. A federal result is not a combined federal and state result.
Recapture on disposition or change in use. On a sale, or where qualified business use falls to 50% or below, previously claimed benefits can be recaptured as ordinary income. Timing of a disposition therefore has tax consequences that are specific to each taxpayer.
Basis rather than price. Trade-ins, financing costs, and delivery or commissioning charges affect depreciable basis. Deductions are computed on basis, not on the invoice total.
How acquisitions are presented
Each acquisition is presented to the participant with the placement, utilization history, and estimated resale value assumptions available, for that participant's own independent evaluation with their advisors. Whether any first-year expensing or other tax benefit is available, and in what amount, depends entirely on the participant's own facts and is not represented here.
To review the mechanics of a specific acquisition with your own advisor on the call, schedule a consultation or review the program structure.