Section 179 + Bonus Depreciation

Why this matters

Section 179 + bonus depreciation are the two tax provisions that let a service-business owner write off the FULL purchase price of vehicles + equipment + computers + some buildings in the SAME YEAR purchased - instead of depreciating over 5 - 10 years. Used right, they can cut a profitable year's tax bill by a large fraction when you bought a new truck plus equipment. Misused, they create paperwork headaches + the recapture problem when the asset is sold. This is the working reference.

The two provisions (both are tax deductions, both reduce current-year taxable income)

Section 179

• Lets you immediately expense (deduct in year purchased) qualifying business property
• Must be PROFITABLE - can't create a tax loss with Section 179
• Election: per-asset basis (you choose which assets to apply Section 179 to)

Bonus Depreciation (the rate has moved twice, so confirm the year you are filing)

• Immediate expensing of qualifying property
• TCJA set a phase-down of 80% for 2023, 60% for 2024, 40% for 2025, 20% for 2026, 0 for 2027
• The 2025 tax law then restored 100% bonus for property acquired after January 19, 2025, and made it permanent. Property acquired before that date still runs on the TCJA phase-down rate for its acquisition year
• Because the rate turns on the ACQUISITION date, not the year you filed, confirm the applicable rate with your CPA before you plan a purchase around it
• No income limit (CAN create a tax loss)
• Election: applies to ALL eligible property unless you opt out by category

Use BOTH together: Section 179 first up to the deduction limit, then bonus depreciation on the remaining basis.

What qualifies

Qualifies for both: vehicles (with personal-use limits), tools + equipment, computers, office furniture, off-the-shelf software, HVAC equipment for non-residential buildings, most tangible business property.

Doesn't qualify: land, most real estate, inventory, personal-use assets, gifts + inherited property.

The "heavy vehicle" sweet spot

The most-famous Section 179 application: vehicles over 6,000 lbs GVWR.

There are three brackets, and the middle one is where most people get burned:

• Under 6,000 lbs GVWR (cars, light SUVs): hit by the luxury-auto depreciation caps under IRC 280F. Small annual deduction no matter what you paid.
• 6,000 to 14,000 lbs GVWR: out from under the 280F caps, but an SUV in this range is capped at a per-vehicle Section 179 dollar limit that is indexed each year. The exemption that matters to a service shop: a pickup with a cargo bed of at least 6 feet that is not readily accessible from the passenger compartment, and a van with no seating behind the driver, are NOT treated as SUVs and are not subject to that per-vehicle cap. A crew-cab short-bed with a back seat usually IS.
• Over 14,000 lbs GVWR (heavy trucks): no special vehicle limit at all, plus bonus depreciation on remaining basis.

Service-business sweet spot: vehicles like Ford F-150 (newer trim 6,000+ lbs), Chevy Silverado 1500, Ford Transit 250+ vans, RAM 1500/2500/3500. Most modern service trucks clear 6,000 lbs, but clearing 6,000 is not the whole test. Check the bed length and the seating before you promise a customer or yourself an uncapped write-off.

The cash-flow implication: if you're profitable + tax-paying, buying the truck in December and Section 179'ing it in the same tax year significantly reduces that year's tax bill.

Equipment + tools

Service-trade equipment qualifies: HVAC manifolds + recovery, plumbing tools (cameras, jetters), electrical testers + lifts, pool extractors + salt-cell installers, cleaning truck-mounts, lawn equipment (mowers, riders), locksmith tools, computers + tablets, office furniture + shelving. Spend on equipment = deduction year 1.

The profitability requirement (Section 179 only)

Section 179 cannot create a tax loss. The deduction is limited to your business's taxable income.

Example: the business nets a small profit before depreciation and you bought qualifying property worth several times that profit. Section 179 only takes you down to zero taxable income; the rest carries forward to a future profitable year. In a loss year the Section 179 deduction is zero. Bonus depreciation has no such restriction, which is why it is the tool that works in a bad year.

Personal use + recapture

Personal use: business use % × deduction = your deduction. Mileage log mandatory. Skip it + IRS audit assumes 100% personal use.

Real property (QIP): interior non-structural improvements to commercial property - HVAC, plumbing, electrical upgrades - qualify for Section 179 + bonus depreciation.

Recapture on sale: a Section 179'd asset has a basis of zero. Whatever you sell it for comes back as ordinary-income gain, dollar for dollar. The deduction "paid back" via sale. TCJA killed vehicle like-kind exchange (2018+) - selling old + buying new = recapture on old, full basis on new.

Section 179 vs standard MACRS

Standard MACRS depreciation spreads cost: 5 yr (vehicles/equipment), 7 yr (furniture), 27.5/39 yr (buildings). Accelerated typically wins on cash flow.

EXCEPTION: early-career operators expecting HIGHER income later sometimes preserve deduction via standard MACRS. Sophisticated planning; CPA helps.

Timing strategy

Year-end purchasing (Nov / Dec) captures current-year deduction. Project taxable income + size purchases to optimize. Annual planning meeting with CPA in October / November.

Documentation requirements

For each Section 179 / bonus election:

• Invoice / receipt showing date + price + asset description
• Form 4562 (Depreciation + Amortization) filed with annual return
• Per-asset election documentation
• Mileage log (vehicles)
• Business-use percentage documented (if part personal)

CPA handles the forms; you provide the invoices + logs.

State conformity

States vary on whether they conform to federal Section 179 + bonus:

• Most states conform: federal deduction = state deduction
• Some states decouple: federal limit higher than state OR state doesn't allow bonus
• California, NY, NJ, others: limited conformity
• Check your state's rules; some states require separate state-level depreciation calculation

References

• IRS Section 179 (Internal Revenue Code §179)
• IRS Bonus Depreciation (IRC §168(k))
• IRS Form 4562 + instructions
• IRS Publication 946 (How to Depreciate Property)
• State tax authority guidance
• Manuall internal: Daily Vehicle Pre-Trip Inspection, Service Fleet Management Reference