Section 179 Calculator

The OBBBA Transformation: What Changed in 2025

The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, made sweeping changes to business depreciation that represent the most significant update since the Tax Cuts and Jobs Act of 2017. For Section 179, the deduction limit was doubled to $2,500,000 for tax year 2025 (up from $1,250,000 under prior law), with the phase-out threshold raised to $4,000,000. For 2026, both figures are inflation-adjusted to $2,560,000 (limit) and $4,090,000 (phase-out). Full phase-out now occurs at $6,500,000 (2025) and $6,650,000 (2026). This means businesses spending up to $4 million on qualifying equipment in 2025 can still claim the full $2.5 million Section 179 deduction — a dramatic expansion that benefits mid-size companies that previously hit the old $3.5 million threshold.

Equally important, the OBBBA restored 100% bonus depreciation for property placed in service after January 19, 2025 — reversing the TCJA phase-down schedule that had reduced the rate to 40% for 2025 under prior law.

What Qualifies for Section 179: The Eligible Property List

Section 179 covers a broad range of tangible business property. Qualifying assets include machinery, equipment, computers, off-the-shelf software, office furniture, certain vehicles (subject to weight and use rules), and qualified improvement property (QIP) — interior improvements to nonresidential buildings. The QIP expansion is particularly valuable for businesses that renovate leased commercial space: tenant buildouts that previously required 39-year straight-line depreciation can now be fully expensed under Section 179.

Notably excluded: real property (buildings and structural components), land, inventory held for sale, and property used predominantly outside the United States. Intangible property such as patents, copyrights, and franchises does not qualify, though purchased off-the-shelf software does. The asset must be used more than 50% for business in the year placed in service; if business use subsequently drops below 50%, recapture applies.

The Phase-Out Mechanics: A Dollar-for-Dollar Reduction

Section 179 is explicitly designed for small and medium businesses, and the phase-out enforces that boundary. For every dollar of qualifying property placed in service above $4,000,000 (the 2025 threshold), the maximum Section 179 deduction is reduced by one dollar. A business that places $5,000,000 in qualifying equipment into service in 2025 can claim $2,500,000 − ($5,000,000 − $4,000,000) = $1,500,000 under Section 179 — still a substantial deduction, plus any applicable bonus depreciation on the remainder. At $6,500,000 in equipment purchases, Section 179 phases out entirely; businesses at that scale rely on bonus depreciation instead.

Section 179 vs. Bonus Depreciation: Choosing the Right Tool

The two provisions are complements, not substitutes. Section 179 is an election made asset-by-asset, cannot create a net operating loss, and has a dollar cap. Bonus depreciation applies automatically to all eligible assets (unless you elect out by class), has no dollar limit, and can create or increase a net operating loss that carries forward. The standard planning sequence: apply Section 179 first to maximize the deduction within available taxable income, then layer bonus depreciation on the remaining cost basis to cover any excess. Any cost basis not covered by either provision is depreciated over the applicable MACRS recovery period. For a business buying $500,000 in equipment with $400,000 in taxable income, Section 179 covers $400,000 (limited by income), and 100% bonus depreciation absorbs the remaining $100,000 — resulting in full first-year expensing of the entire purchase.