Section 179 Tax Deduction: Key Changes for 2024 & 2025

Section 179 of the U.S. Internal Revenue Code allows businesses to deduct the full purchase price of qualifying equipment and software, rather than depreciating these expenses over several years. This tax provision has long been popular with small and medium-sized businesses, providing an opportunity to make large capital investments while benefiting from immediate tax relief.

As we are currently in 2024 and soon to enter 2025, there are important updates to Section 179 that business owners should be aware of, particularly around deduction limits, eligible assets, and inflation adjustments. Let's explore the key changes and how they might impact your business.

Need help navigating the complexities of the IRS tax code? Call Turner Business Solutions at (316) 285-0125 or schedule a free consultation online.

1. Increased Deduction Limit for 2024

The deduction limit for Section 179 is set to increase for the 2024 tax year. The IRS adjusts the limits annually to account for inflation, helping to ensure that the benefits keep pace with rising costs. For 2024, the maximum amount that can be deducted under Section 179 is expected to rise from $1.16 million in 2023 to approximately $1.2 million.

This means businesses can deduct up to this amount for qualifying equipment purchased and placed into service during the tax year.

2. Increased Spending Cap for 2024

Along with the increased deduction limit, the total equipment purchase limit, also known as the "spending cap," is expected to rise to $2.9 million in 2024, up from $2.89 million in 2023. Once your total purchases exceed this cap, the amount you can deduct begins to phase out dollar-for-dollar.

The spending cap increase is crucial for businesses planning significant capital expenditures in 2024, as it ensures that they can still take advantage of Section 179 even with larger investments.

3. Bonus Depreciation Phase-Out

Bonus depreciation, which allows businesses to deduct a large percentage of the cost of eligible assets in addition to their Section 179 deductions, is undergoing a phase-out. In 2023, bonus depreciation was set at 80%. In 2024, this percentage will decrease to 60%, and by 2025, it will further decrease to 40%. By 2026, bonus depreciation will be fully phased out unless new legislation is enacted.

This change makes Section 179 even more valuable, as it allows businesses to fully deduct expenses upfront without depending on bonus depreciation.

4. Qualifying Equipment and Software

Section 179 applies to a wide range of tangible personal property, including:

• Machinery and equipment

  
  

• Office furniture

  
  

• Computers and certain business software

  
  

• Off-the-shelf software

  
  

For 2024 and 2025, the types of qualifying property remain largely unchanged, but businesses should pay close attention to any new IRS guidelines that could expand or limit eligible items.

5. Electric Vehicle and Clean Energy Equipment

There’s an increasing emphasis on incentivizing environmentally-friendly investments. Businesses investing in electric vehicles (EVs) and clean energy equipment like solar panels may be eligible for Section 179 deductions, especially with the growing push for sustainability. The Inflation Reduction Act of 2022 and subsequent policies could influence deductions for green technology in 2024 and beyond.

6. State-Level Variations

It's important to note that not all states conform to the federal rules for Section 179. Some states have their own limits on deductions or may not allow bonus depreciation. As a result, businesses should consult with a tax professional to understand how state-specific rules impact their ability to fully benefit from Section 179.

7. Tax Planning for 2024 & 2025

To make the most of Section 179 in 2024 and 2025, businesses should carefully plan their purchases of qualifying equipment. With the gradual phase-out of bonus depreciation, taking full advantage of Section 179 becomes a key strategy for maximizing tax savings.

Businesses may want to accelerate large purchases into 2024 to benefit from higher deduction limits before the bonus depreciation drops further in 2025. Additionally, as the economy evolves, keeping an eye on future legislation is crucial, as new laws could impact the deduction limits or eligible expenses in the coming years.

Conclusion

The changes to Section 179 in 2024 and 2025 reflect the federal government's ongoing support for businesses making capital investments. With an increased deduction limit, a higher spending cap, and the gradual phase-out of bonus depreciation, it's essential for businesses to stay informed and work closely with tax advisors to maximize these benefits. By planning strategically, companies can reduce their tax burden while investing in the future growth of their operations.

If you’re considering making large purchases or equipment upgrades, now is the time to assess your tax situation and ensure you’re ready to take full advantage of Section 179 in the years ahead.

Call Turner Business Solutions at (316) 285-0125 if you need assistance with your taxes. You can also schedule a free consultation online.