Rent and depreciation on equipment and machinery (Section 179)

IRC §179, “Election to expense certain depreciable business assets” allows businesses to take an immediate deduction for business expenses related to depreciable assets such as equipment, vehicles, and software. This allows businesses to lower their current-year tax liability rather than capitalizing an asset and depreciating it over time in future tax years.

Since OBBBA, the maximum Section 179 expense deduction is $2,500,000, and it begins to phase out once the total cost of qualifying property placed in service exceeds $4,000,000 (both amounts indexed for inflation after 2025). The separate cap on the Section 179 deduction for heavy sport utility vehicles is $31,300 for vehicles placed in service in tax years beginning in 2025.

Equipment, vehicles, and/or software purchased under Section 179 must be used for business purposes more than 50% of the time to qualify for the deduction. Simply multiply the cost of the equipment, vehicle(s), and/or software by the percentage of business-use to arrive at the monetary amount eligible for Section 179.

The full policy statement is available at: IRS.gov, Instructions for Form 4562 and additional information at www.section179.org.

Example types of property that can be claimed under Section 179 include:

• Equipment (machines, etc.) purchased for business use.
• Tangible personal property used in business.
• Business Vehicles with a gross vehicle weight in excess of 6,000 lbs.
• Computers.
• “Off-the-Shelf” Software.
• Office Furniture.
• Office Equipment.
• Property attached to your building that is not a structural component of the building (i.e.: a printing press, large manufacturing tools and equipment).
• Partial Business Use (equipment that is purchased for business use and personal use: generally, your deduction will be based on the percentage of time you use the equipment for business purposes).
• Certain improvements to existing non-residential buildings: fire suppression, alarms and security systems, HVAC, and roofing.

Sport Utility and Certain Other Vehicles

Particularly interesting application is deduction of vehicles used for business. You can elect to expense up to $31,300 of the cost of any heavy sport utility vehicle (SUV) and certain other vehicles placed in service in tax years beginning in 2025. This rule applies to any 4-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways that is rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight. However, this limit does not apply to any vehicle:

• Designed to seat more than nine passengers behind the driver’s seat;
• Equipped with a cargo area (either open or enclosed by a cap) of at least 6 feet in interior length that is not readily accessible from the passenger compartment; or
• That has an integral enclosure fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver’s seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield.

Check for example list of qualified vehicles.

Section 280F: the luxury-auto cap. The Section 179 SUV story works only for vehicles above 6,000 pounds gross vehicle weight. Below that threshold, IRC §280F, “Limitation on depreciation for luxury automobiles; limitation where certain property used for personal purposes” caps first-year depreciation on a passenger automobile at a few thousand dollars, regardless of how expensive the car is or how much Section 179 or bonus depreciation you would otherwise claim (IRS-indexed amounts; consult Rev. Proc. tables for the current year). The cap exists to prevent exactly the strategy the SUV exception permits: writing off a luxury car as a business asset. The practical consequence is binary — under 6,000 lbs gross weight, you depreciate at the IRC §280F cap over five-plus years; at or above 6,000 lbs, you can expense most of the cost in year one through the SUV exception combined with bonus depreciation. The line is sharp and the vehicle weight is on the manufacturer’s plate; verify before you sign.