LLC Section 179 Deduction Guide — First-Year Expensing, Bonus Depreciation Phase-Down (2026)

Before you start

What to know first

Section 179 (IRC §179) lets a business deduct the full purchase price of qualifying property in the year it is placed in service, up to an annual dollar limit, rather than depreciating it over the asset's MACRS useful life. For 2024, the limit was $1,160,000. The limit is indexed for inflation — the 2025 limit is approximately $1,220,000; verify the current limit in IRS Rev. Proc. for the applicable year. The phase-out threshold reduces the §179 limit dollar-for-dollar when total qualifying property placed in service during the year exceeds the phase-out amount ($2,890,000 for 2024; approximately $3,050,000 for 2025). At the full phase-out, §179 is entirely eliminated.
Bonus depreciation (IRC §168(k)) is a separate first-year expensing mechanism that applies a fixed percentage to the adjusted basis of qualifying property after any §179 election. The Tax Cuts and Jobs Act (TCJA) set bonus depreciation at 100% for 2018–2022, then began a scheduled phase-down: 80% for 2023, 60% for 2024, 40% for 2025, 20% for 2026, 0% for 2027 and beyond. Congressional action could extend or restore 100% bonus depreciation — monitor IRS guidance each tax year. Bonus depreciation applies to new AND used qualifying property (post-2017 rule change), unlike the pre-TCJA version which applied only to new property.
Section 179 vs. bonus depreciation — key differences: (1) §179 requires a business-income limit — it cannot create or increase a net operating loss (NOL). If your LLC has net business income of $30,000, your §179 deduction is capped at $30,000. The excess carries forward to future years. Bonus depreciation has no business-income limit and can create an NOL that carries forward indefinitely. (2) §179 can be elected for specific assets (asset-by-asset); bonus depreciation applies automatically to all qualifying property of the same class unless you opt out of an entire property class. (3) §179 is allowed for off-the-shelf software and qualified real property improvements; bonus depreciation does not apply to real property improvements placed in service before 2018. (4) Some states conform to §179 but not to federal bonus depreciation (notably California, which limits §179 to $25,000 and disallows federal bonus depreciation).
Qualifying property for Section 179: tangible personal property used more than 50% for business (machinery, equipment, computers, office furniture, vehicles); off-the-shelf computer software; qualified improvement property (QIP — interior improvements to nonresidential real property: HVAC, fire protection, alarm systems, security systems, roofs); listed property (vehicles, computers) subject to the more-than-50% business-use test and listed-property rules. Property does NOT qualify for §179: property used outside the US; property held for investment (not active business use); real property structures (buildings); property acquired from related parties or inherited.
SUV cap under Section 179: SUVs with a GVWR between 6,001 and 14,000 lbs are subject to a §179 cap of $28,900 for 2024 (approximately $30,500 for 2025; indexed). Heavier vehicles (over 14,000 lbs GVWR) are not classified as SUVs and face no cap — they qualify for the full §179 limit. Vehicles at or below 6,000 lbs GVWR are subject to the luxury auto depreciation caps under §280F instead, which are far more restrictive (~$12,200 first-year limit including bonus depreciation for 2024). The SUV cap is a separate restriction from the §179 annual dollar limit — you cannot avoid it by §179-ing less than the cap on other assets.
Business-income limitation: the §179 deduction for a tax year cannot exceed the aggregate taxable income derived from the active conduct of trades or businesses. For a single-member LLC (Schedule C), this is your Schedule C net profit before the §179 deduction. For a partnership or S-Corp, the limit is applied at the entity level to entity net income, and any excess passes through to members/shareholders as a carryforward. Excess §179 that cannot be deducted in the current year due to the income limit carries forward indefinitely and may be claimed in any future year when there is sufficient business income.
Depreciation recapture on §179 property: if you claim a full §179 deduction and later convert the asset to personal use, or sell it, the IRS recaptures all §179 depreciation as ordinary income under §1245 to the extent of the gain. Example: you §179 a $20,000 computer to $0 basis, then sell it three years later for $5,000 — all $5,000 is §1245 recapture, taxed as ordinary income. Additionally, if business use of a §179 or listed-property asset falls to 50% or below during the recovery period, you must recapture the accelerated depreciation in the year business use drops, reported as income on Schedule C or the entity return.

Documents

What you'll need

Asset purchase invoice or closing statement — showing description, purchase price, sales tax, freight, installation, and date placed in service for each §179 asset
GVWR documentation for vehicles — driver's side door jamb sticker, owner's manual, or manufacturer spec showing Gross Vehicle Weight Rating; required to determine if the $30,500 SUV cap applies
Business-use percentage calculation — for listed property (vehicles, computers): total business miles ÷ total miles for the year, or documented business-use days; must exceed 50% to qualify for §179
Prior year Form 4562 — needed to identify any §179 carryforward from prior years that may be available in the current year
Schedule C or entity return net income — to apply the business-income limitation before finalizing the §179 election amount

Process

Step by step

Identify qualifying property placed in service during the year List all tangible business property placed in service during the tax year. For each asset, confirm: (1) It is used more than 50% for business (required for listed property; strongly recommended for all §179 assets to avoid recapture). (2) It is not real property (buildings don't qualify, but qualified improvement property does). (3) It was purchased from an unrelated party — §179 is disallowed for related-party transactions. (4) It is not acquired by gift or inheritance. Record the date placed in service (not date purchased — the asset must be ready and available for use). For vehicles, record GVWR from the door jamb sticker.
Check the §179 phase-out threshold — do you exceed it? Sum the total cost basis of all qualifying property placed in service during the year. If this total exceeds the phase-out threshold (~$3,050,000 for 2025; verify in IRS Rev. Proc. for the year), your §179 limit is reduced dollar-for-dollar by the excess. Example: if you placed $3,200,000 in qualifying property in service and the threshold is $3,050,000, your §179 limit is reduced by $150,000, leaving only $1,070,000 (if the 2025 limit is $1,220,000). At the full phase-out (~$4,270,000 in property for 2025), §179 is $0. For most small LLCs, the phase-out is not an issue. Capital-intensive businesses should verify annually.
Apply the business-income limitation to the §179 election Calculate your LLC's net business income before the §179 deduction. For a SMLLC filing Schedule C: tentative net profit before §179. For a multi-member LLC (Form 1065): aggregate entity-level net income from all active trades or businesses. For an S-Corp-elected LLC: entity-level ordinary income before §179. The §179 deduction cannot exceed this income. If you have $50,000 of net business income and want to claim $80,000 in §179, only $50,000 is deductible this year; the remaining $30,000 carries forward to next year. Note: S-Corp §179 carryforwards stay at the entity level — they do not pass through to shareholders until the entity has sufficient income to absorb them.
Apply the SUV cap to qualifying vehicles For any SUV placed in service (GVWR between 6,001 and 14,000 lbs), cap the §179 deduction at ~$30,500 (2025; indexed). For heavier vehicles (over 14,000 lbs GVWR), no SUV cap applies — use the full §179 limit. For vehicles at or below 6,000 lbs GVWR, §179 is limited by §280F luxury auto caps instead (~$12,200 first-year including bonus for 2024) — the standard §179 limit does not apply. After applying §179 to vehicles, apply bonus depreciation to the remaining basis.
Layer bonus depreciation after §179 After applying the §179 deduction to each qualifying asset, apply bonus depreciation to the remaining adjusted basis. Bonus depreciation rate for 2026: 20% (barring Congressional action). Bonus depreciation applies automatically to all qualifying property of the same class unless you elect out of the entire class on Form 4562. Example: $100,000 piece of 7-year equipment in 2026: (1) §179 election: $100,000 — fully expensed if income allows; OR (2) §179 limited to $40,000 (income limit): remaining $60,000 × 20% bonus = $12,000 bonus depreciation; remaining $48,000 depreciates via MACRS over 7 years. Run multiple scenarios to identify the combination that minimizes current-year and multi-year tax liability.
Complete Form 4562 and file with your return Part I of Form 4562 contains the §179 election: Line 1 (maximum amount), Line 2 (total cost of §179 property placed in service), Line 3 (threshold amount), Line 4 (reduction for exceeding threshold), Line 5 (dollar limitation after reduction), Line 6 (list each asset with description, cost, and elected §179 amount), Line 9 (tentative §179 deduction), Line 11 (business-income limitation), Line 12 (§179 deduction), Line 13 (carryover of disallowed deduction). Part II contains bonus depreciation (§168(k)). The Form 4562 total flows to Schedule C line 13, Form 1065 line 16, or Form 1120-S line 14. Keep Form 4562 and asset purchase documentation for the entire recovery period plus 3 years.

Costs

What it costs

Item	Amount	Notes
IRS Form 4562 — Depreciation and Amortization (§179 election)	$0 filing fee	The §179 election is made on Form 4562, Part I. You must list each asset and the elected §179 amount. The form is included in TurboTax Self-Employed, TurboTax Business, H&R Block Self-Employed, and most tax software at no additional cost.
CPA consultation — §179 vs. bonus depreciation optimization	$150–$400 one-time per year	The optimal combination of §179 and bonus depreciation depends on current-year business income, state tax conformity, NOL carryforward position, and future business income projections. A CPA should review the election in the year of large asset acquisitions. The decision is particularly important for S-Corp owners where §179 carryforwards do not pass through to shareholders — they remain at the entity level.
MileIQ or mileage tracking app (for vehicles claimed under §179)	$5.99/month or $59.99/year	Vehicles subject to §179 require proof of business-use percentage and a contemporaneous mileage log. The listed-property rules require annual mileage documentation for any vehicle claimed under §179 or bonus depreciation.

FAQ

Common questions

What is the 2025 and 2026 bonus depreciation percentage?

Under the Tax Cuts and Jobs Act (TCJA) phase-down schedule: 60% for tax year 2024; 40% for tax year 2025; 20% for tax year 2026; 0% starting in 2027. Congress has introduced legislation in prior sessions to extend or restore 100% bonus depreciation — verify the current rate in IRS guidance (Rev. Proc. or Notice) before filing. If legislation extends bonus depreciation, the percentage above may be higher for 2026 than the TCJA schedule indicates. Bonus depreciation applies automatically to all qualifying property of the same MACRS class placed in service during the year unless you file an election to opt out.

Can I use Section 179 on a vehicle?

Yes, with important limitations. Vehicles must be used more than 50% for business and are classified as 'listed property' requiring contemporaneous mileage records. SUVs (GVWR over 6,000 lbs, up to 14,000 lbs) are subject to a §179 SUV cap of approximately $30,500 for 2025 (indexed). Vehicles at or below 6,000 lbs GVWR are subject to §280F luxury auto caps — first-year depreciation (including bonus) is limited to approximately $12,200 for 2024 (indexed). Vehicles over 14,000 lbs GVWR face no SUV cap and qualify for the full §179 limit. Use §179 on vehicles carefully — if business use drops to 50% or below in any year during the MACRS recovery period, previously claimed §179 depreciation is recaptured as ordinary income.

What is the Section 179 business-income limitation?

Section 179 cannot create or increase a net operating loss (NOL). The deduction is limited to the net income from the active conduct of your trade or business. If your LLC has $40,000 of net business income and you want to claim $60,000 in §179 on new equipment, your §179 deduction is capped at $40,000 for the current year. The excess $20,000 is a §179 carryforward — it is automatically available in any future year when you have sufficient business income. Important: for S-Corps, the §179 carryforward stays at the entity level and cannot be deducted by shareholders until the S-Corp has sufficient entity-level income to absorb it.

Should I use Section 179 or bonus depreciation first?

Apply §179 first, then bonus depreciation on the remaining basis. This sequencing is required — §179 reduces the basis before bonus depreciation is calculated. Strategically: (1) §179 is preferable if you want to choose exactly which assets to fully expense. (2) §179 has the business-income limit; bonus depreciation does not — if you want to generate or increase an NOL, use bonus depreciation instead of §179. (3) If your state conforms to §179 but not bonus depreciation (California), maximizing §179 and minimizing bonus depreciation reduces state addbacks. (4) At the 20% bonus depreciation rate in 2026, the first-year benefit of bonus depreciation is modest; §179 at the full amount is far more powerful for most small businesses.

What is qualified improvement property (QIP) and does it qualify for Section 179?

Qualified Improvement Property (QIP) is any improvement to the interior of a nonresidential commercial building (excluding enlargements, structural components, elevators, and escalators). Examples: replacing HVAC units, installing fire suppression systems, upgrading electrical systems, renovating retail interiors, installing security systems. Under the CARES Act (2020 technical correction), QIP is classified as 15-year property for MACRS purposes and qualifies for bonus depreciation. QIP also qualifies for §179 expensing. For restaurant, retail, and office tenants making leasehold improvements, QIP provides substantial first-year deductions on renovation costs that would otherwise be depreciated over 39 years as structural components.

Can I claim Section 179 on used equipment?

Yes — since 2018 (TCJA), both §179 and bonus depreciation apply to used property as well as new property, provided the used property meets the 'original use' requirement: it must be the first time you (the taxpayer) place the property in service. You cannot claim §179 or bonus depreciation on property previously used by your LLC or by a related party. For example, purchasing used equipment from an unrelated third party qualifies; receiving equipment from a family member's business may not qualify if the family relationship meets the §267 related-party definition.

Provenance

Legal basis & official sources

Last verified 2026-05-08.

IRC §179 (Election to expense certain depreciable business assets — annual limit, phase-out threshold, qualifying property, SUV cap, business-income limitation, carryforward). IRC §168(k) (Bonus depreciation — TCJA phase-down schedule: 60% for 2024, 40% for 2025, 20% for 2026). IRC §280F (Luxury automobile depreciation limits; SUV cap for §179). IRC §1245 (Depreciation recapture — ordinary income on gain up to accumulated §179 and depreciation deductions). IRS Rev. Proc. (annual inflation adjustments to §179 limits and §280F caps — check IRS.gov for the applicable tax year). IRS Publication 946 (How to Depreciate Property). IRS Form 4562 instructions.

Direct filing portal: https://www.irs.gov/forms-pubs/about-form-4562

If you skip this

Overpaying taxes by spreading deductions across years — a $50,000 equipment purchase deducted over 7 years (MACRS) yields ~$7,100/year in deductions; claiming it all via §179 in year one saves all $11,000 in federal income tax immediately instead of over seven years, providing cash-flow benefit from time-value of money
Missing the business-income limit planning opportunity — §179 carryforwards do not expire, but they also do not earn interest; if your income will be significantly higher next year, it may be more valuable to defer a large §179 election to next year rather than carryforward a limited deduction
Not accounting for the bonus depreciation phase-down — at 20% in 2026 vs. 100% in 2022, the value of bonus depreciation on a $100,000 asset dropped from $22,000 in tax savings (22% bracket) to $4,400; LLC owners who purchased heavily in 2021–2022 expecting ongoing 100% bonus depreciation face significantly smaller deductions on 2026 purchases
Triggering recapture by converting assets to personal use — a fully §179-expensed asset converted to personal use or sold generates full §1245 ordinary income recapture equal to the gain; this is most common with vehicles claimed under §179 that are later driven primarily for personal use; maintain business-use documentation throughout the asset's life
Ignoring state non-conformity — California disallows federal bonus depreciation and limits §179 to $25,000; claiming $1,000,000 in federal §179 on a California-sourced income LLC creates a $975,000 California addback, resulting in a large state income tax liability that offsets the federal savings

Official sources

§ A Related guides

§ B Building permits

Miami, FL — Deck permit guide→

§ C Companion tools

Miami, FL — Solar Savings Calculator→

Disclaimer: Informational only, not legal or tax advice. Rules change, so confirm with a business attorney or CPA before you act.