At a glance
- What it is
- Two tax rules, Section 179 expensing and bonus depreciation, that let a business deduct the full cost of qualifying property in the year it’s placed in service.
- What it saves
- Income tax this year, by pulling future depreciation deductions forward.
- Best fit
- Profitable businesses with real equipment needs.
- Main catch
- It must be placed in service by December 31, not just ordered or paid for.
- Section 179 limit
- $2.5 million under the July 2025 tax law, adjusted for inflation after 2025.
Key takeaways
- Section 179 and bonus depreciation let a business deduct the full cost of qualifying equipment in the year it’s placed in service.
- They fit profitable businesses with real equipment needs, such as contractors, trades, medical and dental practices, manufacturers, trucking, and agriculture.
- In the illustrative example, expensing $60,000 of equipment saves about $14,400 federal and $2,700 Oklahoma personal income tax in year one.
- The catch: property must be placed in service by December 31, and a deduction taken now isn’t available in later years.
Watch the story
A one-minute story about this strategy. Illustrative story; the people are fictional and are not clients. See all story videos.
The numbers
Picture an S corp that needs $60,000 of new equipment, 7-year property for tax purposes, and has it delivered, installed, and running before year-end. Business tax and personal tax are shown separately.
Business deduction in year one
For illustration purposes. Tax law may change, which may change these calculations slightly.
| Regular depreciation | Full expensing | |
|---|---|---|
| Cost of equipment | $60,000 | $60,000 |
| Year-one deduction | $8,574 ($60,000 × 14.29%) | $60,000 |
| Deducted in later years | $51,426 | $0 |
Personal tax in year one (federal and Oklahoma), shown separately
An S corp’s deduction flows through to the owner’s return.
| Regular depreciation | Full expensing | |
|---|---|---|
| Federal income tax saved (24% bracket) | about $2,058 | about $14,400 |
| Oklahoma income tax saved (4.5%) | about $386 | about $2,700 |
The math: $60,000 × 24% = $14,400 federal and $60,000 × 4.5% = $2,700 Oklahoma with full expensing, versus $8,574 × 24% = $2,058 and $8,574 × 4.5% = $386 under the regular first-year schedule. The total deduction over time is the same $60,000. Full expensing just takes it all now. If most of a year’s purchases land in the last quarter, a special “mid-quarter” rule makes the regular first-year deduction even smaller.
A deduction never returns 100 cents on the dollar. Spending $60,000 to save $14,400 in federal tax still leaves you out $45,600 before the Oklahoma savings. Buy what the business needs, and time it well. Don’t buy to chase a deduction.
Could this strategy work for your business?
In a free tax analysis, your tax strategist checks whether it fits and what it could save, using your real numbers.
How it works
- Buy qualifying property. Equipment, machinery, computers, software, furniture, and qualifying vehicles. New or used, as long as it’s new to you.
- Place it in service by December 31. Delivered, installed, and ready for its business use. Ordered, paid for, or sitting in a crate doesn’t count.
- Choose the method. Section 179 is elected asset by asset and can’t create a business loss. Bonus depreciation applies automatically unless you opt out, and it can create a loss.
- Deduct it on this year’s return. The deduction flows to your personal return for S corps, partnerships, and sole proprietors.
Who it fits
- Profitable businesses with real equipment needs: contractors, trades, medical and dental practices, manufacturers, trucking, agriculture.
- Businesses already planning a purchase early next year that could be moved into December.
- Owners in a high-income year who expect lower income later.
When it doesn’t fit
- A low-income year, when the deduction would be worth more in a later, higher-income year.
- Purchases the business doesn’t really need.
- Equipment that won’t arrive or be set up until January.
The rules
- Bonus depreciation. The July 2025 federal tax law made 100% bonus depreciation permanent for qualifying property acquired after January 19, 2025.
- Section 179. The same law raised the annual limit to $2.5 million, with a phase-out for businesses that place very large amounts of property in service. Both figures are adjusted for inflation after 2025. Section 179 is also limited to business taxable income.
- Improvements. Section 179 can also cover certain improvements to commercial buildings, such as roofs, HVAC, fire protection, and security systems.
- Vehicles. Business use must be more than 50%. Passenger cars are subject to annual depreciation caps. Heavier SUVs and trucks have more room but their own Section 179 cap.
- State rules. Oklahoma’s treatment of these deductions can differ from federal, so we check it when we model the purchase.
Risks to weigh
- Recapture. Selling the asset later, or dropping a vehicle’s business use to 50% or less, can bring back part of the deduction as income.
- Empty later years. A deduction taken now isn’t available later, when your income and tax rate may be higher.
- Cash flow. A big December purchase uses cash the business may need in January.
- Lower QBI deduction. A larger deduction lowers business income, which can shrink the Qualified Business Income deduction.
How we handle it for clients
With a Cannon & Brown tax plan, we look at your projected profit in the fall, decide whether to expense now or spread the deduction out, choose between Section 179 and bonus depreciation asset by asset, and make sure the purchase is in service and recorded before December 31. Because our technology keeps your numbers current all year, we can test this strategy against your real numbers and adjust it as your business changes.
Illustrative example. The business owner and figures on this page are hypothetical, used to explain how the strategy works. They are not a client and not a promise of results. The example assumes $60,000 of 7-year property placed in service by an S corp, the half-year convention for regular depreciation, a 24% federal bracket, and a 4.5% Oklahoma rate. This page is educational and is not tax advice for your situation; tax rules and limits change.
Brooks leads Cannon & Brown Tax Advisors, a forward-thinking tax firm serving business owners in Oklahoma and beyond. He builds year-round tax strategies that help business owners keep more of what they earn and reach their goals. More about Brooks
Common questions about Section 179 and bonus depreciation
Does equipment ordered in December count if it arrives in January?
No. The property must be placed in service by December 31, meaning delivered, installed, and ready for its business use. Ordered, paid for, or sitting in a crate doesn’t count.
What is the difference between Section 179 and bonus depreciation?
Section 179 is elected asset by asset, is limited to business taxable income, and can’t create a business loss. Bonus depreciation applies automatically unless you opt out, and it can create a loss.
Can I use Section 179 on a truck or SUV?
Yes, if business use is more than 50%. Passenger cars are subject to annual depreciation caps, and heavier SUVs and trucks have more room but their own Section 179 cap. Dropping business use to 50% or less later can bring back part of the deduction as income.
Should I buy equipment just to lower my taxes?
No. A deduction never returns 100 cents on the dollar: in the illustrative example, spending $60,000 to save $14,400 in federal tax still leaves you out $45,600 before the Oklahoma savings. Buy what the business needs, and time it well.
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