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Section 179 + Bonus Depreciation

Reference Process Updated Jun 19, 2026

Why this matters

Section 179 + bonus depreciation are the two tax provisions that let a service-business owner write off the FULL purchase price of vehicles + equipment + computers + some buildings in the SAME YEAR purchased - instead of depreciating over 5 - 10 years. Used right, they save in tax on a year you bought a new truck + equipment. Misused, they create paperwork headaches + the recapture problem when the asset is sold. This is the working reference.

The two provisions (both are tax deductions, both reduce current-year taxable income)

Section 179

  • Lets you immediately expense (deduct in year purchased) qualifying business property
  • Must be PROFITABLE - can't create a tax loss with Section 179
  • Election: per-asset basis (you choose which assets to apply Section 179 to)

Bonus Depreciation (under TCJA, the rate is changing)

  • Immediate expensing of qualifying property
  • 2025 rate: 60% bonus (the rate is phasing down 80% → 60% → 40% → 20% → 0 over 2023 - 2027)
  • 2026 rate: 40%
  • No income limit (CAN create a tax loss)
  • Election: applies to ALL eligible property unless you opt out by category

Use BOTH together: Section 179 first up to the deduction limit, then bonus depreciation on the remaining basis.

What qualifies

Qualifies for both: vehicles (with personal-use limits), tools + equipment, computers, office furniture, off-the-shelf software, HVAC equipment for non-residential buildings, most tangible business property.

Doesn't qualify: land, most real estate, inventory, personal-use assets, gifts + inherited property.

The "heavy vehicle" sweet spot

The most-famous Section 179 application: vehicles over 6,000 lbs GVWR.

  • Vehicles 14,000+ lbs GVWR (heavy trucks): full Section 179 (no special limit) + bonus depreciation on remaining basis

Service-business sweet spot: vehicles like Ford F-150 (newer trim 6,000+ lbs), Chevy Silverado 1500, Ford Transit 250+ vans, RAM 1500/2500/3500. Most modern service trucks qualify for the over-6,000 lb treatment.

Example: Ford F-250 work truck @ .

The cash-flow implication: if you're profitable + tax-paying, buying the truck in December and Section 179'ing it in the same tax year significantly reduces that year's tax bill.

Equipment + tools

Service-trade equipment qualifies: HVAC manifolds + recovery, plumbing tools (cameras, jetters), electrical testers + lifts, pool extractors + salt-cell installers, cleaning truck-mounts, lawn equipment (mowers, riders), locksmith tools, computers + tablets, office furniture + shelving. Spend on equipment = deduction year 1.

The profitability requirement (Section 179 only)

Section 179 cannot create a tax loss. The deduction is limited to your business's taxable income.

Example: business has net income before depreciation. You bought of qualifying property.

Section 179 limit when business loses money. Bonus depreciation has no such restriction.

Personal use + recapture

Personal use: business use % × deduction = your deduction. Mileage log mandatory. Skip it + IRS audit assumes 100% personal use.

Real property (QIP): interior non-structural improvements to commercial property - HVAC, plumbing, electrical upgrades - qualify for Section 179 + bonus depreciation.

Recapture on sale: Section 179'd asset has reduced basis. Sold for K with basis = K ordinary-income gain. The deduction "paid back" via sale. TCJA killed vehicle like-kind exchange (2018+) - selling old + buying new = recapture on old, full basis on new.

Section 179 vs standard MACRS

Standard MACRS depreciation spreads cost: 5 yr (vehicles/equipment), 7 yr (furniture), 27.5/39 yr (buildings). Accelerated typically wins on cash flow.

EXCEPTION: early-career operators expecting HIGHER income later sometimes preserve deduction via standard MACRS. Sophisticated planning; CPA helps.

Timing strategy

Year-end purchasing (Nov / Dec) captures current-year deduction. Project taxable income + size purchases to optimize. Annual planning meeting with CPA in October / November.

The single most-overlooked Section 179 strategy for growing service contractors is the FLEET TIMING. If you need 2 new trucks over the next 2 years, buying BOTH this year (assuming you can finance) lets you Section 179 the full cost. Next year's truck purchase would otherwise be a smaller deduction. Compounding the deduction in profitable years vs spreading it = real tax savings. Your CPA can model this for you with actual numbers - ALWAYS plan vehicle + equipment purchases in October-November.

Documentation requirements

For each Section 179 / bonus election:

  • Invoice / receipt showing date + price + asset description
  • Form 4562 (Depreciation + Amortization) filed with annual return
  • Per-asset election documentation
  • Mileage log (vehicles)
  • Business-use percentage documented (if part personal)

CPA handles the forms; you provide the invoices + logs.

State conformity

States vary on whether they conform to federal Section 179 + bonus:

  • Most states conform: federal deduction = state deduction
  • Some states decouple: federal limit higher than state OR state doesn't allow bonus
  • California, NY, NJ, others: limited conformity
  • Check your state's rules; some states require separate state-level depreciation calculation

References

  • IRS Section 179 (Internal Revenue Code §179)
  • IRS Bonus Depreciation (IRC §168(k))
  • IRS Form 4562 + instructions
  • IRS Publication 946 (How to Depreciate Property)
  • State tax authority guidance
  • Manuall internal: Daily Vehicle Pre-Trip Inspection, Service Fleet Management Reference

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