The 2025 tax year introduces one of the most meaningful shifts in small- and mid-market capital investment strategy in recent memory. With Congress expanding Section 179 expensing and restoring 100% bonus depreciation under the Opportunity for Better Business Asset Expensing (OBBBA) Act, now is the time to revisit how you plan and time major equipment, print, or technology purchases.
*Note: The information in this article is based on current IRS guidelines and other reputable online tax resources. It’s designed to help business leaders understand key concepts and spark planning discussions.
Doceo is not a licensed tax advisor, and this content should not be taken as personalized tax advice. Always confirm details and strategies with your licensed tax professional to ensure accuracy and compliance for your specific situation.
What We’ll Cover in This Article
- What Section 179 is —and why it matters for capital investment
- What changed in 2025 under OBBBA
- How to decide between Section 179, bonus depreciation, and regular depreciation
- Key pitfalls, limits, and best practices
- A fictional company example to illustrate how it works
- Action steps you can take now
What Is Section 179 — and Why It Still Matters in 2025
Section 179 of the U.S. Tax Code lets businesses immediately deduct (or “expense”) the full purchase price of qualifying equipment or software placed in service during the year, rather than depreciating it over time.
It’s designed to encourage reinvestment and improve cash flow by allowing faster recovery of costs. However, it’s not unlimited — there are dollar caps, income limits, and property-use requirements that apply.
Why it still matters in 2025:
Under the OBBBA, Congress substantially expanded Section 179 and reinstated 100% bonus depreciation for many qualifying assets. For growing companies, that makes strategic expensing even more valuable.
What Changed in 2025 — The OBBBA Effect
“OBBBA” refers to federal tax changes effective for tax years beginning after December 31, 2024.
Highlights for 2025:
| Parameter | 2024 Limit / Threshold | 2025 (OBBBA) Limit / Threshold |
|---|---|---|
| Maximum Section 179 deduction | $1,220,000 | $2,500,000 |
| Phase-out threshold (begins when total purchases exceed) | $3,050,000 | $4,000,000 |
| Bonus depreciation rate (for qualified property) | 60% | 100% for qualified property |
| SUV / “luxury vehicle” limit under Section 179 | $30,500 | $31,300 (approx.) |
In plain terms:
- The 179 cap roughly doubles, allowing larger purchases to be fully expensed.
- The phase-out threshold rises to $4 million.
- Bonus depreciation returns to 100% for most qualified property acquired and placed in service after January 19, 2025.
- More building improvements (roofs, HVAC, security systems, fire protection) qualify under Section 179 for nonresidential property.
Together, these updates expand both flexibility and the potential tax benefit for companies reinvesting in growth.
Section 179 vs. Bonus Depreciation vs. MACRS: Choosing the Right Mix
All three methods can work together. Here’s how to think about them:
Step 1 — Use Section 179 Where You Want Control
- Elect 179 first for assets that may not qualify for bonus depreciation or where you want to choose specific items to expense.
- Section 179 is limited by taxable business income (you can’t use it to create a loss).
- You decide which assets get 179 treatment — it’s selective, not automatic.
Step 2 — Apply Bonus Depreciation to the Rest
- After Section 179, bonus depreciation can cover the remaining basis of qualified assets.
- Bonus is 100% for most eligible property acquired and placed in service after Jan 19, 2025.
- Bonus is not limited by income, so it can generate a loss and offset other income sources.
Step 3 — Depreciate Whatever’s Left Under MACRS
- Any basis not expensed through Section 179 or bonus follows standard IRS recovery schedules under MACRS (Modified Accelerated Cost Recovery System).
- MACRS is the default depreciation method for most business property. It allows you to recover costs over several years based on asset class — typically 5-, 7-, 15-, or 39-year schedules — using accelerated rates set by the IRS.
- While MACRS spreads deductions over time instead of front-loading them, it still provides a structured, predictable way to reduce taxable income annually.
When to Favor Each Option
- Section 179: Assets needing control or documentation (HVAC, software, certain vehicles).
- Bonus Depreciation: Broad equipment purchases where speed matters.
- MACRS: Long-life property or planned income smoothing.
*One option to consider: Many companies apply Section 179 to assets that aren’t bonus-eligible (or where they want timing control) and use bonus depreciation for the bulk of qualified assets. That approach often balances flexibility with a strong first-year deduction. – That said, always consult your licensed tax advisor first.
Pitfalls & Limits to Watch
- Income limitation (179): You can’t deduct more than your taxable business income; excess carries forward.
- Phase-out limit: Once total qualifying purchases exceed the $4 million threshold, the 179 deduction drops dollar-for-dollar.
- Eligibility: Property must be used > 50% for business and be tangible personal property (or qualified improvement property).
- Building improvements: Roofs, HVAC, fire/security systems often qualify under 179 for nonresidential property but typically not for bonus.
- Vehicles: SUVs and luxury cars face special limits (≈ $31,300 in 2025).
- Timing: Assets must be placed in service by year-end (not just purchased).
- State conformity: Some states don’t follow federal bonus depreciation rules.
- Recapture risk: If business use drops below 50%, you may have to recapture part of the deduction as ordinary income.
Example Scenario (Fictional Company for Example Purposes)
ACME-25 Manufacturing, a mid-sized industrial firm, projects $1.8 million in 2025 taxable business income. They plan to place in service:
- Production machinery — $1,000,000 (bonus-eligible)
- HVAC and building improvements — $300,000 (179-eligible, typically not bonus-eligible)
- IT infrastructure and software — $500,000 (bonus-eligible)Total qualified cost: $1,800,000
How they might approach it (in consultation with their CPA):
- Elect Section 179 on the HVAC ($300k) and apply $950k of 179 to machinery and IT to reach the deduction cap ($1.25M pre-OBBBA or $2.5M under new limits).
- Apply 100% bonus depreciation (after Jan 19, 2025) on the remaining basis of bonus-eligible assets.
- Expense potentially all $1.8M in 2025, subject to income and eligibility tests.
- If profits are cyclical, they may intentionally leave some basis for future years to smooth tax liability.
Disclaimer: ACME-25 Manufacturing is a fictional company used solely to illustrate general concepts. Actual results depend on each business’s income, asset types, and timing. Always confirm your plan with a licensed tax advisor.
What This Means for Business Owners and Leaders
- Re-run your 2025 capital plan under the new limits — you may be able to expense significantly more.
- Use Section 179 for control and documentation; use bonus depreciation for scale and speed.
- Coordinate timing — especially if you want 100% bonus treatment (after Jan 19, 2025).
- Keep tight records for business use, placed-in-service dates, and asset logs.
- Talk with your licensed tax advisor early — proactive planning often unlocks more benefit than reactive filing.
Action Steps You Can Take Now
- Meet with your licensed tax advisor to model 2025 deductions under the new rules.
- Confirm asset eligibility (HVAC vs. QIP vs. equipment).
- Review state tax treatment for bonus depreciation.
- Plan purchases so key assets are placed in service before year-end.
- Run two cases — “179-only” vs. “179 + bonus” — to see the impact on cash flow.
Quick FAQ
Can I use both Section 179 and bonus depreciation?
Yes. You apply Section 179 first (on chosen assets), then bonus on remaining qualified basis.
Do building improvements qualify?
Some do — HVAC, roofs, fire protection, and security systems often qualify under Section 179 for nonresidential property. Most are not bonus-eligible.
Can these rules change again?
Yes. Congress has modified bonus and Section 179 rules multiple times over the past decade. Stay in touch with your tax advisor each year.
Final Thoughts & Clear Disclaimer
This article is for educational purposes only and draws on current IRS guidelines and other reputable online tax resources available at the time of publication. Before filing your return or making purchase decisions, always consult your qualified tax professional to ensure compliance and maximize your benefit.
If you’d like to review your technology or equipment plans and see how Section 179 or bonus depreciation might fit into a larger business strategy, our Doceo Advisors can help you map out the financial and operational impact — then take that plan to your CPA for final tax review.
