When your business buys equipment, a vehicle, or other long-lived assets, the IRS generally does not let you deduct the full cost in the year of purchase. Instead, you spread the deduction over the asset’s useful life through depreciation. But two major exceptions — Section 179 and bonus depreciation — allow businesses to accelerate those deductions dramatically, often writing off 100% of an asset in the first year.
What Is MACRS Depreciation?
MACRS (Modified Accelerated Cost Recovery System) is the standard method the IRS requires for depreciating most business assets. It assigns each asset to a property class with a designated recovery period.
Common MACRS Property Classes
| Property Class | Recovery Period | Examples |
|---|---|---|
| 3-year property | 3 years | Certain horses, racehorses, some tools |
| 5-year property | 5 years | Computers, printers, vehicles, office equipment, appliances |
| 7-year property | 7 years | Furniture, fixtures, agricultural machinery, most manufacturing equipment |
| 15-year property | 15 years | Landscaping, fencing, parking lots, land improvements |
| 27.5-year property | 27.5 years | Residential rental buildings |
| 39-year property | 39 years | Commercial buildings |
MACRS uses the double-declining balance (DDB) method for 3-, 5-, 7-, and 10-year property, which front-loads deductions in the early years. It automatically switches to straight-line in the year straight-line yields a larger deduction.
MACRS Example: $50,000 Computer Equipment (5-Year, DDB)
| Year | Depreciation Rate | Deduction |
|---|---|---|
| 1 | 20.00% | $10,000 |
| 2 | 32.00% | $16,000 |
| 3 | 19.20% | $9,600 |
| 4 | 11.52% | $5,760 |
| 5 | 11.52% | $5,760 |
| 6 | 5.76% | $2,880 |
| Total | 100% | $50,000 |
Year 1 uses a half-year convention (the asset is treated as placed in service mid-year), which is why 20% rather than the full 40% DDB rate is used.
Section 179 Expensing: Write It Off Immediately
Section 179 of the tax code allows businesses to deduct the full cost of qualifying assets in the year they are placed in service, rather than depreciating over multiple years.
2025 Section 179 Limits
- Maximum deduction: $1,250,000
- Phase-out threshold: Begins at $3,130,000 in total assets placed in service
- The deduction phases out dollar-for-dollar above the threshold, reaching zero at $4,380,000 in total purchases
What Qualifies for Section 179?
- Tangible personal property (equipment, machinery, computers, vehicles, furniture)
- Off-the-shelf software
- Qualified improvement property (QIP) — improvements to the interior of nonresidential buildings
- Some listed property (vehicles, with limits — see below)
Real property (buildings themselves) generally does not qualify for Section 179.
Section 179 Income Limitation
Section 179 cannot create or increase a net loss from the business. Your Section 179 deduction is limited to your taxable income from active business activities. Any excess is carried forward to future years.
Example:
- Business income: $180,000
- Equipment purchased: $200,000 (all qualifying)
- Section 179 deduction claimed: $180,000 (limited to business income)
- Remaining basis carried forward: $20,000 (deductible in a future year or via depreciation)
Bonus Depreciation: The Other First-Year Deduction
Bonus depreciation (also called the special depreciation allowance) allows an additional first-year deduction on top of regular MACRS. Unlike Section 179, bonus depreciation:
- Has no dollar cap and no income limitation
- Can create a net operating loss (NOL)
- Applies automatically unless you elect out
Bonus Depreciation Rates: TCJA Phase-Down, OBBBA Restoration
The Tax Cuts and Jobs Act set bonus depreciation at 100% for property placed in service from September 27, 2017 through 2022, then phased it down. The One Big Beautiful Bill Act (OBBBA), signed in July 2025, restored 100% bonus depreciation for qualified property placed in service after January 19, 2025:
| Year | Bonus Depreciation Rate |
|---|---|
| 2022 | 100% |
| 2023 | 80% |
| 2024 | 60% |
| 2025 (placed in service after Jan 19, 2025) | 100% (OBBBA) |
| 2025 (placed in service before Jan 20, 2025) | 40% (original TCJA schedule) |
| 2026 | 100% (OBBBA) |
For qualified property placed in service from 2025 onward, businesses can once again fully expense the cost in year one. Property placed in service in January 2025 before the OBBBA effective date remained under the 40% TCJA schedule.
Combining Section 179 and Bonus Depreciation
You can apply Section 179 first, then bonus depreciation on the remaining basis.
Example — $800,000 equipment purchase in 2025:
| Step | Amount |
|---|---|
| Purchase price | $800,000 |
| Section 179 (assume income is sufficient) | –$800,000 |
| Year-1 deduction | $800,000 |
Alternatively, if Section 179 is limited by income:
| Step | Amount |
|---|---|
| Purchase price | $800,000 |
| Section 179 (limited to $300,000 by income) | –$300,000 |
| Remaining basis | $500,000 |
| Bonus depreciation (100%, OBBBA post–Jan 19, 2025) | –$500,000 |
| Basis subject to regular MACRS | $0 |
| Total Year 1 deduction | $800,000 |
Vehicle Depreciation: Special Limits Apply
Vehicles are subject to luxury auto limitations — annual caps on depreciation for passenger automobiles (cars and light trucks/SUVs under 6,000 lbs GVWR).
2025 Luxury Auto Caps (Passenger Automobiles)
| Year | Maximum Depreciation |
|---|---|
| Year 1 (with bonus depreciation) | $20,400 |
| Year 1 (without bonus depreciation) | $12,400 |
| Year 2 | $19,800 |
| Year 3 | $11,900 |
| Year 4+ | $7,160/year until fully depreciated |
For a $60,000 car used 100% for business, the luxury auto caps mean it takes roughly 10+ years to fully depreciate the vehicle.
The Heavy SUV Loophole
SUVs and trucks with a GVWR over 6,000 pounds are not subject to the luxury auto caps. This includes many full-size trucks (F-150, Silverado) and larger SUVs (Tahoe, Suburban, Escalade, Expedition). These vehicles can be fully expensed under Section 179 up to $30,500 in 2025 (the SUV cap for Section 179), with the remainder eligible for bonus depreciation.
A vehicle placed in service and used 100% for business that weighs over 6,000 lbs can have most or all of its cost written off in the first year.
Recapture: When Deductions Come Back
If you depreciate or expense an asset and later sell it, use it for personal purposes, or stop using it for business, the IRS may recapture some of those deductions as ordinary income.
- Section 1245 recapture: Applies to most personal property. The depreciation claimed is recaptured as ordinary income (up to the amount of gain).
- Section 1250 recapture: Applies to real property. Unrecaptured depreciation on real estate is taxed at a maximum 25% rate.
Keeping track of your asset’s adjusted basis (original cost minus depreciation taken) is essential for calculating gain or loss on sale.
When to Use Section 179 vs. Bonus Depreciation
| Situation | Prefer |
|---|---|
| Profitable year, want to reduce taxable income now | Section 179 |
| Purchase exceeds Section 179 limit | Both (179 first, then bonus) |
| Business has a loss and you want to increase NOL carryforward | Bonus depreciation (no income limit) |
| State does not conform to bonus depreciation | Section 179 (most states conform) |
| Want to preserve deductions for a higher-income year | Elect out of bonus, use regular MACRS |
Key Takeaway
MACRS, Section 179, and bonus depreciation together give business owners powerful tools to accelerate deductions on asset purchases. With a $1.25 million Section 179 limit and 40% bonus depreciation in 2025, most small and mid-size businesses can write off the majority of qualifying equipment purchases in year one. Understanding the vehicle caps, income limitations, and recapture rules ensures you use these tools effectively. Use our self-employment tax calculator to model how large deductions reduce your overall tax liability.