Understanding Section 179

Section 179 of the U.S. tax code lets businesses deduct the full purchase price of qualifying equipment and software in the year it is placed into service instead of depreciating the cost over several years. The provision is designed to encourage investment by allowing an immediate write‑off, improving cash flow and reducing the after‑tax cost of upgrades. While the deduction is generous, it comes with annual limits and a phase‑out that begins once total equipment purchases exceed a specified threshold. This calculator estimates the maximum Section 179 deduction you can take, any bonus depreciation available for remaining cost, and the basis left to depreciate later.

The deduction is governed by three primary components: the overall dollar limit, the phase‑out threshold, and the taxable income limitation. The dollar limit represents the maximum Section 179 deduction for the tax year. For example, in 2024 the limit is $1,160,000. The phase‑out threshold—$2,890,000 for 2024—reduces the available limit dollar for dollar when total equipment purchases exceed that amount. Finally, the deduction cannot exceed the business's taxable income for the year. Any amount not deducted due to income limits can typically be carried forward to future years.

Bonus depreciation works alongside Section 179. After applying the Section 179 deduction to eligible costs, any remaining basis may qualify for bonus depreciation, allowing an additional percentage to be expensed immediately. Recent tax law has set bonus depreciation at 80% for property placed in service during 2023, phasing down in subsequent years. If the bonus depreciation rate is 80%, then 80% of the remaining basis after Section 179 can be deducted right away, with only 20% left to depreciate under normal rules.

The calculator implements these rules with the following mathematical structure. First it determines the available limit after phase‑out using

where L is the statutory limit, C is total cost and P is the phase‑out threshold. The Section 179 deduction is then the minimum of cost, available limit and taxable income:

Remaining cost after Section 179 is eligible for bonus depreciation at rate r:

Total deduction equals D₁₇₉ + B, and any leftover basis R equals C - D₁₇₉ - B. These values feed the results table, providing a concise summary of how much can be expensed immediately and how much remains for regular depreciation.

Consider a company that purchases $50,000 of machinery. The limit is $1,160,000 and the phase‑out threshold is $2,890,000, so no phase‑out applies. With $80,000 of business income and an 80% bonus depreciation rate, the calculator determines a Section 179 deduction of $50,000 — the full cost — because cost is below both the limit and taxable income. Bonus depreciation is zero because no cost remains. If the same company purchased $1,300,000 of equipment with $1,200,000 in taxable income, the available limit would shrink to $1,160,000 - ($1,300,000 - $2,890,000) = $1,160,000 (no reduction since purchases do not exceed threshold), leading to a Section 179 deduction of $1,160,000 capped by income at $1,200,000. The remaining $140,000 cost would receive 80% bonus depreciation ($112,000), leaving $28,000 to be depreciated normally.

The tool is helpful for modeling the impact of large purchases. By entering different cost scenarios, businesses can decide whether to accelerate equipment acquisitions into the current year to take advantage of remaining deduction capacity. The interface allows manual adjustment of the limit, phase‑out threshold and bonus depreciation rate so it stays relevant as tax laws change. Users can also input a zero bonus rate to focus solely on Section 179.

The table below illustrates how the deduction changes with varying purchase amounts when income is ample enough to use the full deduction. For simplicity the bonus depreciation rate is set to 0% and limits are fixed at $1,160,000 with a $2,890,000 phase‑out.

Equipment Cost ($)	Available Section 179 Deduction ($)
500,000	500,000
1,160,000	1,160,000
1,500,000	1,160,000
2,890,000	1,160,000
3,100,000	950,000
4,000,000	160,000
4,050,000	110,000

Notice how once total cost exceeds the phase‑out threshold of $2,890,000, the available deduction decreases dollar for dollar. At $3,100,000 of purchases, the limit is reduced by $210,000, leaving $950,000. At $4,050,000 the limit is reduced by $1,160,000, effectively eliminating the deduction. Businesses approaching the phase‑out may time acquisitions over several years to avoid losing the benefit.

Section 179 differs from regular depreciation, which spreads deductions over an asset's useful life using methods like straight‑line or MACRS. Immediate expensing boosts current‑year deductions but leaves fewer depreciation write‑offs in future years. This trade‑off is especially important for rapidly growing companies that expect higher taxable income later. The calculator's output clarifies how much basis remains for future depreciation schedules.

Strategic planning also involves considering state tax conformity. Some states do not fully conform to federal Section 179 limits or bonus depreciation rules. Businesses operating in multiple jurisdictions may need to track separate depreciation schedules. While the calculator focuses on federal rules, the methodology can guide state adjustments by plugging in different limits.

The taxable income limitation means that a company with low or negative taxable income cannot immediately deduct the full cost. However, any disallowed amount carries forward. If your business expects higher income next year, you can model the carryforward by entering the new income figure and the remaining basis. The calculator's ability to show the remaining basis ensures accurate tracking of amounts to carry forward.

Section 179 and bonus depreciation can also apply to certain vehicles, but SUVs above 6,000 pounds have special caps. To analyze such purchases, adjust the Section 179 limit field to reflect the applicable cap, and consider entering a bonus rate if the vehicle qualifies. The mathematical framework remains the same: deduct up to the cap, apply bonus to the remainder, and track leftover basis.

Remember that Section 179 is elective. Businesses may choose to expense less than the maximum to preserve deductions for future years or to manage taxable income strategically. For example, if taking the full deduction would create a loss that cannot be used, a partial election might be preferable. The calculator can model partial elections by entering a smaller Section 179 limit than the statutory maximum.

In summary, the Section 179 deduction offers significant flexibility and can dramatically lower the after‑tax cost of capital investments. This calculator provides a straightforward way to quantify those benefits and visualize the interplay between statutory limits, phase‑outs, taxable income, and bonus depreciation. Experiment with different numbers to align equipment purchases with your broader tax strategy and cash‑flow planning.