Maximizing your deductions: Section 179 and Bonus Depreciation

January 29, 2024

Don't miss out on potential tax benefits for 2024.

Businesses have ongoing incentives to acquire and install capital equipment. The Tax Cuts and Jobs Act of 2017 made significant changes to both Section 179 and bonus depreciation. These changes continue to be in effect for 2024 and when used together may allow businesses to deduct up to 100% of capital purchases. However, it will only be 100% if the amount of the equipment is under the phase-out threshold and can be expensed solely under Section 179.  If it's over the limit and/or threshold, bonus depreciation will kick in, which is only 60% for 2024.

Read on for an overview of both deductions and how they could save you money during this tax year.

 

What is Section 179, and how has it changed?

Internal Revenue Code Section 179 allows businesses to expense the full purchase price of qualifying equipment and/or software purchased during the tax year. When you buy a piece of qualifying equipment, you may be able to deduct the full purchase price on your business income tax return.

Before the TCJA, the government capped business taxpayers’ Section 179 deduction at $500,000, with a phase-out beginning at $2 million. The new Act raised the deduction limit to $1 million and the phase-out threshold to $2.5 million, including annual adjustments for inflation. In 2024, the Section 179 benefits apply to small and mid-size businesses that spend less than $4.27 million per year for equipment.

What is changing in 2024?

2021

2022

2023

2024

Section 179 Maximum Deduction

$1,050,000

$1,080,000

$1,160,000

$1,220,000

Phase-out threshold

$2,620,000

$2,700,000

$2,890,000

$3,050,000

Bonus Depreciation

100%

100%

80%

60%

Equipment

New and used for both

New and used for both

New and used for both

New and used for both

What is Bonus Depreciation

Bonus Depreciation, is an additional first-year depreciation allowance. According to the Internal Revenue Service (IRS), bonus depreciation allows business taxpayers to deduct additional depreciation for the cost of qualifying business property, beyond normal depreciation allowances. It’s intended to spur capital purchases by all business taxpayers, small, mid-sized and large.

Before the TCJA, the IRS limited Bonus Depreciation to new equipment. The law now allows for depreciation on used equipment, though it must be “first use” by the purchasing business. The rules allowed Bonus Depreciation to 100% for all qualified purchases made between September 27, 2017 and January 1, 2023. Bonus Depreciation ramped down to 80% in 2023, and will be reduced to 60% for 2024. Bonus depreciation will continue to ramp down for ensuing years: 40% for 2025, 20% for 2026, and 0% beginning in 2027.

 

How can both deductions work together?

While each deduction can help businesses deduct purchasing costs for their property, combining them can offer the greatest possible benefits. IRS rules require that most businesses apply Section 179 first, followed by bonus depreciation.

Here’s why you might consider using both deductions: 

  • Limited circumstances for stand-alone 179 benefits.
    The Section 179 expense limit and phase-out threshold (inflation-adjusted to $1,220,000 and $3,050,000, respectively, for 2024) are now permanent parts of the tax code. However, since Bonus Deprecation now covers new and used equipment, the benefits of Section 179 by themselves would only apply to taxpayers with specific business circumstances.

  • Short-term consistency with the bonus depreciation limit.
    With the Bonus Depreciation percentage set at 60% for 2024, and ramping down further in subsequent years, businesses have greater incentive to make near-term purchases.

  • Expands qualifying equipment beyond physical hardware.
    Qualified equipment includes software, which may mean that companies that aren’t necessarily purchasing heavy equipment can benefit from the Section 179 and bonus depreciation rules. Also note that equipment investments exceeding $4,270,000 are not eligible for any Section 179 deduction, but may still be eligible for bonus depreciation.

 

Calculate your potential savings

If you’re wondering how Section 179 and bonus depreciation could affect your business tax deductions, check out the calculator below.

2024 Example

  

Cost of equipment

$3,000,000

Section 179 deduction

$1,220,000

Bonus depreciation deduction

$1,068,000

Standard first year depreciation (assuming 5-year MACRS property)

$142,400

Total first year deduction

$2,430,400

Cash savings on purchase (assuming 21% C-Corp tax bracket

$510,384

Lowered cost of equipment (after tax savings)

$2,489,616

If you’re wondering about how these deductions could affect your equipment financing strategy, we can help. Contact Equipment Finance.

Related content

Automate escheatment for accounts payable to save time and money

Tips and tools for tax season and beyond

12 ways to reduce your taxable income

Outsmart tax scams and keep your finances safe

What is CSDR, and how will you be affected?

Maximizing your deductions: Section 179 and Bonus Depreciation

How to Adult: 7 tax terms and concepts you should know

The essential business tips for tax deductions

Why Know Your Customer (KYC) — for organizations

Rule 18f-4: The limited use exception

7 steps to prepare for the high cost of child care

Complying with changes in fund regulations

How to be prepared for tax season as a gig worker

A guide to tax diversification and investing

Year end tax planning tips

What is an escrow account? Do I have one?

Government agency credit card programs and PCI compliance

Administrator accountability: 5 questions to evaluate outsourcing risks

A first look at the new fund of funds rule

Depositary services: A brief overview

IRC Section 305(c): Deemed distributions and related regulations

Liquidity management: A renewed focus for European funds

Should I itemize my taxes?

Financial steps to take after the death of a spouse

Maximizing your deductions: Section 179 and Bonus Depreciation

Disclosures

U.S. Bank does not offer tax advice. Contact a qualified tax professional familiar with your specific business circumstance for advice and information regarding how these new rules may apply.


©2024 U.S. Bank. Member FDIC.

Start of disclosure content

Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rates and program terms are subject to change without notice. Mortgage, home equity and credit products are offered by U.S. Bank National Association. Deposit products are offered by U.S. Bank National Association. Member FDIC.