OBBB - Section 179 Limit Doubles to $2.5 Million

New Section 179 Limits

Section 179 allows businesses to immediately expense equipment purchases rather than depreciating them over time. Unlike bonus depreciation, Section 179 has annual limits and phase-out thresholds, but it offers more flexibility in application and timing.

Understanding the Enhanced Section 179 Benefits

The new tax law didn't just restore 100% bonus depreciation – it also dramatically increased Section 179 expensing limits from $1 million to $2.5 million annually. For growing businesses that have been hitting the old Section 179 caps, this change opens entirely new possibilities for immediate equipment deductions and strategic tax planning.

$2.5 million (up from $1 million)

Annual Deduction Limit

$4 million (up from $2.5 million)

Phase-out Threshold

Both limits will adjust annually for inflation

Inflation Indexing

What this means practically: A business can now immediately deduct up to $2.5 million in equipment purchases annually, and the phase-out doesn't begin until total equipment purchases exceed $4 million in a single year. Use this calculator to determine your maximum Section 179 deduction and phase-out thresholds:

With both Section 179 and 100% bonus depreciation available, businesses need strategic frameworks for choosing between them. Each has distinct advantages depending on the situation.

Section 179 vs. Bonus Depreciation: When to Use Which

Choose Section 179 When

Choose 100% Bonus Depreciation When

You're making very large equipment purchases (over $2.5 million)

You don't need year-to-year flexibility

All equipment qualifies for bonus depreciation

You want the simplest application process

You want maximum control over timing and application

You want to preserve bonus depreciation for larger future purchases

You need to optimize deductions across multiple tax years

You're purchasing a mix of new and used equipment

You're coordinating deductions across related entities

Use both strategically: Apply Section 179 first to maximize immediate benefits, then use bonus depreciation for remaining equipment costs. This combination can provide immediate expensing for very large equipment investments.

One of Section 179's most powerful features is that each separate legal entity gets its own $2.5 million annual limit. For business owners with multiple related entities, this can dramatically increase total immediate expensing capacity.

Multi-Entity Business Strategies

Construction Company LLC Equipment Rental LLC Real Estate Holding LLC

$2.5 million Section 179 limit $2.5 million Section 179 limit $2.5 million Section 179 limit

$7.5 million annually

Total Immediate Expensing Capacity

Example Multi-entity Optimization

Strategic Applications

Equipment delivered December 15th but not installed until January

Equipment Allocation

Equipment delivered and operational by December 30th

Timing Coordination

Entity Structure Optimization

Important Considerations

Each entity must have legitimate business purposes beyond tax benefits

Proper documentation and operational separation required

Equipment must be used primarily by the purchasing entity

State tax implications may vary by jurisdiction

The Section 179 phase-out begins when total equipment purchases exceed $4 million annually, reducing the available deduction dollar-for-dollar above the threshold.

Phase-Out Planning for Growing Businesses

Total equipment purchases Phase-out begins at Excess over threshold

$5 million $4 million $1 million

$1.5 million ($2.5M - $1M excess)

Available Section 179 Deduction

Phase-out Calculation Example

Strategic Planning Around Phase-outs

Spread large purchases across tax years to avoid phase-out

Monitor Purchase Timing

Distribute purchases across related entities to maximize limits

Entity Coordination

Use Section 179 for optimal equipment, bonus depreciation for remainder

Mixed Strategy Approach

Section 179 has broader qualification criteria than bonus depreciation, making it valuable for certain types of equipment and situations.

Equipment Qualification and Strategic Selection

Used Equipment

Section 179 Qualification Advantages

Fully qualifies if new to your business

Off-the-shelf Software

Business software purchases up to $1 million annually

Qualified Improvement Property

Certain building improvements qualify

Qualified Improvement Property

Building systems often qualify

Strategic equipment selection: Use Section 179 for equipment that might not qualify for bonus depreciation, then apply bonus depreciation to remaining purchases.

$2.5 million Section 179 for used equipment and building improvements $3 million bonus depreciation for new production equipment

Year 1 Year 1

$5.5 million in equipment investments

Total Immediate Deduction

Example Optimization Strategy

The Section 179 phase-out begins when total equipment purchases exceed $4 million annually, reducing the available deduction dollar-for-dollar above the threshold.

Cash Flow and Financing Integration

Equipment purchase (manufacturing equipment) Section 179 deduction (immediate expensing) Tax savings (37% bracket) Equipment financing ($2 million at 7%)

$2 million $2 million $740,000 $39,600/mo

Approximately $24,800

Net Monthly Cost After Tax Savings

Cash Flow Optimization Example

Financing Strategy Considerations

Use financing to preserve cash while capturing immediate tax benefits

Preserve Working Capital

Tax savings can fund additional equipment or business expansion

Accelerate Growth

Structure financing around tax benefit realization timing

Timing Coordination

The permanent nature of enhanced Section 179 limits enables sophisticated multi-year equipment planning that wasn't possible under previous temporary provisions.

Multi-Year Equipment Planning Strategies

Prioritize essential equipment under Section 179 limits Establish baseline operational capacity Coordinate with bonus depreciation for larger investments

Years 1-2 (2025 through 2026): Foundation building

Strategic planning framework

Plan facility improvements and technology upgrades Consider entity structure optimization Coordinate replacement cycles with tax benefits

Years 3-4 (2027 through 2028): Expansion and modernization

Maximize remaining bonus depreciation benefits before expiration Plan post-2029 equipment strategies Consider accelerating future needs into benefit window

Year 5 (2029): Final optimization

Different industries can leverage enhanced Section 179 limits in unique ways based on their equipment needs and business structures.

Industry-Specific Applications

Manufacturing

Production equipment up to $2.5 million annually Coordinate with Qualified Production Property benefits Multi-facility operations can benefit from entity optimization

Construction

Heavy equipment and fleet vehicles Seasonal timing optimization around project cycles Equipment rental entity strategies for fleet management

Technology

Computer hardware and software systems R&D equipment coordination with expensing benefits Rapid technology refresh cycle planning

Healthcare

Medical equipment and diagnostic systems Practice expansion equipment strategies Multi-location practice optimization

Proper documentation is crucial for claiming bonus depreciation benefits.

Documentation and Compliance

Required Records

Equipment purchase agreement Placed-in-service documentation Business use certification Entity allocation records

Best Practices

Work with tax advisors familiar with Section 179 requirements

Address varying state conformity with federal Section 179 rules

Maintain organized documentation for each equipment purchase

Ensure ongoing qualification and proper application

Coordination Opportunities

Enhanced Section 179 limits work most effectively when coordinated with other new tax benefits for maximum impact.

Integration With Other New Tax Law Provisions

Immediate deduction for R&D equipment

R&D Expensing

Support financing for equipment over Section 179 limits

Enhanced Interest Deductions

Combine with manufacturing facility benefits

Qualified Production Property

Total equipment purchases QPP benefits (facility construction) R&D expensing (product development equipment)

$2.5 million $5 million $1 million

$8.5 million

Total Immediate Deductions (Business Investments)

Strategic Integration Example

Assess current and planned equipment needs

For 2025 through 2029 period

Evaluate entity structure

For potential optimization opportunities

Coordinate with tax professionals

To develop multi-year Section 179 strategies

Model cash flow impact

Of immediate deductions combined with equipment financing

Establish documentation procedures

Procedures to ensure compliance and benefit realization

Action Steps for Strategic Implementation

Long-term Planning Advantages

Unlike many tax provisions, the enhanced Section 179 limits are permanent, enabling long-term strategic planning without expiration concerns.

Looking Forward: Permanent Planning Opportunities

Predictable Tax Benefits

For ongoing equipment planning

Entity Structure Optimization

With permanent higher limits

Financing Strategies

That incorporate reliable tax benefits

Competitive Advantages

Through optimized equipment investment timing

The doubling of Section 179 limits represents more than just higher deduction thresholds – it creates opportunities for sophisticated equipment planning strategies that can accelerate business growth while providing immediate tax benefits. Combined with bonus depreciation and other new tax law provisions, businesses have unprecedented flexibility to optimize equipment investments for both operational and tax advantages.

LEAF specializes in equipment financing strategies that coordinate with enhanced Section 179 benefits and other tax advantages. Our expertise helps businesses maximize immediate tax benefits while maintaining optimal cash flow and operational flexibility.

The above is for informational purposes only and is not intended as tax or legal advice. Always check with your accountant or tax advisor to verify your eligibility for any tax deduction.

To discuss how LEAF can help you understand the new tax law and leverage it to move your business forward now, contact your LEAF Account Champion today.

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Equipment ordered in 2024 but delivered and operational in 2025