Q: Bonus Depreciation vs. Section 179 in 2025: Which Should I Use First?

With bonus depreciation scheduled to drop to 40% in 2025, business owners and investors face important decisions about how to maximize tax savings when acquiring assets. Bonus depreciation and Section 179 are two powerful tools, but each has unique limitations and benefits. Understanding their differences and how to apply them can help you minimize taxable income and optimize your tax strategy.

Bonus Depreciation in 2025

Bonus depreciation allows businesses to deduct a percentage of the cost of qualifying assets in the year they are placed in service. Here’s how it looks in 2025:

• Rate: Bonus depreciation drops to 40% in 2025 (down from 60% in 2024 and 80% to 100% in prior years).

• Eligibility: Applies to new and used assets with a recovery period of 20 years or less, such as equipment, furniture, and certain property improvements. Gas Stations and similar properties with a 15-year life will qualify here.

• Flexibility: No dollar limits on the amount of bonus depreciation that can be claimed.

• Carryforward: Any unused deductions cannot be carried forward—deductions are locked to the year the asset is placed in service.

Section 179 in 2025

Section 179 is another method for accelerating depreciation on qualified assets. Key features of Section 179 include:

• Deduction Limits: The deduction is capped at $1.16 million for 2025 (indexed for inflation).

• Business Income Limitation: You can’t claim more than your taxable business income. Any unused amounts can be carried forward to future years.

• Eligibility: Applies to new and used assets, as well as certain building improvements (like HVAC systems, fire protection, and security systems).

• Flexibility: You can choose which assets to expense, making it easier to target high-cost assets.

Which to Use First?

When deciding between bonus depreciation and Section 179, consider the following:

1. It depends

This requires a side-by-side analysis. Since Section 179 is limited by your taxable income, it’s can be better to apply this deduction first. By doing so, you ensure that you can fully utilize the Section 179 benefit. Bonus depreciation, on the other hand, does not have an income limitation, so it can be applied to reduce taxable income further (and potentially offset other income sources).

If maximizing cash flow is a priority, bonus depreciation may be the better choice for large purchases since there are no dollar limits. Section 179’s cap may require carrying forward a Net Operating Loss for high-cost acquisitions.

Limitations to Watch for with Section 179

Section 179 has several limitations that can affect your ability to use it:

1. Taxable Income Limit: The deduction is capped at your taxable business income, potentially leaving unused amounts to carry forward.

2. Cap on Deduction: The $1.16 million cap may limit your ability to expense all qualifying purchases in a single year if you’re acquiring substantial assets.

3. Property Exclusions: Certain types of property, such as land, buildings, and property used outside the U.S., are not eligible for Section 179 deductions.