Section 179 vs Bonus Depreciation: What Business Owners Must Know in 2025
Discover two of the most powerful tools for managing depreciation in a tax-efficient way- Bonus Depreciation and the Section 179 Expense Deduction.
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Timing a major asset purchase is a critical part of a smart tax strategy for business owners. Two of the most effective levers you can pull are Section 179 and bonus depreciation. Getting a handle on the difference between bonus depreciation and Section 179 is your first move toward serious tax savings.
While both mechanisms can accelerate cost recovery on qualifying assets, they operate under different rules. With the landscape shifting due to recent laws like the TCJA, using Section 179 and bonus depreciation requires background knowledge and the perspective of a financial expert.
In this article, we will cover the key distinctions between the two, their evolution under the current tax code, and state-level nuances. Keep reading to learn more.
What Is Bonus Depreciation?
Bonus depreciation is an upfront tax deduction that lets you write off a big chunk of an eligible asset’s cost in the year you put it to work. This is the core of the difference between bonus depreciation and Section 179. While Section 179 has income limits, bonus depreciation does not. You can use it even if it creates a net operating loss for your business, which is a huge strategic advantage.
The rules for this are spelled out in the Internal Revenue Code, specifically IRC §168(k). For more background on how bonus depreciation has changed over time, see our Bonus Depreciation and the Phaseout guide.
TCJA Changes
The Tax Cuts and Jobs Act (TCJA) was a game-changer. It raised bonus depreciation to a full 100% deduction for assets placed in service between late 2017 and the end of 2022. It also expanded eligibility to include used equipment as long as it was new to you. Additionally, a fix from the CARES Act included qualified improvement property, like interior renovations.
Original Phaseout Schedule (Pre-OBBBA)
The initial plan was for this benefit to sunset. The deduction was set to drop each year: 80% for 2023, 60% for 2024, 40% for 2025, and 20% for 2026 before disappearing entirely. This created major uncertainty for long-term planning.
OBBBA: Reinstating and Making Bonus Depreciation Permanent
The One Big Beautiful Bill Act amended IRC §168(k) to permanently reinstate 100% bonus depreciation for qualifying assets placed in service after January 19, 2025. It locks in eligibility for both used property and QIP, restoring critical planning certainty for business owners. This move provides long-term stability, finally allowing tax strategy to seamlessly align with operational growth and capital investment plans.
If you’re weighing different end-of-year strategies, our Year-End Tax Planning for Business Owners article breaks down additional opportunities beyond depreciation.
Section 179: Expanded Under OBBBA
Look at Section 179 as your go-to tool for an immediate, upfront write-off on qualifying equipment and software the year you buy it. But unlike its counterpart, it comes with guardrails. The rules, straight out of IRC §179, include specific caps and phase-outs.
OBBBA Enhancements
The OBBBA just made this tool a lot more powerful. The new law significantly boosted the limits:
- The deduction limit jumped from $1.25 million to a solid $2.5 million.
- The phaseout threshold now kicks in at $4 million, up from $3.13 million.
- Both of these amounts will now be adjusted for inflation annually.
Remember, the deduction phases out dollar-for-dollar once your total equipment purchases exceed that threshold.
Other Key Points
The deduction applies to tangible personal property, off-the-shelf software, and certain qualified building improvements. Critically, the Section 179 deduction cannot create a net operating loss; it’s capped by your business’s taxable income for the year. And don’t forget, you must make an affirmative election on your timely filed tax return (including extensions) to use it.
This sets the stage for the big question: Can you take Section 179 and bonus depreciation? Absolutely, and that’s where the real strategy begins.
Bonus Depreciation vs. Section 179: Key Differences
Feature: Applies to Used Property
Bonus Depreciation: Yes
Section 179: Yes
Feature: Governing IRC Section
Bonus Depreciation: §168(k)
Section 179: §179
Feature: Can Apply to QIP
Bonus Depreciation: Yes
Section 179: Yes
Feature: Can Create a Loss
Bonus Depreciation: Yes
Section 179: No
Feature: Subject to Annual Cap
Bonus Depreciation: No
Section 179: Yes ($2.5M in 2025, phased out above $4M)
Feature: Must Be Elected
Bonus Depreciation: No (automatic unless opted out)
Section 179: Yes
Feature: Income Limitation
Bonus Depreciation: None
Section 179: Limited to taxable business income
Feature: Filing Flexibility
Bonus Depreciation: Limited retroactivity
Section 179: Can be amended on timely filed return
Contact Us for Bonus Depreciation & Section 179 Advice
State Conformity Issues: Bonus Depreciation vs. Section 179
When you’re looking at bonus depreciation vs Section 179, one of the biggest splits happens at the state level. Typically, most states play along with the federal Section 179 rules, but a ton of them outright reject the federal Bonus Depreciation rules under IRC §168(k).
Why This Matters
If you take that 100% federal bonus depreciation but your state doesn’t conform, you’ll face a state addback. That means your state taxable income gets a significant increase, which can seriously eat into your federal tax savings.
States That Do Not Conform to Federal Bonus Depreciation
Some major states that don’t conform include:
- California: Says no to bonus, full stop. Addback is mandatory.
- New York: Disallows it and requires a state modification.
- North Carolina: Requires an addback and uses its own depreciation schedule.
- Massachusetts: Requires a separate state calculation.
- Connecticut: Disallows it and mandates alternative methods.
Section 179 State Treatment
The treatment for the Section 179 deduction is generally more favorable across states. Most follow the federal rules, though a few, like California, impose much lower thresholds.
Here’s the planning tip: if you operate in multiple states, you absolutely must model out these federal vs. state differences with a pro. You need to factor in addbacks, potential recapture, and how your entity structure plays into it all. We’ve also covered multi-state complexity in our piece on Navigating State Income Tax Apportionment.
Industries That Benefit Most
Industries that benefit most are the ones with heavy capital investments. For instance, sectors like construction get a major edge, writing off everything from cranes to safety gear. Manufacturing plants can immediately deduct the cost of robotic assembly lines and conveyor systems. For transportation, it’s an obvious choice for new rigs and fleet tech.
And it’s not just the big players. Agriculture operations can leverage this for combines and irrigation systems. Healthcare practices can deduct advanced imaging machines and network infrastructure. Even a local restaurant chain can use it for point-of-sale upgrades and kitchen remodels through Qualified Improvement Property (QIP). For property-related deductions, don’t miss our overview of Cost Segregation Planning, which can unlock additional savings on real estate investments.
Real-World Example
This brings us to a classic bonus depreciation and Section 179 example.
Picture this: your firm, ABC Logistics, has a big year in 2025. You deploy $1.8 million in new trucks, snag $400,000 in pre-owned warehouse machinery, and invest $300,000 into renovating a leased distribution center. The total price tag would be $2.5 million.
Now, for the million-dollar question: can you take both Section 179 and bonus depreciation on this? Yes, and if you do, the strategy gets powerful. A knowledgeable CPA would likely max out the Section 179 deduction on the new and used equipment first, then use 100% bonus depreciation to sweep the remainder, including the full QIP cost. This is just one scenario — our team highlights others in Tax Planning: 6 Benefits for Your Business.
Step 1: Section 179 Deduction
You elect to expense $2.5 million under Section 179, the new maximum under OBBBA.
However, let’s say your taxable business income for 2025 is only $2 million. Section 179 is limited to $2 million because it cannot exceed business income. The remaining $500,000 carries forward to future years.
Step 2: Bonus Depreciation
You apply 100% Bonus Depreciation to the remaining $500,000 under IRC §168(k). Since bonus depreciation is not limited by income, this deduction creates a $500,000 net operating loss, which may be carried forward to offset future taxable income, depending on current NOL rules.
If ABC operates in California or New York, that $500,000 bonus depreciation would likely trigger a state-level addback, increasing your state taxable income for 2025.
Final Thoughts: Strategic Planning Required
The elevated limits for Section 179 bonus depreciation 2025 and beyond create a powerful incentive to invest in your business’s growth, from essential hardware to critical facility upgrades. But here’s the catch. The real value isn’t in the deduction itself; it’s in the execution.
Navigating the difference between Section 179 and bonus depreciation is just the start. The true complexity lies in weaving these tools into a multi-year plan that accounts for your income and, crucially, those tricky multi-state tax addbacks. For the uninitiated, this isn’t a DIY tax situation.
FAQ
- Q1: What is the main difference between Section 179 and bonus depreciation?
A: Section 179 allows upfront write-offs but is capped by income limits, while bonus depreciation has no income cap and can create a net operating loss.
- Q2: What did the OBBBA change for bonus depreciation?
A: The OBBBA permanently restored 100% bonus depreciation for assets placed in service after January 19, 2025, including used property and qualified improvement property.
- Q3: Which assets qualify for Section 179 deductions?
A: Tangible personal property, off-the-shelf software, and certain building improvements. However, it cannot create a net operating loss.
- Q4: What states disallow bonus depreciation?
A: California, New York, North Carolina, Massachusetts, and Connecticut all reject federal bonus depreciation, requiring separate adjustments.
- Q5: Is bonus depreciation better than Section 179?
A: Neither is “better” universally. Section 179 offers flexibility but has income caps, while bonus depreciation allows larger, unlimited deductions. Strategy depends on your income and state rules.
