2016 Section 179 Deduction Limit
For 2016, the Section 179 Deduction Limit is $500,000 (Maximum section 179 expensing deduction) and $2,010,000 (Phase-out threshold: cost of section 179 property placed in service).
Effective 2016-01-01Source: Publication 946 (2016), How To Depreciate Property (IRS)Verified 2026-08-30
Who it applies to
Businesses that elect to recover the cost of qualifying property by deducting it in the year the property is placed in service, under Internal Revenue Code Section 179.
What changed this year, and why
For tax years beginning in 2016, the maximum section 179 expensing deduction is $500,000. The deduction is reduced (but not below zero) by the amount by which the cost of section 179 property placed in service during the tax year exceeds $2,010,000.
Common questions
- What happens if the cost of section 179 property exceeds $2,010,000?
- The phase-out begins once the total cost of section 179 property placed in service during the tax year exceeds $2,010,000. The $500,000 limit is reduced dollar for dollar by the amount of cost above that threshold. If costs are high enough, the deduction can be reduced to zero.
What counts as section 179 property
For the 2016 federal Section 179 deduction, property must satisfy four conditions: it must be eligible property, it must be acquired for business use, it must have been acquired by purchase, and it must not fall into a category the IRS excludes. Eligible property includes tangible personal property (machinery, equipment, office furniture, livestock), other tangible property used in manufacturing or utilities (but not buildings or their structural components), single-purpose agricultural or horticultural structures, petroleum storage facilities, off-the-shelf computer software, and qualified real property. Property received as a gift or inherited from another person does not qualify, nor does property acquired from a spouse, a corporation you control, or a partnership you control. Once property meets these tests and is placed in service in the tax year, its cost counts toward the $500,000 maximum Section 179 expensing deduction, subject to the phase-out that begins when total qualifying property placed in service exceeds $2,010,000.
To qualify for the section 179 deduction, your property must meet all the following requirements. It must be eligible property. It must be acquired for business use. It must have been acquired by purchase. It must not be property described later under What Property Does Not Qualify.
Publication 946 (2016), How To Depreciate Property (IRS)
How buying too much property cuts the deduction
Under the federal investment limitation for the 2016 tax year, if the total cost of qualifying section 179 property you place in service during the year exceeds $2,010,000, you must reduce the maximum section 179 expensing deduction by the amount of cost above that threshold. For 2016 the maximum deduction is $500,000, so each excess dollar of qualifying property placed in service above $2,010,000 shaves an equal amount off the deduction. If the total cost of qualifying property placed in service during 2016 is high enough, the reduction can wipe out the deduction entirely and no section 179 expense is available. The reduction cannot bring the dollar limit below zero. This phase-out applies regardless of the type of qualifying property, and it is calculated before the business income limitation is applied. The net effect is that once a business invests heavily enough in qualifying property to cross the threshold, its section 179 expensing benefit shrinks and eventually disappears.
If the cost of your qualifying section 179 property placed in service in a year is more than $2,010,000, you generally must reduce the dollar limit (but not below zero) by the amount of cost over $2,010,000.
Publication 946 (2016), How To Depreciate Property (IRS)
The deduction cannot exceed your business income
For the 2016 federal section 179 deduction, even after you determine the allowable dollar amount under the investment limitation, the deduction cannot exceed the taxable income generated by the active conduct of any trade or business during the year. The IRS considers you to actively conduct a trade or business if you meaningfully participate in its management or operations. Taxable income for this purpose is figured by totaling net income and losses from all actively conducted trades or businesses, including section 1231 gains or losses, interest from business working capital, and wages or salaries earned as an employee. The calculation excludes the section 179 deduction itself, the self-employment tax deduction, any net operating loss carryback or carryforward, and unreimbursed employee business expenses. If business income is less than the available deduction limit, the portion that cannot be used is not lost. While the 2016 maximum section 179 expensing deduction is $500,000, the actual amount a taxpayer can claim may be lower if their taxable income from business activity falls short.
The total cost you can deduct each year after you apply the dollar limit is limited to the taxable income from the ac- tive conduct of any trade or business during the year.
Publication 946 (2016), How To Depreciate Property (IRS)
Carrying the disallowed part forward, and which property it comes from
When the federal business income limitation prevents a taxpayer from deducting the full amount of section 179 property costs in the year they are placed in service, the disallowed portion carries forward to the next tax year. The IRS allows the taxpayer to choose which specific properties the carryover is attributed to, and this selection must be documented in books and records. Section 179 costs allocated from a partnership or S corporation are treated as a single item of property for this purpose. If the taxpayer does not make a selection, the total carryover is split equally among all properties that were elected for expensing that year. When carryovers from more than one year remain, the costs from the earliest year must be applied first. If carryover amounts remain when the property is sold or otherwise disposed of, neither the original owner nor the new owner can deduct the unused amount; it must be added back to the property's basis. The 2016 maximum section 179 expensing deduction is $500,000, and any portion disallowed for lack of income can be recovered through this carryover mechanism.
If you place more than one property in service in a year, you can select the properties for which all or a part of the costs will be carried forward.
Publication 946 (2016), How To Depreciate Property (IRS)
The separate cap on heavy SUVs
For the 2016 federal section 179 deduction, the IRS imposes a separate cap on heavy sport utility vehicles and certain other vehicles. A taxpayer cannot elect to expense more than $25,000 of the cost of any heavy SUV placed in service during the tax year. This cap applies to four-wheeled vehicles primarily designed or used to carry passengers on public roads that fall within a specified gross vehicle weight range for heavy vehicles. Certain vehicles are exempt from this $25,000 limit: vehicles designed to seat many passengers behind the driver's seat; vehicles with a large cargo area not readily accessible from the passenger compartment; and vehicles with an integral enclosure fully enclosing the driver compartment and load carrying device, with no rear seating. The $25,000 cap is separate from the overall $500,000 maximum section 179 expensing deduction and applies in addition to it. Taxpayers who place a qualifying heavy SUV in service can still expense up to $25,000 of its cost under section 179, and then depreciate the remaining basis under the regular depreciation rules.
You cannot elect to expense more than $25,000 of the cost of any heavy sport utility vehicle (SUV) and certain other vehicles placed in service during the tax year.
Publication 946 (2016), How To Depreciate Property (IRS)
How each figure was verified
Each number below was read from a stored copy of the document named beside it, and checked to occur word for word in the quoted sentence. The digest is of that stored text.
Publication 946 (2016), How To Depreciate Property (IRS)
- Maximum section 179 expensing deduction
The total amount you can elect to deduct under section 179 for most property placed in service in tax years begin- ning in 2016 generally cannot be more than $500,000.
- Phase-out threshold: cost of section 179 property placed in service
The cost of your section 179 property placed in serv- ice exceeds $2,010,000.