2018 Section 179 Deduction Limit
For 2018, the Section 179 Deduction Limit figures are $1,000,000 (Maximum section 179 expensing deduction) and $2,500,000 (Phase-out threshold: cost of section 179 property placed in service).
Effective 2018-01-01Source: Internal Revenue Bulletin 2018-10 (Rev. Proc. 2018-18) (IRS)Verified 2026-09-02
Compared with 2017
| Item | 2017 | 2018 | Change |
|---|---|---|---|
| Maximum section 179 expensing deduction | $510,000 | $1,000,000 | +$490,000 (+96.1%) |
| Phase-out threshold: cost of section 179 property placed in service | $2,030,000 | $2,500,000 | +$470,000 (+23.2%) |
Who it applies to
Taxpayers who elect to expense certain depreciable assets under Section 179 for taxable years beginning in 2018
What changed this year, and why
For taxable years beginning in 2018, the IRS set the maximum Section 179 expensing deduction at $1,000,000 and the phase-out threshold at $2,500,000, both increased from the 2017 amounts of $510,000 and $2,030,000, respectively. These 2018 levels are permanent under the Tax Cuts and Jobs Act and will be adjusted for inflation for taxable years beginning after December 31, 2018.
Common questions
- What happens if my total cost of Section 179 property exceeds the phase-out threshold?
- If the total cost of Section 179 property you placed in service during the year exceeds the threshold, the maximum deduction is reduced dollar for dollar. Once the cost reaches a point where the threshold is exceeded by $1,000,000 or more, no Section 179 deduction is available for that year.
What counts as section 179 property
Under section 179, not every asset a business buys can be immediately expensed. To qualify, the property must satisfy four conditions at once: it must fall within one of the listed categories of eligible depreciable property, it must be acquired for use in the taxpayer's trade or business, it must have been obtained by purchase (so gifts, inheritances, and tax-free transfers from a related person generally do not count), and it must not be among the items specifically excluded later in the publication, such as land, air conditioning units, or property used by a tax-exempt organization. The eligible categories include tangible personal property; other tangible property used in manufacturing, research, utility services, or bulk storage of fungible commodities; single-purpose agricultural or horticultural structures; petroleum storage facilities; off-the-shelf computer software; and qualified section 179 real property. In short, the asset must be a purchased, business-used item of a type Congress has designated as eligible for immediate expensing rather than ordinary depreciation.
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 (2018), How To Depreciate Property (IRS)
How buying too much property cuts the deduction
For 2018, the maximum section 179 deduction is $1,000,000. However, this dollar limit is reduced dollar for dollar if the total cost of qualifying section 179 property placed in service during the year exceeds the $2,500,000 phase-out threshold. The reduction cannot bring the limit below zero. Once the cost of property placed in service reaches $3,500,000, the taxpayer is fully phased out and no section 179 deduction is allowed for that year. The phase-out is applied on a total-cost basis, not on a per-property basis. Married taxpayers filing separate returns (or jointly) treat their costs as if they were one taxpayer when figuring the reduction.
If the cost of your qualifying section 179 property placed in service in a year is more than $2,500,000, you generally must reduce the dollar limit (but not below zero) by the amount of cost over $2,500,000. If the cost of your section 179 property placed in service during 2018 is $3,500,000 or more, you cannot take a section 179 deduction.
Publication 946 (2018), How To Depreciate Property (IRS)
The deduction cannot exceed your business income
Even after the taxpayer has applied the dollar limit and any phase-out reduction, the deduction actually allowed for the year is further restricted to the taxable income generated by the active conduct of any trade or business. This means that a sole proprietor, partnership, or S corporation cannot use the section 179 deduction to create or increase a net operating loss. Taxable income for this purpose is computed by netting the income and losses from all actively conducted trades or businesses, and then disregarding certain items: the section 179 deduction itself, the self-employment tax deduction, any net operating loss carryback or carryforward, and unreimbursed employee expenses. A taxpayer who meaningfully participates in the management or operations of the business is considered to actively conduct it. If the deduction is larger than business income in the current year, the excess is not lost; instead, it is carried forward to future years, where it can be used once the business generates enough taxable income.
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. Generally, you are considered to actively conduct a trade or business if you meaningfully participate in the manage- ment or operations of the trade or business. Any cost not deductible in one year under section 179 because of this limit can be carried to the next year.
Publication 946 (2018), How To Depreciate Property (IRS)
Carrying the disallowed part forward, and which property it comes from
When a taxpayer's section 179 deduction is disallowed in a given year because of the business income limitation, the disallowed amount is not lost; it is carried forward to the next tax year and used to determine the deduction for that year. If more than one item of property was placed in service during the year, the taxpayer is allowed to choose which specific properties will have all or part of their costs carried forward. This selection must be documented in the taxpayer's books and records. Section 179 costs allocated from a partnership or an S corporation are treated as a single item of property for this purpose. If the taxpayer fails to make a selection, the total carryover is divided equally among all the properties that were elected for expensing in that year. When carryovers from multiple years exist and only part of the total can be deducted in a subsequent year, the costs from the earliest year are applied first.
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. Your selections must be shown in your books and records. For this purpose, treat section 179 costs allocated from a partnership or an S corporation as one item of section 179 property. If you do not make a selection, the total carryover will be allocated equally among the properties you elected to expense for the year.
Publication 946 (2018), How To Depreciate Property (IRS)
The separate cap on heavy SUVs
A separate dollar cap applies to heavy sport utility vehicles and certain other vehicles placed in service during the tax year. The IRS states that a taxpayer cannot elect to expense more than $25,000 of the cost of any heavy SUV and certain other vehicles subject to this rule. This cap sits on top of the general section 179 deduction limits and applies to each qualifying vehicle individually. The rule targets vehicles primarily designed or used to carry passengers over public streets, roads, or highways, that fall within a specific gross vehicle weight range. Certain vehicles are exempt from the $25,000 cap, including those designed to seat more than nine passengers behind the driver, those with a cargo area of sufficient interior length not readily accessible from the passenger compartment, and those with an integral enclosure that fully encloses the driver compartment and load-carrying device with no rear seating. The cap limits how much of a heavy SUV's cost can be immediately expensed under section 179, with any remaining basis depreciated over the vehicle's recovery period under the normal 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 (2018), How To Depreciate Property (IRS)
Estates and trusts are shut out of this deduction entirely
Estates and trusts are not permitted to claim the section 179 deduction under federal tax law. This means that if an estate or trust acquires qualifying property, it cannot elect to expense the cost of that property in the year it is placed in service. Instead, the estate or trust must recover the cost of the property through regular depreciation deductions over the property's recovery period. This rule applies regardless of the amount of qualifying property placed in service or whether the estate or trust meets the other requirements for the deduction. Only certain types of taxpayers, such as individuals, partnerships, and corporations conducting active trades or businesses, are eligible to make the section 179 election. The deduction is designed to encourage business investment by allowing taxpayers to immediately expense qualifying property rather than depreciating it over time, but estates and trusts are specifically excluded from this benefit.
Estates and trusts cannot elect the section 179 deduction.
Publication 946 (2018), How To Depreciate Property (IRS)
The deduction lands in the year the property is placed in service, not when you paid for it
In the United States, the section 179 deduction is timed to the year the property is placed in service, not when you paid for it. This means that if you acquire qualifying property in one year but don't put it into use until a later year, the deduction is available in the later year when the property is actually placed in service. You can elect to recover all or part of the cost of qualifying property, up to the maximum section 179 expensing deduction limit of $1,000,000, by deducting it in that year. This election is made instead of recovering the cost through regular depreciation deductions over multiple years. However, if the total cost of section 179 property placed in service during the year exceeds the phase-out threshold of $2,500,000, the deduction amount is reduced dollar-for-dollar by the excess. The timing rule ensures that the deduction aligns with when the property begins being used in your trade or business, which is the fundamental principle behind section 179 expensing.
You can elect to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. This is the section 179 deduction.
Publication 946 (2018), How To Depreciate Property (IRS)
The election is made by filling out Part I of Form 4562
In the United States, to claim the section 179 deduction, you must make an election by completing Part I of Form 4562, which is the IRS form for depreciation and amortization. This election is how you tell the IRS that you want to expense qualifying property rather than depreciate it over time. When you file your tax return, you attach Form 4562 to make this election. The form requires you to provide information about the property you're expensing, including its cost and the date it was placed in service. If the property is listed property (such as vehicles or certain equipment), you must also complete Part V of Form 4562 before completing Part I. You can make this election on your original return or on an amended return filed within the prescribed time limits. Once you make the election for a particular property, it generally cannot be revoked without IRS consent. The deduction is subject to the maximum section 179 expensing deduction limit and the phase-out threshold based on total property placed in service during the year.
Election. You elect to take the section 179 deduction by completing Part I of Form 4562.
Publication 946 (2018), How To Depreciate Property (IRS)
When another deduction also caps out at taxable income, the two have to be worked out together
In the United States, when multiple deductions are both limited by taxable income, they must be coordinated to ensure proper calculation. The section 179 deduction has a business income limit, but you may also have another deduction that is limited by taxable income, such as certain charitable contributions or other business expenses. When this occurs, you cannot simply calculate each deduction independently. Instead, you must work them out together using a specific ordering method. First, you figure your taxable income without considering either the section 179 deduction or the other income-limited deduction. Then, you calculate a hypothetical section 179 deduction based on that taxable income amount. Next, you subtract this hypothetical section 179 deduction from the taxable income to determine the remaining taxable income available for the other deduction. Finally, you figure the other deduction using this adjusted amount. This coordination ensures that both deductions are calculated correctly and that the taxable income limitations are properly applied to each deduction in the right sequence.
Two different taxable income limits. In addition to the business income limit for your section 179 deduction, you may have a taxable income limit for some other deduction. You may have to figure the limit for this other deduction taking into account the section 179 deduction.
Publication 946 (2018), How To Depreciate Property (IRS)
If business use falls to 50% or less, part of the deduction comes back as income
In the United States, if the business use of property for which you claimed a section 179 deduction falls to 50% or less in any year during the property's recovery period, you must recapture part of the deduction as ordinary income. This recapture rule ensures that the accelerated expensing benefit is clawed back when the property is no longer used predominantly for business purposes. In the year the business use percentage drops to 50% or below, you must include the recapture amount as ordinary income on Part IV of Form 4797, which is used to report gains and losses from business property. Additionally, you must increase the adjusted basis of the property by the recapture amount, which affects future depreciation calculations. The recapture amount represents the difference between the section 179 deduction you actually claimed and the depreciation that would have been allowable if you had not taken the section 179 deduction. This rule applies throughout the property's recovery period, so even years after the original deduction was taken, a drop in business use can trigger recapture. It's important to monitor business use percentages annually to identify when this threshold is crossed.
You may have to recapture the section 179 deduction if, in any year during the property's recovery period, the per- centage of business use drops to 50% or less. In the year the business use drops to 50% or less, you include the re- capture amount as ordinary income in Part IV of Form 4797.
Publication 946 (2018), 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.
Internal Revenue Bulletin 2018-10 (Rev. Proc. 2018-18) (IRS)
- Maximum section 179 expensing deduction
Election to Expense Certain Depre- ciable Assets. For taxable years beginning in 2018, under § 179(b)(1), the aggregate cost of any § 179 property that a taxpayer elects to treat as an expense cannot exceed $1,000,000.
- Phase-out threshold: cost of section 179 property placed in service
Under § 179(b)(2), the $1,000,000 limitation is reduced (but not below zero) by the amount the cost of § 179 property placed in service during the 2018 taxable year exceeds $2,500,000.