2018 Section 179 Deduction Limit
For 2018, the Section 179 Deduction Limit is $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 2026-08-29
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)
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.