2020 Section 179 Deduction Limit
For 2020, the Section 179 Deduction Limit figures are $1,040,000 (Maximum section 179 expensing deduction) and $2,590,000 (Phase-out threshold: cost of section 179 property placed in service).
Effective 2020-01-01Source: Rev. Proc. 2019-44 (IRS)Verified 2026-09-02
Compared with 2019
| Item | 2019 | 2020 | Change |
|---|---|---|---|
| Maximum section 179 expensing deduction | $1,020,000 | $1,040,000 | +$20,000 (+2.0%) |
| Phase-out threshold: cost of section 179 property placed in service | $2,550,000 | $2,590,000 | +$40,000 (+1.6%) |
Who it applies to
Taxpayers who elect to expense certain depreciable assets under Internal Revenue Code Section 179 for taxable years beginning in 2020.
What changed this year, and why
For taxable years beginning in 2020, the maximum Section 179 expensing deduction is $1,040,000. The deduction begins to phase out when the total cost of Section 179 property placed in service during the year exceeds $2,590,000. The $1,040,000 limit is reduced dollar for dollar by the amount the cost of Section 179 property placed in service exceeds $2,590,000, but not below zero.
Common questions
- What is the Section 179 deduction and how does the phase-out work?
- Section 179 of the Internal Revenue Code allows a taxpayer to elect to treat the cost of certain depreciable property as an expense rather than recovering it through depreciation. For 2020, the maximum deduction is $1,040,000, but this amount is reduced dollar for dollar once the total cost of Section 179 property placed in service during the year exceeds $2,590,000.
What counts as section 179 property
For 2020, section 179 property includes several types of depreciable assets: tangible personal property (machinery, equipment, office furniture), other tangible property used in manufacturing or utility services, single-purpose agricultural structures, petroleum storage facilities, off-the-shelf computer software, and qualified section 179 real property. The property must be acquired for business use through purchase, not by gift or inheritance. Real property generally does not qualify unless it falls into specific categories like certain improvements to nonresidential buildings. The property cannot be described in the "What Property Does Not Qualify" section, which excludes items like investment property, property used by tax-exempt organizations, and property used outside the United States. The deduction applies to the cost of qualifying property placed in service during the tax year, subject to dollar limits and phase-out thresholds based on total property costs.
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.
Publication 946 (2020), How To Depreciate Property (IRS)
How buying too much property cuts the deduction
The section 179 deduction is reduced dollar-for-dollar when total spending on qualifying property rises above the phase-out threshold. Once the cost of section 179 property placed in service in the year exceeds $2,590,000, the $1,040,000 maximum is lowered by every dollar of cost above that amount. The reduced limit cannot go below zero. Because the starting maximum is $1,040,000, once spending reaches $2,590,000 plus $1,040,000 - totaling $3,630,000 - the entire deduction is eliminated and no section 179 expense can be claimed for that year. This phase-out is calculated on the total cost of all qualifying property placed in service during the year, regardless of which individual items the taxpayer elects to expense. The reduction applies before other limitations such as the business-income cap or the heavy-SUV cap.
If the cost of your qualifying section 179 property placed in service in a year is more than $2,590,000, you must gen- erally reduce the dollar limit (but not below zero) by the amount of cost over $2,590,000. If the cost of your section 179 property placed in service during 2020 is $3,630,000 or more, you cannot take a section 179 deduction.
Publication 946 (2020), How To Depreciate Property (IRS)
The deduction cannot exceed your business income
Even after the maximum deduction and the phase-out are applied, the section 179 deduction cannot exceed the taxpayer's taxable income from the active conduct of a trade or business for the year. This means the expensed amount is capped at the combined net income and losses from all businesses the taxpayer actively conducted. Certain items are excluded from this income figure: the section 179 deduction itself, self-employment tax deductions, net operating loss carrybacks or carryforwards, and unreimbursed employee expenses are all disregarded. If the total elected cost is greater than the business income available, the excess cannot be deducted in the current year. Instead, it is carried forward to the next tax year and may be deducted then, subject to that year's own business-income and dollar limits.
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 (2020), How To Depreciate Property (IRS)
Carrying the disallowed part forward, and which property it comes from
When the section 179 deduction is disallowed because of the business income limit, the disallowed amount is carried forward indefinitely to future tax years. If a taxpayer placed more than one property in service during the year, they can choose which specific properties will have all or part of their costs carried forward, and those choices must be recorded in the taxpayer's books and records. Costs allocated from a partnership or S corporation are treated as a single item of section 179 property for this purpose. If no selection is made, the total carryover is divided equally among all properties elected to be expensed for the year. When carryovers from multiple years are carried forward into a later year where only a portion can be deducted, the taxpayer must apply the earliest year's carryover 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.
Publication 946 (2020), How To Depreciate Property (IRS)
The separate cap on heavy SUVs
A separate dollar cap applies to heavy sport utility vehicles and certain other passenger vehicles placed in service during tax years beginning in 2020. For these vehicles, the taxpayer cannot elect to expense more than $25,900 of the cost under section 179. This cap is distinct from and in addition to the overall $1,040,000 maximum deduction and the $2,590,000 phase-out threshold that apply to all section 179 property. The cap targets vehicles primarily designed or used to carry passengers over public roads that fall within a specified gross vehicle weight range for heavy vehicles. Certain vehicles are exempt from the $25,900 cap, including those designed to seat more than nine passengers behind the driver, vehicles with a cargo area not readily accessible from the passenger compartment, and vehicles with a fully enclosed driver and load compartment with no rear seating.
You cannot elect to expense more than $25,900 of the cost of any heavy sport utility vehicle (SUV) and certain other vehicles placed in service in tax years beginning in 2020.
Publication 946 (2020), How To Depreciate Property (IRS)
Estates and trusts are shut out of this deduction entirely
The federal section 179 deduction is available only to individuals and certain business entities that operate a trade or business. Estates and trusts are expressly excluded from eligibility, no matter how much qualifying property they acquire or how much taxable income they generate. If an estate or trust acquires equipment, vehicles, or other section 179 property, the cost must be recovered through ordinary depreciation deductions over the property's recovery period; it cannot be expensed in the year the property is placed in service. The beneficiaries of the estate or trust likewise cannot claim the deduction through their shares of the estate's or trust's income, because the election was never available at the entity level. This rule applies regardless of the amount of the deduction limit or the phase-out threshold for the tax year.
Estates and trusts cannot elect the section 179 deduction.
Publication 946 (2020), How To Depreciate Property (IRS)
The deduction lands in the year the property is placed in service, not when you paid for it
The section 179 deduction is taken in the tax year the property is first placed in service, regardless of when you actually paid for it. You may purchase equipment in one calendar year but not put it to use until the next year; in that case the deduction belongs to the later year. This timing rule matters because the $1,040,000 maximum deduction and the $2,590,000 phase-out threshold are applied per year based on the total cost of property placed in service during that year. Electing the deduction means you recover the cost immediately rather than spreading it over several years through regular depreciation. If you place multiple items of qualifying property in service during the same year, you may divide the deduction among them in any way you choose, subject to the annual dollar limits. You cannot shift the deduction to an earlier or later year simply by changing when you paid the invoice.
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.
Publication 946 (2020), How To Depreciate Property (IRS)
The election is made by filling out Part I of Form 4562
To claim the section 179 deduction, you complete Part I of Form 4562 and attach the form to your federal income tax return. If the property you are expensing is listed property - such as a vehicle used for both business and personal purposes - you must first complete Part V of Form 4562 before filling in Part I. For property placed in service in 2020, the form can be filed with your original return, even if you file it after the usual due date, or with an amended return filed within the time allowed by law. An election made on an amended return must include all the required information. Once you make the election, it is generally irrevocable except with IRS consent, so you should decide carefully how much of the qualifying property's cost to expense versus depreciate over time, keeping in mind the $1,040,000 maximum deduction and the $2,590,000 phase-out threshold that apply for the year.
Election. You elect to take the section 179 deduction by completing Part I of Form 4562.
Publication 946 (2020), How To Depreciate Property (IRS)
When another deduction also caps out at taxable income, the two have to be worked out together
A taxpayer may face two separate taxable-income limits in the same year: the business-income limit that caps the section 179 deduction, and a different taxable-income limit that applies to another deduction, such as the charitable contribution deduction. When both limits apply, the IRS requires you to work them out together in a specific order rather than independently. First, you figure taxable income without taking either the section 179 deduction or the other limited deduction. Then you compute each deduction in the proper sequence, taking into account how one affects the taxable income base for the other. This coordination ensures that neither deduction is overstated. The rule applies even when the section 179 deduction itself is well within the $1,040,000 maximum and has not yet reached the $2,590,000 phase-out threshold; the business-income cap is a separate restriction that can reduce the expensing amount further when net business income is low.
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.
Publication 946 (2020), How To Depreciate Property (IRS)
If business use falls to 50% or less, part of the deduction comes back as income
If the percentage of business use of section 179 property falls to 50% or less in any year during the property's recovery period, you must recapture part of the deduction. In that year, you include the recapture amount as ordinary income on Part IV of Form 4797. At the same time, you increase the basis of the property by the same recapture amount, which restores some of the basis that was previously expensed. The recapture rules apply for as long as the property remains within its recovery period, so even years after the original election you may owe additional income if business use drops. For listed property, separate recapture rules under chapter 5 apply instead. Taxpayers should monitor business-use percentages each year to avoid an unexpected income inclusion, particularly for assets such as vehicles or equipment whose business use may fluctuate over time. The recapture mechanism operates independently of the $1,040,000 deduction limit and the $2,590,000 phase-out threshold that applied in the year the property was placed in service.
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.
Publication 946 (2020), 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.
Rev. Proc. 2019-44 (IRS)
- Maximum section 179 expensing deduction
Election to Expense Certain Depreciable Assets. For taxable years beginning in 2020, under § 179(b)(1), the aggregate cost of any § 179 property that a taxpayer elects to treat as an expense cannot exceed $1,040,000
- Phase-out threshold: cost of section 179 property placed in service
Under § 179(b)(2), the $2,590,000 limitation is reduced (but not below zero) by the amount the cost of § 179 property placed in service during the 2020 taxable year exceeds $2,590,000.