2025 Section 179 Updates

As a business owner, keeping up with the latest tax updates is crucial for planning your company's financial strategies. Tax laws and codes can frequently change, potentially offering new opportunities or challenges. One such tax code is the Section 179 tax deduction, which the Internal Revenue Service (IRS) has revised for 2025. If you intend to invest in new or upgraded business assets this year, it's important to understand the updates to Section 179 for this year.

This Union Commercial Capital blog post has the information you need about Section 179 for the current year. It begins by explaining what Section 179 is. Then, it outlines the 2025 deduction limit, bonus depreciation changes, business vehicle deduction limits, and more.

Summary of Section 179

Section 179 is a tax provision that allows businesses to deduct the entire purchase price of qualifying assets (such as equipment, machinery, vehicles, and technology) in the tax year they are bought rather than spreading the cost over several years through depreciation. By taking an immediate tax deduction, business owners can reduce their company's tax liability. Additionally, they can reinvest these savings into their operations, enhancing cash flow. Acquiring new or upgraded assets can also boost a business's efficiency and productivity, helping it remain competitive.

Section 179 Tax Deduction Limit for 2025

For the 2025 tax year, the Section 179 tax deduction limit is set at $1,250,000, marking a $30,000 increase from last year's limit. This updated deduction allows businesses to write off a slightly larger portion of their qualifying asset purchases. It's important to remember that a business can combine multiple purchases within the same year. For instance, consider a professional tree service business. If the owner finances a transport truck, trailer and a spider lift, all within 2025, the combined total cost of these three purchases will be eligible for the Section 179 deduction for 2025, provided it doesn’t exceed the deduction limit.

Bonus Depreciation for 2025

As previously stated, $1,250,000 of eligible assets can be expensed in 2025. This deduction will decrease dollar for dollar once asset purchases in 2025 exceed $3,130,000,2, which is the phase-out threshold. If a business acquires or finances qualifying assets over $3,130,000 in 2025, a bonus depreciation of 40% will be applicable.

2025 marks the last year to benefit from a 40% bonus depreciation, as it is set to drop to 20% in 2026. Many business owners opt for the Section 179 tax deduction first and then the bonus depreciation. Each business's circumstances are different, so it is advisable to consult an accountant for guidance or recommendations.

Section 179 Limit for Vehicles in 2025

Various vehicles used at least 50% of the time for business purposes are eligible for Section 179. Light vehicles with a gross vehicle weight rating (GVWR) under 6,000 pounds can have a maximum deduction of $12,200 in 2025.3 SUVs, commercial vans, and pickup trucks with a GVWR between 6,000 and 14,000 pounds can receive a maximum deduction of $31,300.4 Although most light vehicles and SUVs have sticker prices exceeding $12,200 and $31,300, respectively, any cost above these limits may qualify for a 40% bonus depreciation in 2025.

Section 179 deduction for Energy-Efficient Buildings

Section 179D of the Internal Revenue Code provides a tax deduction for energy-efficient buildings. It enables businesses to deduct the expenses of certain enhancements to their commercial properties that improve energy efficiency. These enhancements include interior LED lighting upgrades and the adoption of energy-efficient heating, ventilation, and air conditioning (HVAC) systems.

By utilizing the Section 179D deduction, valued at .58 cents per square foot in 2025, businesses can lower their taxable income for qualifying improvements made by midnight, 12/31/25. It's important to note that the .58 cents per square foot deduction can rise to $1.16 per square foot if the annual energy and power reduction exceeds the 25% threshold.

The Section 179 tax deduction is simple, but not every type of business asset is eligible for a write-off. It is advisable to consult an accountant for detailed information about Section 179, the qualifying assets, and how the deduction might benefit your business. An accountant can provide recommendations and assist you in filing IRS Form 4562, which must be included with your company’s annual tax return.