Understanding Section 179 and How It Can Save Your Business Money in 2024

For businesses looking to reduce taxable income and save money, Section 179 of the IRS tax code can be a powerful tool. This deduction allows businesses to purchase or lease qualifying equipment and write off the full purchase price in the year the equipment is acquired, rather than depreciating it over time. In 2024, Section 179 continues to offer substantial benefits, allowing businesses to invest in the equipment they need while gaining immediate tax savings. Here’s what you need to know about how Section 179 works and how it can benefit your bottom line. 

What Is Section 179? 

Section 179 is a part of the IRS tax code that enables businesses to deduct the cost of certain qualifying equipment and software purchased or financed during the tax year. While businesses traditionally had to depreciate their assets over several years, Section 179 allows them to claim the full deduction immediately. For 2024, businesses can deduct up to $1,220,000 in qualifying equipment purchases, with the deduction beginning to phase out after a total of $3,050,000 in equipment purchases. The entire deduction goes away once $4,270,000 in purchases are reached. 

Key Details for 2024 

Here are the critical numbers to understand the Section 179 deduction for the 2024 tax year: 

• Deduction Limit: The maximum amount a business can deduct is $1,220,000. 

• Phase-Out Threshold: The deduction limit begins to phase out dollar-for-dollar after $3,050,000 in total equipment purchases. This phase-out means that businesses purchasing over $3,050,000 in equipment may not fully benefit from Section 179. 

• Bonus Depreciation: Businesses can also benefit from an additional first-year bonus depreciation for assets that exceed the Section 179 deduction limit. This is set at 60% for the 2024 tax year. 

Section 179 is aimed at small to mid-sized businesses, as it benefits companies spending within the deduction limits. However, larger businesses that exceed the limit can still benefit from bonus depreciation, making it accessible across various industries. 

Qualifying Equipment 

To qualify for Section 179, equipment must meet specific criteria. Generally, most tangible goods that your business purchases or leases can qualify. This includes machinery, equipment, and other items used in daily operations. These goods can be new or used, so long as they are new to the company’s fleet. 

The key is that the equipment must be used for business purposes at least 50% of the time and be in use by December 31, 2024.  

Section 179 vs. Depreciation 

Without Section 179, businesses would have to spread out deductions over several years through depreciation, claiming only a fraction of the equipment’s value each year. For example, a forklift costing $100,000 might typically be depreciated over five years, with only $20,000 deducted annually. Section 179, however, allows businesses to deduct the full amount in the year of purchase, providing immediate tax relief and a stronger cash flow to fund ongoing business needs. 

Maximizing Savings with Section 179 and Bonus Depreciation 

In some cases, businesses may reach the Section 179 limit but still want to write off more equipment. This is where bonus depreciation comes into play. For the 2024 tax year, the bonus depreciation rate is 60%, allowing businesses to claim 60% of the value of assets exceeding the Section 179 cap in the first year. 

Financing Options and Section 179 

One of the most attractive aspects of Section 179 is that businesses can use it even when they finance equipment purchases. As long as the equipment is in use by the end of the tax year, businesses can take the deduction, which means they can benefit from a full write-off even if they’re still making payments. This is especially helpful for small to medium-sized businesses that want to preserve cash flow while making necessary equipment upgrades. 

Financing also allows companies to deduct the full purchase amount while spreading out payments, making it a valuable strategy for managing costs. Many financial institutions offer financing options tailored for equipment purchases, and some even incorporate Section 179 benefits into their loan structures.