Section 179 and Bonus Depreciation – Tax Year 2025

This article summarizes the official IRS and U.S. Treasury rules for recovering the cost of business property under Section 179 and Section 168(k) (bonus depreciation) for tax years beginning in 2025. All information below is based exclusively on primary sources.

1. Overview

Businesses may recover the cost of certain depreciable property more quickly by using:

• Section 179 — election to expense certain depreciable business assets immediately.
• Section 168(k) — additional first-year depreciation deduction (bonus depreciation).

Both deductions are claimed on Form 4562, Depreciation and Amortization.

2. Section 179 Expensing Election

Legal authority

• 26 U.S.C. § 179 – Election to expense certain depreciable business assets.
• Revenue Procedure 2024-40 – IRS inflation adjustments for tax years beginning in 2025.
• IRS Publication 946 – How to Depreciate Property.

2025 dollar limits

According to Revenue Procedure 2024-40:

• Maximum deduction: $1,250,000.
• Phase-out threshold: begins when total cost of qualifying Section 179 property placed in service during the year exceeds $3,130,000.
• These amounts are indexed annually for inflation.

Eligible property

Under § 179(d) and Publication 946, qualifying property generally includes:

• Tangible personal property acquired by purchase for use in the active conduct of a trade or business.
• Certain off-the-shelf computer software.
• Qualified real property improvements (roofs, HVAC, fire protection, alarm, and security systems placed in service after 2017).
• Property must be used more than 50% for business and placed in service during the tax year.

Business-income limitation

Under § 179(b)(3), the deduction cannot exceed the taxpayer’s taxable income from the active conduct of any trade or business. Any disallowed amount may be carried forward to future years.

How to elect

The election is made by completing Form 4562, Part I, and attaching it to the income tax return for the year the property is placed in service.

3. Bonus Depreciation (Additional First-Year Depreciation)

Legal authority

• 26 U.S.C. § 168(k) – Additional first-year depreciation deduction.
• Treas. Reg. § 1.168(k)-1 and § 1.168(k)-2 – Treasury regulations implementing bonus depreciation rules.
• IRS FAQ: Additional First-Year Depreciation Deduction (Bonus Depreciation).

Applicable percentage for 2025

Under § 168(k)(6), the applicable percentage for qualified property placed in service in 2025 is 40 percent, unless modified by future legislation or IRS guidance. As of November 2025, no new revenue procedure or notice has changed this percentage.

Qualified property

Per § 168(k)(2) and the Treasury regulations, qualified property includes:

• Tangible property with a recovery period of 20 years or less under MACRS.
• Certain computer software and water utility property.
• Qualified improvement property (interior improvements to nonresidential real property).
• Property must meet the “acquired by purchase” and “placed in service” requirements of § 168(k)(2)(E) and (k)(2)(B).

Interaction with Section 179

Taxpayers generally apply Section 179 expensing first and then take bonus depreciation on any remaining basis. Bonus depreciation under § 168(k) is not limited by taxable income and can create or increase a net operating loss.

4. Recordkeeping and compliance

• Keep purchase invoices, placed-in-service documentation, and proof of business use.
• Use Form 4562 Instructions to confirm current-year limits and special rules for listed property or vehicles.
• If business use falls to 50% or less, recapture rules apply under § 179(d)(10) and § 280F(b).

5. Official sources (IRS and Treasury)

• 26 U.S.C. § 179 – Election to expense certain depreciable business assets.
• 26 U.S.C. § 168(k) – Additional first-year depreciation deduction.
• 26 C.F.R. § 1.168(k)-1 and § 1.168(k)-2 – Treasury Regulations.
• Revenue Procedure 2024-40 – 2025 inflation-adjusted Section 179 amounts.
• IRS Publication 946 – How to Depreciate Property.
• Form 4562 Instructions (Depreciation and Amortization).
• IRS FAQ – Additional First-Year Depreciation Deduction.