Federal Section 179 Expense Election Calculator

How this calculator works

Section 179 of the Internal Revenue Code permits a taxpayer to ELECT to immediately expense — rather than capitalize and depreciate — the cost of qualifying tangible business property in the year the property is placed in service. § 179 is the oldest of the three first-year-deduction mechanisms in federal tax law (the others being § 168(k) bonus depreciation and the de minimis safe harbor under Treas. Reg. § 1.263(a)-1(f)), and it carries three statutory governors that the other mechanisms do not impose: an annual dollar cap, an investment phase-out that reduces the cap at high purchase levels, and a business income limit that prevents § 179 from creating a loss. This calculator models the three governors plus the optional stacking with § 168(k) bonus depreciation and first-year MACRS on the residual basis.

2026 § 179 limits

For tax year 2026, the estimated § 179(b)(1) dollar cap is $1,220,000 — the maximum total § 179 deduction a taxpayer may elect on Form 4562 for the year. The § 179(b)(2) investment phase-out threshold is $3,050,000 — once total qualifying property purchases for the year exceed this level, the cap is reduced dollar-for-dollar. Complete phase-out occurs at $3,050,000 + $1,220,000 = $4,270,000 of total qualifying purchases. The figures are inflation-indexed under § 179(b)(6) and are estimated here pending the annual Rev. Proc. — the 2025 figures from Rev. Proc. 2024-40 were $1,160,000 cap and $2,890,000 threshold. When the IRS publishes the 2026 figures, the calculator will be updated and the lastReviewed stamp will refresh.

Eligible property

Under IRC § 179(d), eligible property is tangible personal property — machinery, equipment, computers, office furniture, business vehicles — plus off-the-shelf computer software, Qualified Improvement Property under § 168(e)(6) (interior improvements to non-residential real property, post the CARES Act 2020 technical correction restoring the 15-year recovery period), and certain non-residential building components added by the Tax Cuts and Jobs Act of 2017: roofs, HVAC systems, fire-protection and alarm systems, and security systems. Property must be used more than 50% in the active conduct of the taxpayer's trade or business under § 179(d)(1).

Property NOT eligible: real property generally (other than QIP and the TCJA-added non-residential building components), land and land improvements, property used predominantly outside the United States under § 50(b)(1), property used for lodging under § 50(b)(2) with limited hotel exceptions, and property acquired from a related party under § 179(d)(2)(B). The active-trade-or-business requirement excludes property used in a passive activity, which is one of the practical distinctions from § 168(k) bonus depreciation (bonus has no active-conduct requirement).

The phase-out mechanism

The § 179(b)(2) phase-out reduces the dollar cap on a dollar-for-dollar basis once total qualifying property purchases for the year exceed the threshold. Mechanically: phase-out reduction = min(total qualifying purchases − threshold, dollar cap); effective cap = max(0, dollar cap − phase-out reduction). The phase-out is computed on TOTAL qualifying purchases for the year — including property the taxpayer has not elected to expense under § 179 — not just the property on which the election is being made. This is what makes § 179 a small-and-medium-business preference: large equipment-heavy operators with over $4.27M of annual placements have their § 179 cap fully phased out and must rely on § 168(k) bonus instead.

Critically: phase-out reductions are a permanent loss. The portion of the cap reduced by the phase-out is gone; it does not carry forward to future years. This is different from amounts disallowed under the § 179(b)(3) business income limit, which DO carry forward indefinitely. The distinction matters for multi-year planning — timing large purchases across calendar-year boundaries can preserve the full cap in two separate years rather than triggering phase-out in a single year.

The business income limit

Under § 179(b)(3)(A), the § 179 deduction cannot exceed the aggregate amount of taxable income derived from the taxpayer's active trades or businesses for the year — § 179 cannot create a loss. The income limit is computed BEFORE the § 179 deduction itself; the deduction is not circular. For self-employed taxpayers, business taxable income includes Schedule C net income, partnership and S-corp Schedule K-1 pass-through income, and W-2 wages from a related employer. The income limit is taxpayer-level, not entity-level — a partner's distributive share of § 179 is subject to the partner's own income limit on their personal return.

Amounts disallowed under the income limit are not lost. Under § 179(b)(3)(B), they carry forward indefinitely to future years, deductible against future business income subject to the future-year cap and phase-out (which reset annually). The carryforward survives until the taxpayer has enough business income to absorb the deduction.

Worked example 1: $500K equipment, $200K business income — income limit binds

A self-employed contractor purchases $500,000 of equipment in 2026 and places it in service in the same year. The contractor's Schedule C business taxable income for the year, before any § 179 deduction, is $200,000. Total fixed-asset additions for the year are $500,000 (well below the phase-out threshold).

• § 179(b)(1) cap: $1,220,000 (well above the $500,000 purchase).
• § 179(b)(2) phase-out: $500,000 of total additions is below the $3,050,000 threshold — no phase-out.
• § 179(b)(3) income limit: business income is $200,000.
• § 179 allowed: min($500,000, $1,220,000, $200,000) = $200,000.
• Carryforward to next year: $500,000 − $200,000 = $300,000 (indefinite, under § 179(b)(3)(B)).
• Remaining basis: $500,000 − $200,000 = $300,000.
• § 168(k) bonus on remaining (20% in 2026): $300,000 × 20% = $60,000.
• First-year MACRS on residual $240,000 at ~20% half-year convention: $48,000.
• Total first-year deduction: $200,000 + $60,000 + $48,000 = $308,000.

The income-limit shortfall of $300,000 carries forward and may be deducted in future years when the contractor has higher business income. The bonus + MACRS on the residual basis IS deductible this year (bonus and MACRS have no business income limit), so the total year-one deduction of $308,000 actually exceeds the $200,000 business income — bonus can create a loss.

Worked example 2: $1M equipment, $5M business income — full § 179 allowed

A manufacturer purchases $1,000,000 of machinery in 2026 with $5,000,000 of business taxable income and $1,000,000 of total fixed-asset additions for the year. The § 179(b)(1) cap of $1,220,000 is above the $1,000,000 purchase; the phase-out threshold of $3,050,000 is far above the $1,000,000 of additions; business income of $5,000,000 dwarfs the deduction.

• § 179 allowed: min($1,000,000, $1,220,000, $5,000,000) = $1,000,000.
• Carryforward: $0.
• Remaining basis: $0.
• Total first-year deduction: $1,000,000.
• Tax savings at 37% marginal rate: $370,000.

The entire purchase is expensed in year one with no residual to depreciate. This is the canonical § 179 outcome — a small-and-medium-business operator using the full preference to convert capital expenditure into immediate tax-deductible cost.

Worked example 3: $3.5M total additions — phase-out binds

A construction company places $3,500,000 of total fixed-asset additions in service in 2026 and elects § 179 on $1,200,000 of qualifying equipment. Business taxable income is $4,000,000. The phase-out threshold of $3,050,000 is exceeded by $450,000.

• Phase-out reduction: min($450,000, $1,220,000) = $450,000.
• Effective cap: $1,220,000 − $450,000 = $770,000.
• § 179 allowed: min($1,200,000, $770,000, $4,000,000) = $770,000.
• Income-limit carryforward: $0 (income limit did not bind).
• The $430,000 of phase-out reduction is a permanent loss — no carryforward.
• Remaining basis: $1,200,000 − $770,000 = $430,000.
• § 168(k) bonus at 20%: $430,000 × 20% = $86,000.
• First-year MACRS on residual: $344,000 × 20% = $68,800.
• Total first-year deduction: $770,000 + $86,000 + $68,800 = $924,800.

The phase-out cost the company $430,000 of § 179 deduction it could have taken if total additions had stayed below $3,050,000 — about $159,000 of immediate federal tax at a 37% marginal rate. Multi-year planning to time purchases across calendar boundaries could preserve the full cap in both years.

Worked example 4: $5M total additions — full phase-out

A large equipment-heavy operator places $5,000,000 of total fixed-asset additions in 2026. Excess over the $3,050,000 threshold is $1,950,000, which exceeds the $1,220,000 cap — so phase-out reduction = $1,220,000 (full cap eliminated). Effective § 179 cap = $0. The taxpayer cannot use § 179 at all this year and must rely on § 168(k) bonus + MACRS for the entire $5,000,000 placement. At the 2026 bonus rate of 20% on the full $5,000,000 = $1,000,000 of bonus, plus first-year MACRS on the residual $4,000,000 at ~20% = $800,000. Total first-year deduction: $1,800,000 — substantially less than what § 179 + bonus would have produced if the phase-out hadn't fully kicked in. This is the structural reason large equipment-intensive businesses planned around the § 168(k) phase-down rather than § 179 prior to 2027.

Worked example 5: $200K luxury auto — § 280F cap binds

A small-business owner purchases a $200,000 luxury sedan (under 6,000-lb GVW — passenger auto) in 2026 with $1,000,000 of business income. The § 179(b)(1) cap easily allows the full $200,000; the phase-out doesn't bind; business income easily supports the deduction. But § 280F caps the COMBINED first-year deduction on passenger autos under 6,000-lb GVW.

• § 179 allowed (uncapped): $200,000.
• § 168(k) bonus on residual: $0 (full purchase already expensed under § 179).
• First-year MACRS: $0.
• Total first-year deduction uncapped: $200,000.
• § 280F first-year cap for 2026 (estimated): $20,800.
• Total first-year deduction CAPPED: $20,800.

The § 280F cap applies regardless of whether the deduction is claimed via § 179, bonus, or MACRS — it is a hard ceiling on the combined first-year amount. The remaining $179,200 of basis depreciates over the 5-year recovery period at per-year caps that grow modestly each year via Revenue Procedure. CRITICAL EXCEPTION: heavy SUVs, trucks, and vans with GVW OVER 6,000 lb escape § 280F entirely. Those vehicles are subject only to the separate § 179(b)(5) cap of $31,300 estimated for 2026 — and pickup trucks and cargo vans with a 6-ft-or-longer bed escape that cap too.

§ 179 vs § 168(k) bonus depreciation

In 2026, with bonus at only 20% under the TCJA phase-down (IRC § 168(k)(6)), § 179 is generally preferable to bonus for any property the taxpayer can fully expense under the $1.22M cap. The math: on a $500,000 purchase, § 179 deducts the full $500,000 in year one; § 168(k) bonus deducts only $100,000 in year one with the remaining $400,000 spread over the MACRS recovery period. At a 37% marginal rate, that is $185,000 of year-one tax savings under § 179 versus $37,000 under bonus alone — a five-times-larger immediate benefit.

§ 168(k) bonus becomes preferable only when (a) the property exceeds the § 179 cap (§ 179 cuts off at $1.22M; bonus has no cap); (b) the taxpayer is in the § 179(b)(2) phase-out range (high total purchases reduce the § 179 cap; bonus has no phase-out); (c) the business income limit binds (bonus can create a loss; § 179 cannot); or (d) the property is real property other than QIP (bonus excludes more real property than § 179 does — § 179 covers the TCJA-added non-residential building components, bonus does not). For most SMB capital investment under $1.22M in 2026, the optimal stack is: § 179 first to the cap and income limit, then bonus on the residual basis, then MACRS on what's left.

The 2027 bonus sunset under current law (0% bonus for property placed in service in 2027 and beyond) further amplifies § 179's relative advantage. Once bonus reaches zero, § 179 is the ONLY first-year-expensing mechanism for tangible personal property in federal tax law. Practitioners should expect § 179 to receive heavier use post-2027 unless extension legislation resets the bonus schedule.

Real property exclusion

§ 179 is designed as a tangible-personal-property preference. Real property generally is excluded under § 179(d)(1) — the building shell, the structural framework, the residential rental property — all governed by regular MACRS straight-line depreciation over 27.5 years (residential) or 39 years (non-residential). The exclusion has two narrow exceptions: Qualified Improvement Property under § 168(e)(6) (interior improvements to non-residential real property at a 15-year recovery period, post the CARES Act 2020 fix) and certain non-residential building components added by TCJA 2017 — roofs, HVAC, fire-protection, alarm systems, security systems — all on non-residential real property only. For pure land, building shells, and residential rental, the § 179 path is closed.

This is § 168(k) bonus territory for the QIP component (bonus also covers QIP after the CARES fix), but § 168(k) does NOT cover the TCJA building-component categories. For a commercial landlord adding a new HVAC system, § 179 is the only first-year-expensing option available — a real advantage for the post-TCJA building-component categories.

The § 179 + § 168(k) + MACRS stacking sequence

The canonical optimal order: (1) § 179 expensing FIRST on the property the taxpayer wants to fully expense, up to the cap (post phase-out) and the business income limit. (2) § 168(k) BONUS DEPRECIATION on the remaining basis after § 179 — 20% in 2026, 0% in 2027 and beyond. (3) REGULAR MACRS on whatever basis is left — for 5-year property (the most common class for § 179-eligible equipment), the first-year MACRS rate under the half-year convention is approximately 20%. The exact MACRS rate varies by property class and convention (mid-quarter applies if more than 40% of the year's placements are in Q4); this calculator approximates with the 20% half-year-convention first-year rate.

Common errors

The four errors that practitioners see most often: (1) Forgetting the business income limit. A taxpayer in a low-income year may elect § 179 on the full cap and be surprised when the deduction is reduced to the business income figure — the unused amount carries forward, but the immediate tax benefit is gone. (2) Missing the phase-out. A taxpayer with $3.2M of fixed-asset additions may not realize that their § 179 cap is reduced — even if the § 179 election is only on $1M of property, the phase-out is computed on TOTAL qualifying purchases. (3) Treating real property as eligible. Building shells, residential rental, and land are NOT § 179 property. Only QIP and the TCJA-added non-residential building components qualify. (4) Overlooking the § 280F luxury-auto cap on passenger vehicles. A taxpayer who expenses a $200,000 luxury sedan under § 179 may not realize that § 280F caps the total first-year deduction at ~$20,800 regardless of the § 179 election.

For all four errors, the cost is real — federal tax dollars left on the table or, worse, an inadvertent overstatement of the § 179 deduction that triggers an IRS adjustment with interest and penalties. The calculator surfaces the three governors (cap, phase-out, income limit) explicitly and shows the § 280F cap when passenger autos are involved, to make the structure visible before the election is made on Form 4562.