Tax Reform – Section 179 Deduction: Election to Expense Business Property

October 24, 2018 : Brittany Benson – The Tax Institute

Editor’s Note: This article was originally published on April 4, 2018.


Generally, taxpayers must capitalize the cost of property they use in a trade or business, or property they hold for the production of income, and recover the cost over time through annual deductions for depreciation .

Depreciation and Tax Reform

Tangible property is generally depreciated based on an assigned depreciation method, recovery period, and convention. Due to tax reform changes under section 179, taxpayers will start following new equipment deduction rules.

Section 179 Deduction– Before Tax Reform

Under the old tax law, taxpayers (except for trusts, estates and certain others) could “write off” the cost of certain property placed in service during that tax year. Taxpayers could make the election, with some exceptions, for most tangible personal property, off-the-shelf computer software, and certain leasehold, restaurant and retail real property, if taxpayers used the property in an active trade or business.

The maximum deduction was $500,000, adjusted for inflation (the 2017 deduction was $510,000). A phase-out on the expense election reduced the available amount dollar-for-dollar for property over $2 million, also adjusted for inflation ($2.03 million for 2017). The deduction was further limited to taxable income from the taxpayer’s active trades or businesses but allowed the taxpayer to carry forward the excess indefinitely.

Section 179 Deduction Changes With Tax Reform

With tax reform, the Section 179 deduction allows taxpayers to write off certain tangible property costs for the tax year up to $1 million and increases the phase-out threshold to $2.5 million. Both amounts will be indexed for inflation for tax years beginning after 2018. While the $25,000 sport utility vehicle limitation will remain at $25,000, this amount will be indexed for inflation after 2018.

Section 179 Changes to Property Eligible for the Deduction

The definition of Section 179 property changes with tax reform to now include:

  • Certain depreciable tangible personal property used primarily to furnish lodging (or in connection with furnishing lodging)
  • Improvements made to nonresidential real property: roofs, heating, ventilation, and air-conditioning property, fire protection, and alarm and security systems

These changes apply to property placed in service in taxable years beginning after December 31, 2017.

Tax reform does not change other rules related to the section 179 deduction. For example, amounts are subject to recapture for the entire recovery period of the property, and the depreciable basis of the property is reduced by the amount of the expense deduction.

Need Additional Help With Your Business Taxes?

H&R Block has Tax Pros available to help you with your business taxes and accounting needs. Rely on us for help with any questions about your section 179 deductions, tax reform and more. Find out more about our business tax services.

Related Topics


Brittany Benson – The Tax Institute

Related Resources

Mail Your Tax Payment With Form 4868

Find out how to file Form 4868 to request an extension for your taxes – even if you pay your tax bill on time.

How to Get Your Old IRS Forms W-2 and 1099

Need copies of your old Forms W-2 or 1099? Learn about the four different ways to obtain IRS wage and income transcripts from the tax experts at H&R Block.

Does The Early 401k Withdrawal Penalty Apply?

Does the early 401k withdrawal penalty apply if it was your only source of income for the year? Learn more and get tax answers at H&R Block.

Past-Due Tax Return

Get the facts about IRS past-due tax returns, and how to fix the issue. Read the IRS definition and get more insight from the experts at H&R Block.