Section 179 Deduction: Guide for Real Estate Investors (2025-2026)

When you invest in your real estate business (whether that's buying new equipment, upgrading a rental property, or purchasing a work vehicle), the tax code offers a powerful incentive to help you recover those costs. It's called the Section 179 deduction, and thanks to recent tax law changes, it's now more valuable than ever.

In 2025, eligible businesses can deduct up to $2.5 million in qualifying purchases (that's more than double the previous limit).

In this comprehensive guide, we'll break down exactly how Section 179 works, what qualifies, the critical limitations you need to know, and how real estate investors can leverage this deduction to maximize their tax savings.

What is the Section 179 Deduction?

Section 179 of the Internal Revenue Code is a tax provision that allows businesses to immediately deduct the full cost of qualifying property in the year it's purchased and placed in service, rather than depreciating it over several years.

Think of it as an accelerated depreciation method designed to encourage business investment. Instead of spreading deductions for equipment, vehicles, or certain improvements over 5, 7, or 15 years, you get the entire tax benefit upfront in the year it was incurred.

Why Section 179 Matters

For small to mid-sized businesses and real estate investors, Section 179 provides:

• Immediate tax savings that improve cash flow
• Simplified accounting with one-year deductions instead of multi-year tracking
• Business growth incentives by making it more affordable to invest in your operations
• Competitive advantages by allowing you to upgrade equipment and properties more frequently

The 2025 Game-Changer

On July 4, 2025, President Trump signed the One Big Beautiful Bill Act into law, which dramatically enhanced Section 179 by:

• Doubling the maximum deduction from $1.22 million to $2.5 million
• Increasing the phase-out threshold from $3.05 million to $4 million
• Making these enhancements permanent (not subject to expiration)

This represents one of the most significant expansions of Section 179 in its history, creating unprecedented opportunities for business owners and real estate investors.

Section 179 Deduction Limits: 2025 and 2026

Understanding the limits is crucial for tax planning. Here's what you need to know:

2025 Section 179 Limits

2026 Section 179 Limits

For tax years beginning in 2026 and beyond, these limits will be adjusted annually for inflation. Based on historical inflation adjustments, expect increases of approximately 2-3% per year.

How the Phase-Out Works

The Section 179 deduction reduces on higher level expenditures, but doesn't disappear suddenly; it phases out gradually.

Example:

• You purchase $4.5 million in qualifying equipment in 2025
• Your phase-out amount: $4.5M - $4M = $500,000
• Your reduced Section 179 deduction: $2.5M - $500K = $2 million

Once your total purchases exceed $6.5 million, you cannot claim any Section 179 deduction (though other real estate depreciation methods still apply).

What is a Section 179 Expense? Property That Qualifies

Not everything you buy for your business qualifies for Section 179. Here's what does and doesn't make the cut:

Qualifying Section 179 Property

Tangible Personal Property:

• Office furniture and fixtures
• Computers, servers, and IT equipment
• Off-the-shelf software (not custom-developed)
• Machinery and manufacturing equipment
• Restaurant equipment
• Business vehicles (with limitations—see below)
• Construction equipment
• Agricultural equipment
• Retail fixtures and displays

Certain Real Property Improvements (for non-residential buildings):

• Roofs - Replacements or upgrades
• HVAC systems - Heating, ventilation, and air conditioning
• Fire protection and alarm systems
• Security systems
• Interior improvements to non-residential buildings after placed in service (Qualified Improvement Property)

Additional Qualifying Property:

• Single-purpose agricultural or horticultural structures
• Storage facilities used exclusively for petroleum products
• Livestock
• Equipment used for lodging facilities

Property That Does NOT Qualify

Specifically Excluded:

• Land - Never depreciable under any method
• Buildings - The structure itself (though components may qualify)
• Residential rental property - Does not qualify for Section 179 (residential landlords should focus on bonus depreciation and cost segregation instead)
• Property held for investment - Must be used in an active trade or business
• Property acquired from related parties - Purchases from family members or controlled entities
• Property inherited or received as a gift
• Air conditioning or heating units for residential rental property

Real Estate Investor Applications

For commercial property owners and investors, Section 179 is particularly valuable for:

After-Purchase Improvements:

• Installing or upgrading security camera systems
• Replacing HVAC systems in commercial buildings
• Adding fire suppression and alarm systems
• Re-roofing commercial properties
• Interior build-outs for tenant spaces

Important Limitation: Residential rental property improvements typically do NOT qualify for Section 179 because residential rental activities generally aren't considered an "active trade or business" for Section 179 purposes. However, they may qualify for bonus depreciation through cost segregation studies.

Section 179 Vehicle Deduction: Understanding the Rules

One of the most popular (and most confusing) applications of Section 179 is for business vehicles. The rules vary significantly based on vehicle weight and type.

Three Vehicle Categories

1. Light Vehicles (Under 6,000 lbs GVWR)

Examples: Most passenger cars, sedans, compact SUVs, crossovers

2025 Limitation: $12,200 first-year Section 179 deduction

These vehicles are subject to "luxury auto" limitations designed to prevent excessive write-offs for personal-use vehicles.

2. Heavy SUVs (6,000-14,000 lbs GVWR)

Examples:

• Chevrolet Tahoe, Suburban
• Ford Expedition
• GMC Yukon, Yukon XL
• Cadillac Escalade
• Mercedes GLS, GLE
• BMW X7
• Land Rover Range Rover

2025 Limitation: $31,300 Section 179 deduction

Note: The remaining cost can be depreciated using bonus depreciation (currently 100% for vehicles acquired after January 19, 2025) and regular MACRS depreciation.

3. Heavy Work Vehicles (Over 6,000 lbs GVWR)

Examples:

• Cargo vans (no rear passenger seating)
• Pickup trucks with 6+ foot beds
• Box trucks
• Shuttle vans (9+ passengers behind driver)
• Delivery vehicles
• Heavy-duty work trucks

2025 Limitation: Up to the full $2.5 million Section 179 limit (business-use percentage)

These vehicles can qualify for 100% immediate expensing if they meet design criteria that clearly indicate business use.

Critical Vehicle Requirements

To claim any Section 179 vehicle deduction, you must meet these requirements:

Business Use: Vehicle must be used more than 50% for business purposes

• If 100% business use: Claim full deduction (within category limits)
• If 75% business use: Claim 75% of deduction limit
• If 50% or less business use: No Section 179 allowed

Purchased and Placed in Service: Must occur in the same tax year (by December 31, 2025)

Documentation: Maintain detailed mileage logs and business-use records

New or Used: Both qualify, as long as the vehicle is "new to you"

Not for Hire: Cannot be used primarily to transport people or property for compensation (like rideshare or delivery services)

How to Verify GVWR

The Gross Vehicle Weight Rating (GVWR) is typically found:

• On a sticker or metal plate on the driver's side door jamb
• In the owner's manual
• On the manufacturer's website (under specifications)

Important: GVWR can vary by trim level, engine option, and configuration. Always verify the specific vehicle you're purchasing.

Real-World Vehicle Example

Scenario: You purchase a 2025 Chevrolet Tahoe (GVWR: 7,400 lbs) for $75,000 and use it 100% for your property management business.

Tax Treatment:

• Section 179 deduction: $31,300
• Remaining basis: $75,000 - $31,300 = $43,700
• 100% Bonus depreciation (acquired after 1/19/25): $43,700
• Total first-year deduction: $75,000

At a 37% tax rate, this saves you $27,750 in taxes in year one.

The "Hummer Tax Loophole" Explained

Section 179 was once nicknamed the "Hummer tax deduction" because business owners could use it to write off expensive, heavy SUVs. The IRS closed this loophole by:

1. Capping SUV deductions at $31,300 (even if the SUV costs far more)
2. Creating exceptions for true work vehicles (pickup trucks with long beds, cargo vans)
3. Implementing recapture rules if business use drops below 50%

The spirit of Section 179 is to encourage productive business investment, not to subsidize luxury personal vehicles.

Section 179 Deduction Limitations You Must Know

Beyond the dollar limits, several important restrictions apply:

1. Taxable Income Limitation

Critical Rule: Your Section 179 deduction cannot exceed your business's taxable income for the year.

Example:

• Your business purchases $150,000 in equipment
• Your net taxable income for the year: $100,000
• Section 179 deduction allowed: $100,000 (limited by income)
• Unused deduction: $50,000 (carries forward indefinitely)

Carryforward: Any disallowed Section 179 expense due to insufficient income can be carried forward to future tax years and used when you have sufficient taxable income.

Important Distinction: This is different from a Net Operating Loss (NOL). The unused Section 179 carries forward as Section 179 expense, not as an NOL.

2. Active Trade or Business Requirement

Property must be used in an active trade or business—not for passive investment purposes.

What This Means for Real Estate:

Exception: If you qualify as a Real Estate Professional under IRS rules, your rental activity may be considered active and potentially eligible for Section 179 on certain improvements.

3. Business Use Percentage

Only the business-use portion of property qualifies.

Example:

• Vehicle costs $60,000
• Business use: 80%
• Personal use: 20%
• Maximum Section 179 claim: $60,000 × 80% = $48,000 (then apply category limits)

4. Recapture Rules

If business use drops to 50% or less in any year during the property's recovery period, you must recapture (pay back) a portion of the Section 179 benefit.

Recovery Periods:

• Computers: 5 years
• Office furniture: 7 years
• Vehicles: 5 years

Planning Tip: If you expect business use to decline, consider using regular depreciation instead of Section 179.

5. Special Rules for Certain Taxpayers

Estates and Trusts: CANNOT claim Section 179 deductions (except grantor trusts)

Partnerships and S-Corporations:

• Entity claims Section 179 at entity level
• Deduction passes through to partners/shareholders
• Individual partner/shareholder faces taxable income limitations

Married Filing Separately:

• $2.5 million limit is split between spouses ($1.25M each)
• Coordination required to avoid exceeding limits

6. Placed in Service Requirement

Property must be purchased AND placed in service (ready and available for use) by December 31, 2025 to claim the deduction on your 2025 tax return.

Placed in Service Means:

• Equipment is installed and operational
• Vehicle is being used for business
• Software is installed and running
• Improvements are complete and usable

Not Placed in Service:

• Equipment delivered but not installed
• Vehicle sitting in dealer lot after purchase
• Improvements under construction

Section 179 vs Bonus Depreciation: Understanding the Difference

Both Section 179 and bonus depreciation allow accelerated deductions, but they work very differently. Understanding when to use each is critical for tax planning.

Strategic Tax Planning: Using Both

The most sophisticated tax strategy often involves using both Section 179 and bonus depreciation:

Optimal Layering Strategy:

Step 1: Apply Section 179 first to property that:

• Doesn't qualify for bonus depreciation (certain commercial building improvements)
• Helps manage your taxable income
• Has strategic timing advantages

Step 2: Apply 100% bonus depreciation to:

• Remaining qualifying property
• Personal property components identified through cost segregation
• Property where you want to create/maximize losses

Step 3: Regular MACRS depreciation for:

• Any remaining basis
• Property that doesn't qualify for either accelerated method

When to Choose Section 179 Over Bonus Depreciation

Choose Section 179 when:

• You have limited income and want to avoid creating losses
• Property was acquired before January 20, 2025 (bonus may be limited to 40%)
• You're making commercial building improvements that qualify for 179 but not bonus
• You want selective control over which assets to expense
• You operate in a state that conforms to Section 179 but not bonus depreciation

Choose Bonus Depreciation when:

• You have substantial income and want maximum first-year deductions
• You're okay with creating NOLs (which can be carried forward 20 years)
• You're a residential rental property investor (Section 179 rarely applies)
• You want to expense more than $2.5 million in a single year
• You have partnership or S-corp owners who are estates/trusts (they can't use 179)

How to Claim the Section 179 Deduction

Step 1: Determine Eligibility

• Verify property qualifies under Section 179 rules
• Confirm business use exceeds 50%
• Ensure property was purchased and placed in service in 2025

Step 2: Calculate Maximum Deduction

• Start with purchase price
• Multiply by business-use percentage
• Apply category limits (vehicles, SUVs)
• Check against taxable income limitation
• Verify total purchases don't trigger phase-out

Step 3: Make the Election

Section 179 requires an affirmative election on your tax return—it doesn't happen automatically.

File Form 4562 - Depreciation and Amortization

• Part I: Section 179 election
• List each property separately
• Show cost, business-use percentage, and deduction claimed

Attach to:

• Form 1040 Schedule C (sole proprietors)
• Form 1065 (partnerships)
• Form 1120S (S-corporations)
• Form 1120 (C-corporations)

Step 4: Maintain Documentation

Keep records for the longer of:

• 3 years from tax return filing date (general statute of limitations)
• 7 years for vehicles and listed property
• Duration of property's recovery period plus 3 years

Essential Records:

• Purchase invoices and receipts
• Proof of payment
• Placed-in-service documentation
• Vehicle mileage logs (contemporaneous)
• Business-use justification

Read: Instructions for Form 4562 | Internal Revenue Service 

Common Section 179 Mistakes to Avoid

1. Claiming Section 179 Without Sufficient Income

Mistake: Taking a large Section 179 deduction that exceeds taxable income

Problem: Deduction is wasted in current year; must carry forward

Solution: Calculate taxable income before making election; consider splitting deductions across entities

2. Failing to Maintain Adequate Documentation

Mistake: Not keeping mileage logs, business-use records

Problem: IRS audit disallows deduction; potential penalties

Solution: Use mileage tracking apps; document business purpose contemporaneously

3. Confusing GVWR with Curb Weight

Mistake: Using vehicle's curb weight instead of GVWR

Problem: May not actually qualify for heavy vehicle treatment

Solution: Always check door jamb sticker for official GVWR

4. Not Considering Recapture

Mistake: Taking Section 179 when business use might decline

Problem: Forced to recapture benefits; unexpected tax bill

Solution: Consider standard depreciation if uncertain about future business use

5. Applying Section 179 to Passive Rentals

Mistake: Trying to use Section 179 for residential rental property

Problem: Deduction disallowed; must amend return

Solution: Use bonus depreciation and cost segregation for rental property instead

6. Missing the Placed-in-Service Deadline

Mistake: Purchasing equipment in December but not placing in service until January

Problem: No 2025 deduction available

Solution: Plan major purchases earlier in year; ensure installation/use before year-end

7. Ignoring State Tax Implications

Mistake: Assuming state follows federal rules

Problem: Unexpected state tax liability; compliance issues

Solution: Check state conformity; plan accordingly

Maximizing Your Section 179 Benefits

The enhanced Section 179 deduction represents one of the most powerful tax-saving opportunities available to business owners and real estate investors. Here's your action plan:

Before Year-End 2025

1. Review Planned Purchases: Identify equipment, vehicles, or improvements you'll need in the next 12 months
2. Accelerate Where Appropriate: Consider making qualifying purchases before December 31, 2025, to capture current-year benefits
3. Verify GVWR: For any vehicle purchases, confirm the exact GVWR to ensure proper tax treatment
4. Calculate Taxable Income: Estimate your 2025 income to determine how much Section 179 you can actually use
5. Document Business Use: Implement systems now for tracking mileage and business-use percentage

Strategic Planning for 2026+

6. Develop Multi-Year Plan: With permanent higher limits, create a comprehensive depreciation strategy across multiple years
7. Evaluate Entity Structure: Consider whether multiple entities could maximize total Section 179 benefits
8. Combine Strategies: Layer Section 179 with bonus depreciation and cost segregation for maximum impact
9. Monitor State Rules: Stay informed about how your state treats Section 179 deductions
10. Build Your Tax Team: Work with CPAs and tax strategists who specialize in business depreciation strategies

Conclusion: Simplify Section 179 Planning with Landlord Studio

With the maximum deduction doubled to $2.5 million and now permanent, Section 179 deduction for 2025–2026 offers real estate investors and business owners an unprecedented opportunity to reduce taxes while investing in growth. From work vehicles to commercial property improvements, proper planning, accurate tracking, and thorough documentation are key to maximizing these benefits.

Landlord Studio helps make this easier. While Section 179 primarily applies to commercial property and business assets, keeping your finances organized is critical for taking full advantage of deductions and preparing for IRS reporting. 

With Landlord Studio, you can:

• Track property-level income and expenses to ensure accurate records for business-use calculations.
• Document purchases and improvements tied to your rental portfolio, supporting tax filings and audits.
• Integrate with Xero for more complex accounting needs, avoiding duplicate data entry.
• Provide secure access for your accountant through our CPA portal, making end-of-year planning and Section 179 elections seamless.

By combining strategic tax planning with streamlined property accounting, Landlord Studio helps landlords capture every available deduction, save time, and focus on growing their real estate business.

Create your free account today and see how organized financial tracking can maximize your Section 179 and other tax benefits.

Frequently Asked Questions

Q: Can I use Section 179 for rental property? 

A: Generally no for residential rental property, as it's typically considered passive investment rather than an active trade or business. However, commercial property improvements (HVAC, roofs, security systems) may qualify for Section 179. Residential landlords should focus on bonus depreciation and cost segregation studies instead.

Q: What if I purchase equipment but don't have enough income to use the full Section 179 deduction? 

A: Any unused Section 179 deduction carries forward indefinitely to future years. You can use it when you have sufficient taxable income. This is different from an NOL—it carries forward specifically as Section 179 expense.

Q: Do I have to take the maximum Section 179 deduction? 

A: No. Section 179 requires an election, and you can elect any amount up to the maximum. This gives you flexibility to manage your taxable income strategically.

Q: Can I claim Section 179 on used equipment? 

A: Yes! As long as the property is "new to you" (you haven't used it before), used equipment qualifies. This is different from how bonus depreciation worked in early years.

Q: What's better for vehicles—Section 179 or bonus depreciation? 

A: It depends. For SUVs over 6,000 lbs, using Section 179 ($31,300) PLUS bonus depreciation on the remaining basis often gives you the maximum deduction. For work trucks/vans over 6,000 lbs with 6+ foot beds, Section 179 alone might provide full expensing.

Q: Does Section 179 apply to financed purchases? 

A: Yes. You can claim Section 179 even if you finance the purchase. You don't have to have paid off the equipment—you just need to have purchased it and placed it in service.

Q: What happens if I sell Section 179 property after a few years? 

A: You'll be subject to depreciation recapture, paying ordinary income tax rates (up to 37%) on the Section 179 benefit you received. Additionally, if business use dropped below 50% during the recovery period, you'll face additional recapture.

Q: Can I claim Section 179 on my personal tax return? 

A: Yes, if you operate a business as a sole proprietor (Schedule C), you can claim Section 179 on Form 1040. However, the property must be used for business purposes, and all the normal Section 179 rules apply.