A new year brings new opportunities for small businesses like yours. This is the perfect time to reflect on the opportunities that lie ahead, whether it's expanding your product or service offerings, enhancing customer engagement, and setting revenue goals. Additionally, it's important to familiarize yourself with the updates to the Section 179 tax deduction, as the Internal Revenue Service (IRS) made changes for 2025.
Huddle Business Capital reviewed the Section 179 updates for 2025, which the IRS published in October 2024.1 This blog article provides a comprehensive, easy-to-understand overview of these updates, detailing the changes for businesses looking to take advantage of this tax deduction. Whether you're interested in the revised tax deduction and bonus depreciation amounts or specifics of how Section 179 works, our in-depth blog has the information you need.
The Section 179 deduction limit will increase in 2025.
One of the most notable changes for Section 179 in 2025 is the adjustment to the deduction limit, although the increase is modest. In 2025, the Section 179 tax deduction limit on eligible property (equipment, machinery, vehicles, technology, etc.) is $1,250,000, an increase of $30,000 over last year.
The IRS also made a nominal increase to the phase-out threshold. In 2025, the threshold is set at $3,130,000,2, an $80,000 increase over last year. This means your qualifying deductions will decrease dollar-for-dollar after the total amount of eligible property purchased or financed in 2025 exceeds $3,130,000.
Bonus depreciation will decrease in 2025.
Bonus depreciation is an additional first-year depreciation allowance on "first use" business property—it lets you recover the cost of qualifying property. In contrast, Section 179 enables you to expense the cost. Bonus depreciation can be combined with Section 179, so long as Section 179 is applied first. In 2025, there will be a reduction in the percentage of bonus depreciation available for businesses.
The bonus depreciation rate is 40% in 2025,3 down from 60% last year. This change means businesses can deduct 40% of the cost of qualifying assets purchased or financed in 2025. It is important to note that bonus depreciation is scheduled to decrease to 20% in 2026. The impending decrease from 40% to 20% is a greater incentive for business owners to purchase, finance, or lease new or upgraded equipment in 2025.
Sport utility vehicles used for business purposes.
Sport utility vehicles (SUVs) used for business purposes are versatile and practical transportation options. SUVs are often employed for tasks such as transporting goods, providing employee transport, or facilitating site visits and client meetings. In 2025, the maximum allowable expense for sport utility vehicles (SUVs) that can be expensed under Section 179 of the tax code will be $31,300. If you invest in an SUV for your business, take this number into consideration.
Energy-efficient commercial buildings deduction.
Section 179D is a unique tax deduction that incentivizes building owners, architects, and designers for their investments in energy-efficient technologies and features within commercial buildings. Section 179D encourages implementing energy-saving systems, such as lighting, heating, cooling, and insulation improvements, which can reduce energy consumption and operating costs.
In 2025, the Section 179D deduction is set at 0.58 cents per square foot but can reach up to $1.16 for even more significant tax savings.4 Specifically, the base deduction of 0.58 cents per square foot will increase by 0.02 cents per square foot for each verified energy reduction percentage point. By taking advantage of Section 179D, businesses can reduce carbon footprints and promote sustainable development.
Conclusion.
Understanding and utilizing these new provisions in Section 179 allows you to make strategic decisions that align with your financial goals while complying with current tax regulations. Ensure you're prepared for 2025 by consulting with a tax professional who can guide you through these updates and help you leverage them for your business. In the meantime, use Huddle Business Capital's handy Section 179 tax deduction calculator to see estimated savings.
Sources.
1. https://www.irs.gov/pub/irs-drop/rp-24-40.pdf
2, 4. https://rsmus.com/insights/services/business-tax/irs-releases-2025-tax-inflation-adjustments.html
3. https://www.nolo.com/legal-encyclopedia/50-bonus-depreciation-likely-extended-2014.html
Disclaimer.
Huddle Business Capital is not affiliated with nor endorses the Internal Revenue Service (IRS), RSM US LLP, or Nolo. This Huddle Business Capital blog article is purely educational and contains general information and opinions; it is not intended to provide advice or recommendations of any kind.
