Guides for owners
Section 179: deduct it this year, pay for it over seven.
The tax code's best-kept-in-plain-sight deal for equipment buyers: financed equipment placed in service this year can be fully deductible this year, even though you've only made a few payments. Bring this to your CPA, not instead of one.
The mechanics, briefly
Section 179 lets a business deduct the full purchase price of qualifying equipment in the year it's placed in service, rather than depreciating it over its useful life. The annual deduction limit is generous (well over $1M), and "placed in service" is the operative phrase: the equipment must be installed and working by December 31, not just ordered.
The part owners miss: financing doesn't reduce the deduction
You deduct the full purchase price even if you financed 100% of it. Put $200K of equipment in service in November on a six-year loan, and the year-one deduction is $200K while your actual year-one cash outlay might be $7K in payments. At a 30% combined tax rate, the tax savings in April can exceed everything you've paid the lender by then.
| $200K machine, financed Nov 1 | Year one |
|---|---|
| Cash paid to lender (2 months) | ~$7,000 |
| Section 179 deduction | $200,000 |
| Tax savings at 30% | ~$60,000 |
What qualifies
- Machinery, vehicles over 6,000 lbs GVWR, computers, office equipment
- New and used equipment (used must be new to you)
- Off-the-shelf software
- Certain building improvements: HVAC, roofs, security systems on nonresidential property
Caveats your CPA will raise (correctly)
- The deduction can't exceed business taxable income (bonus depreciation rules differ; ask).
- Business use must exceed 50% for vehicles and mixed-use assets.
- State conformity varies — some states cap 179 well below the federal limit.
- A deduction this year is depreciation you won't have in future years. Timing is strategy, not free money.