What Is Section 179? Business Equipment Deduction Explained

Section 179: Immediate Expensing for Business Assets

Section 179 allows U.S. businesses to immediately deduct the full cost of qualifying business property in the year it is placed in service, rather than depreciating it over several years. This is reported on Form 4562 and can provide a significant tax benefit by reducing taxable income in the year of purchase.

This rule is particularly valuable for technology companies and startups that purchase servers, computers, development hardware, licensed software, and office equipment. Game development studios, AI companies, and any business making significant equipment investments can benefit substantially.

What Property Qualifies?

Qualifying property includes tangible personal property used in business such as laptops, desktop computers, physical servers, network hardware, office electronics, and office furniture. Certain software — specifically off-the-shelf or locally installed software — also qualifies. The property must be purchased for business use and placed in service during the tax year.

Property must be used more than 50% for business purposes to qualify. If business use drops below 50% in subsequent years, a portion of the deduction may need to be recaptured.

Why This Matters for Your Cash Flow

Without Section 179, a business purchasing $100,000 in equipment would typically depreciate the cost over 5-7 years. With Section 179, the full $100,000 can be deducted in year one, immediately reducing taxable income. For a business in the 21% corporate tax bracket, this could mean $21,000 in tax savings in the first year instead of spreading that benefit over several years.