OBBB Act: Section 179 Expensing

November 14, 2025

On July 4, 2025, President Donald Trump signed the One Big Beautiful Bill Act (OBBBA) into law. This legislation includes numerous tax changes, particularly a significant update to Section 179 expensing election, which may greatly impact many taxpayers. Below, we outline the details of the changes of Section 179.

Overview of Section 179

Section 179 expensing is applied before bonus depreciation under Section 168(k). After applying Section 179 and bonus depreciation, any remaining basis is depreciated under MACRS.

Under Section 179, taxpayers (excluding estates, trusts, and certain noncorporate lessors) may elect to immediately deduct the cost of qualifying property - referred to as “Section 179 property”- rather than capitalizing it. Generally, section 179 property includes both new and used depreciable tangible section 1245 property, acquired for use in the active conduct of a trade or business.

Qualified real property - including qualified improvement property and certain improvements to nonresidential real property such as roofs, HVAC, fire protection, and security systems – may also qualify.

Taxpayers may elect to deduct immediately either the entire cost or a portion of the cost of qualifying property. Typically, the amount of the deduction is equal to the original cost of the property for which the election is made, subject to certain limitations.

The Section 179 deduction for any year cannot exceed the taxpayer’s aggregate taxable income derived from the active conduct of any trade or business during that year. Any amount disallowed due to the income limitation may be carried forward to future years.

Key Changes for the OBBBA

The OBBBA significantly increases the Section 179 deduction limits for tax years beginning after December 31, 2024.

1.Dollar limit on the deduction

(Before) $1,000,000 (inflation-adjusted to $1,250,000 for 2025)

(After) $2,500,000

2.Investment limitation (phase-out threshold)

(Old) $2,500,000 (inflation-adjusted to $3,130,000 in 2025)

(New) $4,000,000

*If the total cost of Section 179 property placed in service during the year exceeds $4,000,000, the deduction is reduced dollar for dollar by the excess amount. (Example: If the total cost of Section 179 property placed in service during the year is $5,000,000, the amount exceeds the investment limitation ($4,000,000) by $1,000,000. As a result, the Section 179 deduction limit is reduced from the original $2,500,000 to $1,500,000.)

Once the total reaches $6,500,000, the Section 179 deduction is completely phase out.

These new limits are permanent and will be adjusted for inflation beginning in tax years after 2025.

Exception

The OBBBA does not increase the Section 179 limit for sport utility vehicles (SUVs). The maximum Section 179 deduction allowed for SUVs placed in service during tax years beginning in 2025 remains at $31,300 per vehicle, unchanged by the OBBBA.

These changes could have a significant impact on your tax planning. If you would like to discuss how the updated Section 179 rules may affect your business, please feel free to contact us.