The 2025 Tax Debate: Section 179 Expensing for Small Businesses

In the many tax changes made by the One Big Beautiful Bill Act (OBBB), which President Trump signed into law on July 4, 2025, a provision with particular significance for small businesses is the expansion of Section 179 expensing.  

 This provision, named for its section in the tax code, allows businesses to deduct the full cost of qualifying equipment or property in the year it is purchased, rather than over time through depreciation. This explainer outlines how Sec. 179 works, why it matters for small businesses, and how the changes made by OBBB could shape future tax policy. It also touches on the interaction with expanded bonus depreciation, which in many cases, now picks up where Sec. 179 ends. 

What is Sec. 179? 

When businesses make large investments in machinery, equipment, or property improvements, they generally cannot write off the full cost right away. Instead, businesses must recover the cost of these purchases through depreciation schedules that spread deductions out over multiple years to reflect the value of the asset over time. However, Sec. 179 allows small and mid-sized businesses to immediately deduct up to $2.5 million of purchases in the year that the assets are placed in service. The $2.5 million limit is new due to OBBB, double the pre-OBBB limit of $1.25 million. 

This tax incentive is designed to improve cash flow, reduce the cost of capital, and encourage businesses to reinvest in their operations. 

How does Sec. 179 work? 

Businesses may deduct the full cost of qualifying assets—such as machinery, equipment, off-the-shelf software, and improvements to nonresidential real property (e.g., roofing, HVAC, security systems)—up to the annual limit. In 2025, these deductions are capped at $2.5 million and begin to phase out dollar for dollar when total eligible purchases exceed $4 million. The deduction fully phases out once total purchases reach $6.5 million. 

Example: A business purchases $5 million in qualifying machinery—$1 million above the phaseout threshold. The allowable Sec. 179 deduction would be reduced from $2.5 million to $1.5 million.  

This mechanism ensures the deduction remains targeted to small and mid-sized businesses, which are most likely to make equipment purchases within the eligible range, although the provision’s phase-out structure can also create a disincentive effect for marginal investment in that higher range. 

Table 1: How the Sec. 179 Phaseout Works (2025 Post-OBBB Limits) 

Additionally, to qualify for Sec. 179, property must be used more than 50% of the time for business purposes. If used for both business and personal reasons, the deduction must be prorated based on business use.  

Example: If a business owner buys a laptop worth $1,000 and uses it for business 60% of the time, they can deduct $600 (1,000 x .6 = $600) through Sec. 179. 

Why does Sec. 179 matter for small businesses? 

Sec. 179 improves small business cash flow by allowing businesses to recover costs in the year investments are made, rather than over a multi-year depreciation or amortization schedule. This provides for a more accurate representation of annual business expenses and profits. 

Immediate deductions are also more valuable than delayed deductions due to the time value of money. Having more capital available in the present year allows a business to invest more in itself earlier, increasing its profitability over time. In other words, upfront expensing allows businesses to capture the full benefit of deductions when they are most impactful.  

Importantly, the deduction’s phaseout ensures it is targeted to small and mid-sized businesses, limiting the cost of the policy.  

How has Sec. 179 changed over the years?  

Introduced in 1958, Sec. 179 first allowed small businesses to immediately expense 20% of qualifying equipment, up to $10,000. The limit shifted to a full expensing allowance in 1981 and gradually increased over the following decades to the pre-OBBB limit of $1.25 million in 2025, with a phase-out threshold at $3.13 million. The Tax Cuts and Jobs Act of 2017 (TCJA) also added improvements to qualifying property as a Sec. 179 eligible expense.  

For a brief history of the Sec. 179 expensing allowance over the years, see Table 2 below. 

Table 2: Key Milestones in Sec. 179 Expensing History 

What’s the difference between Sec. 179 and bonus depreciation? 

While similar in purpose, Sec. 179 and bonus depreciation differ in important ways. Many businesses use both in combination. 

Table 3: Differences Between Sec. 179 and Bonus Depreciation 

 Sec. 179 allows businesses to deduct a set dollar amount, while bonus depreciation permits a percentage-based deduction, which is now set permanently at 100% (pre-OBBB; the bonus depreciation amount was 40% in 2025). Sec. 179 allows businesses to deduct a set dollar amount and is optional, while bonus depreciation permits a percentage-based deduction, which is now set permanently at 100% thanks to OBBB, but is required for all assets in a given class. These provisions are often used in tandem, but this is not a “double benefit” for a single expense. Rather, once a small or mid-sized business reaches the Sec. 179 limit, bonus depreciation can apply to any remaining qualifying costs.   

Example: A business that purchases $5 million in eligible equipment could apply Sec. 179 to deduct $1.5 million (since $5 million is $1 million over the $4 million phaseout threshold) and then apply bonus depreciation to the remaining $3.5 million. This creates a total deduction of $5 million.  

While Sec. 179 and bonus depreciation are now more similar, post-OBBB, Sec. 179 retains broader coverage, including investments in building improvements. 

What are the arguments for and against the recent expansion of Sec. 179?  

Proponents argued that expanding Sec. 179 would reduce the cost of capital for small firms, improve liquidity, and encourage new investment. The Joint Committee on Taxation and others have noted that immediate expensing provisions tend to increase capital formation. 

Studies from the Tax Foundation have also shown that industries with the highest share of small businesses make the greatest use of Sec. 179, reinforcing its value as a targeted small business tool.  

Critics noted that expanding Sec. 179 came with revenue costs. The changes enacted in OBBB will cost approximately $25 billion from FY2025 through FY2034. Although the policy will likely spur additional economic activity for small and mid-sized businesses, that increased activity will not be enough to offset the underlying cost, which will add to the national debt.