If you own a small business and have been putting off that equipment purchase, you have exactly 24 hours to act. December 31, 2025, marks the deadline to buy and place qualifying equipment into service to claim the newly expanded Section 179 deduction—one of the most powerful tax breaks available to American small businesses.

Thanks to the One Big Beautiful Bill Act (OBBBA), which President Trump signed into law on July 4, 2025, the Section 179 deduction limit has doubled from $1.25 million to $2.5 million. For business owners who've been waiting for the right moment to upgrade their operations, that moment is now.

What Changed Under the New Law

The OBBBA dramatically expanded Section 179 for small and medium-sized businesses:

  • Maximum deduction: Increased to $2.5 million (from $1.25 million)
  • Phase-out threshold: Raised to $4 million (from $3.13 million)
  • Complete phase-out: Now at $6.5 million in total purchases
  • Inflation adjustment: Annual increases now built in

Perhaps most importantly, the law also made 100% bonus depreciation permanent for assets placed in service after January 19, 2025. Before the OBBBA, bonus depreciation had been phasing down—it would have been just 40% in 2025 under the old rules.

How Section 179 Works

Normally, when a business buys equipment, it must depreciate the cost over several years. Section 179 allows businesses to deduct the full purchase price in the year the equipment is bought and placed into service.

For a business owner in the 37% federal tax bracket, a $500,000 equipment purchase that qualifies for Section 179 saves $185,000 in federal taxes alone—this year, rather than spread over 5-7 years.

What Qualifies

Most tangible personal property used for business qualifies, including:

  • Machinery and manufacturing equipment
  • Computers, software, and office equipment
  • Business vehicles (with limitations)
  • Office furniture
  • Certain building improvements (HVAC, security systems, roofing)

Vehicle Limitations

Vehicles have special rules. SUVs and trucks over 6,000 pounds GVWR qualify for a maximum first-year Section 179 deduction of $31,300, with the remainder depreciated over subsequent years. Passenger vehicles under 6,000 pounds face "luxury auto" limits of $12,200 (without bonus depreciation) or $20,200 (with bonus depreciation).

The December 31 Deadline

Here's the critical detail many business owners miss: equipment must be both purchased AND placed in service by December 31 to qualify for the 2025 deduction.

"Placed in service" means the equipment is ready and available for use—not just ordered, not just delivered, but actually operational. If you order a piece of machinery on December 30 but it doesn't arrive until January 2, you miss the 2025 deduction entirely.

"New Year's Eve is a full trading day for a reason. It doesn't matter when payment settles—as long as the equipment is placed in service by December 31, it counts for the current tax year."

— IRS guidance on Section 179 timing

Important Limitations

Before rushing to make purchases, understand the key constraints:

  • Taxable income limit: Your Section 179 deduction cannot exceed your business's taxable income. If you have $300,000 in taxable income, your maximum deduction is $300,000—even if you buy $2.5 million in equipment.
  • Carryforward: Any unused Section 179 deduction carries forward to future years, so you don't lose it—you just can't use it all immediately.
  • Business use requirement: Equipment must be used more than 50% for business to qualify.
  • State conformity varies: Many states don't fully conform to federal Section 179 rules. Check your state's treatment before assuming you'll get the full deduction.

Section 179 vs. Bonus Depreciation

With 100% bonus depreciation now permanent, some business owners wonder whether Section 179 still matters. The answer: yes, for several reasons.

  • Section 179 can be applied selectively to specific assets, while bonus depreciation is all-or-nothing for each asset class
  • Section 179 applies to used equipment; bonus depreciation has restrictions on used property
  • Some states that don't allow bonus depreciation do conform to Section 179

Many tax advisors recommend combining both provisions strategically to maximize deductions while maintaining flexibility.

Last-Minute Action Steps

If you're considering a major purchase before midnight:

  1. Consult your tax advisor: Confirm the purchase makes sense for your specific situation
  2. Ensure immediate delivery: Equipment must be placed in service today
  3. Document everything: Keep invoices, delivery receipts, and photos showing the equipment in use
  4. Consider financing: You can claim Section 179 even on financed purchases—you deduct the full amount now while paying over time

The Section 179 deduction exists to encourage small business investment. For owners who've been waiting for the right signal, the doubled deduction limit is a loud one—but the window closes at midnight.