Can You Take Section 179 on Used Equipment?

The Section 179 deduction allows businesses to expense the full purchase price of qualifying assets in the year they are placed in service, rather than depreciating them over time. A common question is whether this benefit applies to pre-owned assets. The answer is yes; businesses can take the Section 179 deduction on used equipment, but the equipment must meet specific criteria to qualify.

Qualifying Rules for Used Equipment

For used equipment to be eligible for the Section 179 deduction, it must be “new to you,” meaning you cannot have previously owned the asset. The rule also prevents acquisitions from a “related party,” which includes immediate family members or business entities you control. This ensures the transaction is at arm’s length.

Another condition is that the equipment must be acquired through a purchase, as the deduction is intended to incentivize commercial transactions. Assets obtained through a gift or inheritance do not qualify.

The equipment must be used for business purposes more than 50% of the time, measured annually. If business use drops to 50% or less in a subsequent year, the IRS may require a “recapture” of the deduction. This means you would report the difference between the Section 179 deduction and standard depreciation as ordinary income.

The deduction is claimed in the tax year the equipment is “placed in service,” which is when the asset is ready and available for use. This may not be the same year it was purchased. For example, if you buy machinery in December but it is not operational until January, you would claim the deduction in the following year.

Deduction Limits and Calculations

The Section 179 deduction has financial limitations for both new and used equipment. For the 2025 tax year, the maximum amount a business can expense is $1,250,000. This is the total deduction you can claim across all qualifying assets placed in service during the year.

The deduction is also subject to a phase-out threshold based on the total amount of equipment purchased. For 2025, this threshold is set at $3,130,000. If the total cost of all qualifying property you place in service during the tax year exceeds this amount, the Section 179 deduction is reduced on a dollar-for-dollar basis. For instance, if a business places $3,230,000 of equipment in service, its maximum deduction would be reduced by $100,000, making the new limit $1,150,000.

A third constraint is the business taxable income limitation. The total Section 179 deduction claimed cannot exceed the net taxable income from your business during the year, including wages. If the deduction is larger than your taxable income, the excess amount can be carried forward to the following tax year.

Businesses may also be able to take bonus depreciation, which allows for an immediate deduction of a percentage of an asset’s cost. For assets placed in service in 2025, the bonus depreciation rate is 40%. This is often used after reaching the Section 179 spending cap, and the rate is scheduled to decrease to 20% in 2026 and be eliminated in 2027.

How to Claim the Deduction

To claim the Section 179 deduction, a business must make an election on IRS Form 4562, “Depreciation and Amortization.” You will need to provide a description of the property, its cost, and the date it was placed in service. The election is made by completing Part I of the form, where you list each asset and the cost you are expensing. The completed Form 4562 is then filed with your annual tax return, such as Schedule C for sole proprietors or Form 1120 for corporations.