How Does the LLC Section 179 Deduction Work?

The Section 179 deduction allows businesses, including Limited Liability Companies (LLCs), to expense the full cost of qualifying equipment in the year of purchase rather than depreciating it over multiple years. By immediately deducting the purchase price of assets, an LLC can significantly reduce its taxable income for the year the property is placed in service. This tax provision is designed to encourage businesses to invest in assets like new or used machinery, vehicles, and software.

Determining Eligibility and Qualifying Property

LLCs can take the Section 179 deduction, regardless of whether they are structured as a single-member LLC taxed as a sole proprietorship or a multi-member LLC taxed as a partnership. The primary requirement is that the asset must be purchased for business use. If an asset’s business use is over 50% but less than 100%, the deduction is prorated, but if business use is 50% or less, the deduction is not permitted.

Qualifying property is tangible personal property purchased for use in a trade or business, such as machinery, office furniture, and computers. Both new and used equipment can qualify, as long as the property is “new to you,” meaning it is the first time your business is placing it in service. For example, a contractor’s truck, a design firm’s computers, or a restaurant’s ovens are all considered qualifying property.

The deduction also extends to specific property beyond general equipment. Off-the-shelf computer software is eligible for expensing under Section 179. Certain qualified improvements to nonresidential real property can also qualify, including new roofing, heating and air-conditioning systems, and fire protection and security systems.

Understanding the Deduction Limits

The Section 179 deduction is subject to financial caps. For the 2025 tax year, the maximum amount a business can deduct is $1,250,000. This represents the total value of qualifying property that can be expensed in a single year.

A second limit is the phase-out threshold, which relates to the total amount of equipment purchased within a tax year. For 2025, this threshold is $3,130,000. If a business’s total qualifying asset purchases exceed this amount, the maximum deduction is reduced dollar-for-dollar. For instance, if a company purchases $3,230,000 in equipment, its maximum Section 179 deduction is reduced to $1,150,000 ($1,250,000 – $100,000).

Another limitation is that the deduction cannot exceed the business’s taxable income for the year, as it cannot be used to create a net operating loss. For example, if a business has a taxable income of $50,000 and purchases $70,000 of qualifying equipment, it can only deduct $50,000. The remaining $20,000 can be carried forward to subsequent tax years until it is fully deducted.

How LLCs Claim the Section 179 Deduction

To claim the deduction, the LLC must make a formal election by completing Part I of IRS Form 4562, Depreciation and Amortization. On this form, the business must provide a description of the property, its cost, and the amount being elected for the Section 179 deduction.

The process for an LLC to claim the deduction depends on its tax classification. A single-member LLC files Form 4562 with its owner’s Schedule C (Form 1040). A multi-member LLC, taxed as a partnership, files Form 4562 with its partnership tax return, Form 1065.

After the LLC claims the deduction, the total Section 179 expense is allocated among the members and reported on each member’s Schedule K-1. Each member then takes the amount from their K-1 and reports it on their personal tax return, Form 1040. The business income limitation is applied at the individual member level, not at the LLC level.

Section 179 Recapture Rules

If an asset for which a Section 179 deduction was taken is disposed of before the end of its useful life, a portion of the deduction may need to be recaptured. Recapture means the business must add back part of the tax savings to its income. This effectively pays back some of the tax benefit it received.

Several events can trigger recapture, including selling the asset, trading it in, or converting it to personal use. Recapture is also triggered if the business use of the property drops to 50% or less during any year within the asset’s recovery period. For example, if a vehicle’s business use falls from 90% to 40% in a later year, recapture is required.

The amount that must be recaptured is the difference between the Section 179 deduction taken and the depreciation that would have been allowed under standard methods. This recaptured amount is reported as “other income” on the business’s tax return for the year the triggering event occurred.