Section 179 Deduction: Rules Under the US Tax Code

Section 179 of the United States Internal Revenue Code allows a business to expense the cost of qualifying property in the year it is placed in service, in place of depreciating it over several years. The One Big Beautiful Bill Act (OBBBA) of 2025 raised the limits and indexed them to inflation from 2026.

• Section 179 is a US federal tax provision and is outside India's Income-tax Act.
• The maximum deduction for tax years beginning in 2026 is Rs. 24,32,00,000.
• The deduction falls rupee for rupee once qualifying purchases exceed Rs. 38,85,50,000, and reaches zero at Rs. 63,17,50,000.
• Heavy SUVs weighing between 6,000 and 14,000 pounds are capped at Rs. 30,40,000.
• Vehicles and other listed property must be used more than 50% for business, and the deduction cannot exceed taxable business income.
• The election is made on IRS Form 4562, Part I, for the year the asset is placed in service.

Check the IRS limits for the tax year in which the asset is placed in service before you buy. Indian businesses should plan using Section 32 depreciation under Indian tax law.

Section 179 is a provision of the US Internal Revenue Code that lets a business deduct the cost of qualifying property in the year it is placed in service. The business elects the deduction on its tax return, up to an annual limit.

Without Section 179, the business recovers the cost through depreciation over the asset's recovery period, often 5 to 7 years for equipment. Section 179 brings the deduction forward to the first year, which lowers taxable income in that year.

Section 179 applies only to US federal income tax. Businesses taxed in India claim depreciation under Section 32 of the Income-tax Act, 1961, or the corresponding provision of the Income-tax Act, 2025 from 1 April 2026.

Qualifying property is tangible business property and certain software, bought for use in an active trade or business.

• Equipment and machinery: manufacturing equipment, tools and business machines
• Computers and software: computers, peripherals and off-the-shelf software
• Office furniture and fixtures: desks, shelving and similar items
• Vehicles: business vehicles, with special limits for heavy SUVs
• Non-residential building improvements: roofs, heating and air-conditioning systems, fire protection and security systems

Land and residential rental property do not qualify, and vehicles and other listed property used 50% or less for business are excluded. Only the business-use share of an asset's cost is eligible.

For tax years beginning in 2026, the IRS limits are higher than in 2025 because of inflation indexing under the OBBBA.

Last updated: 19th October 2026

The limits change every year, so use the figures for the tax year in which you place the asset in service.

The maximum deduction falls by Rs. 1 for every Rs. 1 of qualifying purchases above the phase-out threshold.

Formula used: Maximum deduction = Rs. 24,32,00,000 − (total qualifying purchases − Rs. 38,85,50,000).

In this example, the business can expense up to Rs. 23,27,50,000 under Section 179. It depreciates the rest of the cost under the regular rules or claims bonus depreciation on it.

Section 179 gives the whole deduction in year one, while regular depreciation spreads it over the recovery period.

Under the OBBBA, 100% bonus depreciation applies to qualified property acquired and placed in service after 19 January 2025. Businesses often combine Section 179 and bonus depreciation to manage the first-year deduction.

Keep the records that prove the cost, the service date and the business use of each asset:

• Purchase invoices and proof of payment
• The date each asset was placed in service
• Business-use logs, especially for vehicles and mixed-use assets
• The Section 179 calculation and the Form 4562 filed with the return
• Records of any amount carried forward because of the business income limit

Businesses taxed in India claim depreciation under Section 32 of the Income-tax Act, 1961 on a block of assets, using the written down value method. Section 179 gives them no deduction in India.

• Plant and machinery: depreciation at 15% a year on the written down value for most assets
• Computers and software: 40% a year on the written down value
• Assets used for less than 180 days in the year: half the normal rate in the first year
• New plant and machinery in manufacturing: additional depreciation of 20% under Section 32(1)(iia), subject to the section's conditions

From 1 April 2026, check the corresponding provision of the Income-tax Act, 2025 for the tax year in which you buy the asset.

Section 179 applicability covers directors of private companies when tax dues cannot be recovered from the company, unless the director proves that non-recovery was not due to their gross neglect, misfeasance or breach of duty under Section 179(1) of the Income-tax Act, 1961.
 

Example: How does Section 179 affect a company director?
 

Priya, 42, directed a Mumbai-based private company during FY 2020–21. The company has Rs. 12 lakh in unrecovered tax dues. Under Section 179 Income Tax Act director responsibility, Priya may face joint and several liability unless she establishes the statutory defence.

Directors seeking financing from Bajaj Finance should consider potential personal tax liabilities when assessing repayment capacity.

If you run a business and are planning to purchase a home, Bajaj Finance offers home loans to self-employed applicants aged 23 to 70 years. Lenders assess a self-employed applicant's income from income-tax returns, profit and loss statements and 6 months of bank statements.

Large first-year depreciation claims, whether under Section 179 in the US or Section 32 in India, lower the profit shown in these documents for that year. Before you apply, ask how your depreciation will be treated in the income assessment, and time major equipment purchases so that they do not strain the cash you need for the down payment.

Bajaj Finance offers home loans starting at 7.25% p.a.*, with loan amounts up to Rs. 15 crore* and repayment tenures of up to 32 years. Review the loan terms and check your home loan eligibility before applying.