! December 31, 2017, are generally

CAUTION ted to exchanges of real property not

held for sale. Treasury regulations section 1.168(i)-6 does not reflect this change in law.

If you buy qualifying property with cash and a trade-in, its cost for purposes of the section 179 expense deduction includes only the cash you paid.

Example. Adyo Farms traded real property X having a total adjusted basis of $6,800 for new real property Z costing $13,200. They received an $8,000 trade-in allowance for the old real property X, and paid $5,200 in cash for the new real property Z.

For purposes of the section 179 expense deduction, only the cash paid by Adyo qualifies for the section 179 expense deduction. Adyo’s business costs that qualify for a section 179 expense deduction are $5,200. For information on the maximum amount you can elect to deduct, see Dollar Limits , next.

Dollar Limits

The total amount you can elect to deduct under section 179 for most property placed in service in 2025 is $2,500,000. If you acquire and place in service more than one item of qualifying property during the year, you can allocate the section 179 expense deduction among the items in any way, as long as the total deduction is not more than $2,500,000. You cannot carry costs in excess of the $2,500,000 limit over to future years.

Reduced dollar limit for cost exceeding $4,000,000. If the cost of your qualifying section 179 property placed in service in 2025 is over $4,000,000, you must reduce the dollar limit (but not below zero) by the amount of cost over $4,000,000. If the cost of your section 179 property placed in service during 2025 is $6,500,000 or more, you cannot take a section 179 expense deduction and you cannot carry over any of the cost that is more than $6,500,000.

Example. This year, George Thomas placed in service machinery costing $4,100,000. Because this cost is $100,000 more than $4,000,000, George must reduce the dollar limit to $2,400,000 ($2,500,000 − $100,000). George cannot carry over any of the costs that exceed the $2,400,000 reduced limit. The remaining cost of the machinery not allowed as a section 179 expense deduction is eligible for a depreciation expense under MACRS. See Figuring Depreciation Under MACRS, later.

Limits for sport utility vehicles. The total amount you can elect to deduct for certain sport utility vehicles and certain other vehicles placed in service in 2025 is $31,300. This rule applies to any 4-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, and highways that is rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight.

For more information, see chapter 2 of Pub. 946.

Limits for passenger automobiles. For a passenger automobile that is placed in service in 2025, the total section 179 and depreciation deduction is limited. See Do the Passenger Au- tomobile Limits Apply , later.

Married individuals. If you are married, how you figure your section 179 expense deduction depends on whether you file jointly or separately. If you file a joint return, you and your

42 Chapter 7 Depreciation, Depletion, and Amortization Publication 225 (2025)

spouse are treated as one taxpayer in determining any reduction to the dollar limit, regardless of which of you purchased the property or placed it in service. If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit, including the reduction for costs over $4,000,000. You must allocate the dollar limit (after any reduction) equally between you, unless you both elect a different allocation. If the percentages elected by each of you do not total 100%, 50% will be allocated to each of you.

Joint return after separate returns. If you and your spouse elect to amend your separate returns by filing a joint return after the due date for filing your return, the dollar limit on the joint return is the lesser of the following amounts.

The dollar limit (after reduction for any cost of section 179 property over $4,000,000).
The total cost of section 179 property you and your spouse elected to expense on your separate returns.

Business Income Limit

The total cost you can deduct each year after you apply the dollar limit is limited to the taxable income from the active conduct of any trade or business during the year. Generally, you are considered to actively conduct a trade or business if you meaningfully participate in the management or operations of the trade or business.

Any cost not deductible in one year under section 179 because of this limit can be carried to the next year. See Carryover of disallowed deduction, later.

Taxable income. In general, figure taxable income for this purpose by totaling the net income and losses from all trades and businesses you actively conducted during the year. In addition to net income or loss from a sole proprietorship, partnership, or S corporation, net income or loss derived from a trade or business also includes the following items.

Section 1231 gains (or losses) as discussed in chapter 9.
Interest from working capital of your trade or business.
Wages, salaries, tips, or other pay earned by you (or your spouse if you file a joint return) as an employee of any employer.

In addition, figure taxable income without regard to any of the following.

The section 179 expense deduction.
The self-employment tax deduction.
Any net operating loss carryback or carryforward.
Any unreimbursed employee business expenses.

Also, see chapter 2 of Pub. 946.

Two different taxable income limits. In addition to the business income limit for your section 179 expense deduction, you may have a taxable income limit for some other deduction (for example, charitable contributions). You may have to figure the limit for this other deduction taking into account the section 179 expense deduction. If so, complete the following steps.

Step Action

1 Figure taxable income without the section 179 expense deduction or the other deduction.

2 Figure a hypothetical section 179 expense deduction using the taxable income figured in Step 1.

3 Subtract the hypothetical section 179 expense deduction figured in Step 2 from the taxable income figured in Step 1.

4 Figure a hypothetical amount for the other deduction using the amount figured in Step 3 as taxable income.

5 Subtract the hypothetical other deduction figured in Step 4 from the taxable income figured in Step 1.

6 Figure your actual section 179 expense deduction using the taxable income figured in Step 5.

7 Subtract your actual section 179 expense deduction figured in Step 6 from the taxable income figured in Step 1.

8 Figure your actual other deduction using the taxable income figured in Step 7.

Example. On February 1, 2025, the XYZ farm corporation purchased and placed in service qualifying section 179 property that cost $500,000. It elects to expense the entire $500,000 cost under section 179. In June, the corporation gave a charitable contribution of $100,000. A corporation’s limit on charitable contributions is figured after subtracting any section 179 expense deduction. The business income limit for the section 179 expense deduction is figured after subtracting any allowable charitable contributions. XYZ’s taxable income figured without the section 179 expense deduction or the deduction for charitable contributions is $700,000. XYZ figures its section 179 expense deduction and its deduction for charitable contributions as follows.

Step 1. Taxable income figured without either deduction is $700,000. Step 2. Using $700,000 as taxable income, XYZ’s hypothetical section 179 expense deduction is $500,000. Step 3. $200,000 ($700,000 − $500,000). Step 4. Using $200,000 (from Step 3) as taxable income, XYZ’s hypothetical charitable contribution (limited to 10% of taxable income) is $20,000. Step 5. $680,000 ($700,000 − $20,000). Step 6. Using $680,000 (from Step 5) as taxable income, XYZ figures the actual section 179 expense deduction. Because the taxable income is at least $500,000, XYZ can take a $500,000 section 179 expense deduction. Step 7. $200,000 ($700,000 − $500,000). Step 8. Using $200,000 (from Step 7) as taxable income, XYZ’s actual charitable contribution (limited to 10% of taxable income) is $20,000.

Carryover of disallowed deduction. You can carry over for an unlimited number of years the cost of any section 179 property you elected to expense but were unable to deduct because of the business income limit.

The amount you carry over is used in determining your section 179 expense deduction in

the next year. However, it is subject to the limits in that year. If you place more than one property in service in a year, you can select the properties for which all or a part of the cost will be carried forward. Your selections must be shown in your books and records.

Example. Last year, you placed in service a machine that cost $100,000 and elected to deduct all $100,000 under section 179. The taxable income from your business (determined without regard to both a section 179 expense deduction for the cost of the machine and the self-employment tax deduction) was $80,000. Your section 179 expense deduction was limited to $80,000. The $20,000 cost that was not allowed as a section 179 expense deduction (because of the business income limit) is carried to this year.

This year, you placed another machine in service that cost $110,000. Your taxable income from business (determined without regard to both a section 179 expense deduction for the cost of the machine and the self-employment tax deduction) is $125,000. You can deduct the full cost of the machine ($110,000) but only $15,000 of the carryover from last year because of the business income limit. You can carry over the balance of $5,000 to next year.

Partnerships and S Corporations

The section 179 expense deduction limits apply both to the partnership or S corporation and to each partner or shareholder. The partnership or S corporation determines its section 179 expense deduction subject to the limits. It then allocates the deduction among its partners or shareholders.

If you are a partner in a partnership or shareholder of an S corporation, you add the amount allocated from the partnership or S corporation to any section 179 costs not related to the partnership or S corporation and then apply the dollar limit to this total. To determine any reduction in the dollar limit for costs over $4,000,000, you do not include any of the cost of section 179 property placed in service by the partnership or S corporation. After you apply the dollar limit, you apply the business income limit to any remaining section 179 costs. For more information, see chapter 2 of Pub. 946.

Example. In 2025, Partnership P placed in service section 179 property with a total cost of $4,100,000. P must reduce its dollar limit by $100,000 ($4,100,000 − $4,000,000). Its maximum section 179 expense deduction is $2,400,000 ($2,500,000 − $100,000), and it elects to expense that amount. Because P’s taxable income from the active conduct of all its trades or businesses for the year was $5,000,000, it can deduct the full $2,400,000. P allocates $265,000 of its section 179 expense deduction and $500,000 of its taxable income to John, one of its partners.

John also conducts a business as a sole proprietor and, in 2025, placed in service in that business, section 179 property costing $800,000. John’s taxable income from that business was $200,000. In addition to the $265,000 allocated from P, John elects to expense $550,000 of the sole proprietorship’s section

Publication 225 (2025) Chapter 7 Depreciation, Depletion, and Amortization 43

179 costs. However, John’s deduction is limited to the business taxable income of $700,000 ($500,000 from P plus $200,000 from the sole proprietorship). John carries over $115,000 ($815,000 − $700,000) of the elected section 179 costs to 2026.

How Do You Elect the Deduction?

You elect to take the section 179 expense deduction by completing Part I of Form 4562.

Certain qualified property acquired and placed in service after January 19, 2025;
Certain specified plants planted or grafted after January 19, 2025; and
Qualified production property.

Certain qualified property acquired after September 27, 2017, and placed in service before January 20, 2025. You can elect to take a 40% special depreciation allowance for certain qualified property acquired after September 27, 2017, and placed in service after 2024, and before January 20, 2025 (other than certain property with a long production period and certain aircraft).

You can elect to take a 60% special depreciation allowance for certain property with a long production period and certain aircraft acquired after September 27, 2017, and placed in service after 2024 and before January 20, 2025.

Your property is qualified property if it meets the following requirements.

It is one of the following types of property.

a. Tangible property depreciated under

MACRS with a recovery period of 20 years or less.

b. Water utility property depreciated un der MACRS.

c. Computer software defined in and de preciated under section 167(f)(1) of the Internal Revenue Code.

Qualified property can be either new property or certain used property.
It is not excepted property (defined next).

Qualified property must also be placed in service before January 20, 2025. For more information, see chapter 3 of Pub. 946.

Excepted property. Qualified property acquired after September 27, 2017, does not include any of the following.

Property placed in service, or planted or grafted and disposed of in the same tax year.
Property converted from business use to personal use in the same tax year acquired. Property converted from personal use to business use in the same or later tax year may be qualified property.
Property required to be depreciated under the Alternative Depreciation System (ADS). This includes listed property used 50% or less in a qualified business use. For other property required to be depreciated using ADS, see Required use of ADS under Which Depreciation System (GDS or ADS) Applies later.
Property for which you elected not to claim any special depreciation allowance (discussed later).
Property described in section 168(k)(9)(A) of the Internal Revenue Code and placed in service in any tax year beginning after December 31, 2017.
Property described in section 168(k)(9)(B) of the Internal Revenue Code and placed in service in any tax year beginning after December 31, 2017.

Certain specified plants planted or grafted before January 20, 2025. You can elect to

Figure the allowable depreciation for the section 179 expense deduction you claimed. Begin with the year you placed the property in service and include the year of recapture.
Subtract the depreciation figured in (1) from the section 179 expense deduction you actually claimed. The result is the amount you must recapture.

Example. In January 2023, you are a calendar year taxpayer. You bought and placed in service section 179 property costing $10,000. The property is 3-year property and is depreciated under MACRS and a half-year convention. The property is not listed property. You elected a $5,000 section 179 expense deduction for the property and also elected not to claim a special depreciation allowance. You used the property only for business in 2023 and 2024. During 2025, you used the property 40% for business and 60% for personal use. You figure the recapture amount as follows.

Section 179 expense deduction claimed (2023) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,000

Minus: Allowable depreciation (instead of section 179 expense deduction): 2023 . . . . . . . . . . . . . . . . . . . . . . $1,250 2024 . . . . . . . . . . . . . . . . . . . . . . 1,875 2025 ($1,250 × 40% (business)) . . . 500 3,625

2025 — Recapture amount . . . . . . . . . $1,375

You must include $1,375 in income for 2025.

Where to report recapture. Report any recapture of the section 179 expense deduction as ordinary income in Part IV of Form 4797 and include it in income on Schedule F (Form 1040).

Recapture for qualified section 179 GO Zone property. If any qualified section 179 GO Zone property ceases to be used in the GO Zone in a later year, you must recapture the benefit of the increased section 179 expense deduction as “other income.”