How Much Can You Deduct?

Terms you may need to know (see Glossary):

Adjusted basis Basis Placed in service

Your section 179 deduction is generally the cost of the qualifying property. However, the total amount you can elect to deduct under section 179 is subject to a dollar limit and a business income limit. These limits apply to each taxpayer, not to each business. However, see Mar- ried Individuals under Dollar Limits, later. For a passenger automobile, the total section 179 deduction and deprecia- tion deduction are limited. See Do the Passenger Automo- bile Limits Apply? in chapter 5.

If you deduct only part of the cost of qualifying property as a section 179 deduction, you can generally depreciate the cost you do not deduct.

Trade-in of other property. If you acquire qualified property in a like-kind exchange, only the excess basis of the acquired property is eligible for the section 179 deduction. For more information on excess basis, see Pub. 551.

Caution: Like-kind exchanges beginning after December 31, 2017, are generally limited to exchanges of real property not held primarily for sale. Section 1.168(i)-6 of the regulations 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 deduction includes only the cash you paid.

Example. Silver Leaf, a retail bakery, traded in two ovens having a total adjusted basis of $680, for a new oven costing $1,320. They received an $800 trade-in allowance for the old ovens and paid $520 in cash for the new oven. On the date that Silver Leaf traded in the two old ovens for the new oven, the old ovens and the new oven are classified as real property under the law of the state in which the old and new ovens are located and, as a result, the old and new ovens are real property for purposes of section 1031. The new oven is section 179 property.

Only the portion of the new oven’s basis paid by cash qualifies for the section 179 deduction. Therefore, Silver

a. The term of the lease (including options to renew)

is less than 50% of the property’s class life.

b. For the first 12 months after the property is trans ferred to the lessee, the total business deductions you are allowed on the property (other than rents and reimbursed amounts) are more than 15% of the rental income from the property.

Publication 946 (2025) Chapter 2 Electing the Section 179 Deduction 17

Leaf’s qualifying cost for the section 179 deduction is $520.