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What is Section 179 of the IRS tax code?

Section 179 of the IRS tax code is a deduction that allows businesses to expense the full purchase price of qualifying equipment in the year it is placed into service, rather than depreciating it over time. This applies to both purchased and leased equipment, making it a powerful tax benefit for businesses looking to invest in new or used equipment.

How It Works in Equipment Leasing:

If you lease equipment under a $1 buyout lease (where you own the equipment at the end), you can still take advantage of Section 179. This means you can deduct the full equipment cost upfront while making smaller monthly payments, improving cash flow. However, fair market value (FMV) leases typically don’t qualify since the business doesn’t technically own the equipment.

For 2024, the deduction limit is $1.22 million, with a spending cap of $3.05 million before the benefit phases out. Bonus depreciation (typically 60% in 2024) can also be applied after Section 179.

Example

Let’s say your business leases $100,000 worth of equipment under a $1 buyout lease in 2024. Since this lease structure allows you to eventually own the equipment, it qualifies for Section 179.

Here’s How the Tax Benefit Works:

Why It’s a Smart Move:

However, if you’re using a Fair Market Value (FMV) lease, where you return the equipment or buy it at market value later, Section 179 doesn’t apply, but you may be able to deduct lease payments as an operational expense.

Equipment Leasing Benefits

Preserves Cash Flow

Avoids large upfront purchases, allowing businesses to allocate capital to other operational needs.
Predictable monthly payments help with budgeting and financial planning.

Access to Up-to-Date Equipment

Enables businesses to use the latest technology without the risk of owning outdated equipment.
Easier to upgrade or replace equipment at the end of the lease term.

Tax Advantages

Lease payments may be tax-deductible as an operating expense, reducing taxable income.
Some leases qualify for Section 179 tax deductions, allowing businesses to write off equipment costs.

Easier Approval & Flexible Terms

Leasing often requires less stringent credit requirements compared to loans.
Customizable lease structures (e.g., seasonal payments, step-up plans) can match business cash flow.

No Depreciation Risk

Businesses don’t have to worry about the declining value of equipment.
At the end of the lease, you can return, upgrade, or buy the equipment at a reduced cost.

Preserves Credit Lines

Leasing doesn’t tie up business credit lines, keeping borrowing capacity available for other needs.
Improves balance sheet management by keeping leased assets off liabilities in some cases.