Section 179 Tax Deduction for Equipment Financing Explained

When it comes to equipment financing, many Dallas business owners don’t fully understand one of the most powerful tax benefits available to them: the Section 179 deduction. This IRS provision can save your business thousands—or even hundreds of thousands—of dollars in taxes.

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In this article, we’ll break down Section 179, explain how it works with equipment financing, and help you understand how to maximize your tax savings in 2026.

What Is Section 179?

Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment in the year it was purchased, rather than depreciating it over several years.

Without Section 179, if you buy a $100,000 piece of equipment with a 7-year useful life, you’d typically deduct about $14,286 per year through depreciation. With Section 179, you can deduct the entire $100,000 in year one.

This immediate deduction significantly reduces your taxable income and can result in substantial tax savings, especially for growing businesses making significant equipment investments.

2026 Section 179 Limits

The IRS adjusts Section 179 limits annually for inflation. Here are the 2026 limits:

Limit Type	2026 Amount
Maximum Deduction	$1,160,000
Phase-Out Threshold	$2,890,000
Maximum Equipment Spending	Before phase-out begins

How the Phase-Out Works

If your total equipment purchases exceed $2,890,000, your Section 179 deduction begins to phase out dollar-for-dollar. If you spend $4,050,000 or more, the Section 179 deduction is completely eliminated.

For most small and medium-sized businesses, this threshold is rarely an issue. You can deduct up to $1.16 million in equipment purchases in a single year.

Bonus Depreciation: Additional Savings

In addition to Section 179, businesses can take advantage of bonus depreciation for additional savings:

2026: 80% bonus depreciation
2027: 60% bonus depreciation
2028: 40% bonus depreciation
2029: 20% bonus depreciation
2030: 0% bonus depreciation (unless extended)

The key difference: Section 179 has income limitations (your deduction can’t exceed your taxable income), while bonus depreciation can create a net operating loss.

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What Equipment Qualifies for Section 179?

Most tangible business equipment qualifies for Section 179, including:

Qualifying Equipment

Machinery and equipment: Manufacturing equipment, tools, industrial machinery
Computers and technology: Servers, workstations, networking equipment
Office furniture: Desks, chairs, filing cabinets
Vehicles: Business vehicles (with some limitations)
Software: Off-the-shelf software for business use
Agricultural equipment: Tractors, harvesters, irrigation systems
Medical equipment: Diagnostic machines, dental equipment
Restaurant equipment: Ovens, refrigeration, point-of-sale systems

Non-Qualifying Property

Real property (buildings, land)
Property used outside the United States
Property acquired from related parties
Property used for personal purposes more than 50%

Section 179 and Equipment Financing

Here’s the powerful part: you don’t need to pay cash for equipment to claim Section 179. Equipment purchased with financing qualifies for the full deduction in the year of purchase.

Example: Financed Equipment Deduction

Let’s say you finance $200,000 in equipment at 8% interest for 5 years:

Monthly payment: $4,055
First year payments: $48,660
Section 179 deduction: $200,000 (full purchase price)
Tax savings (25% bracket): $50,000

In this scenario, your tax savings exceed your first-year loan payments. You’re essentially getting paid to acquire equipment.

How to Calculate Your Section 179 Savings

Follow these steps to estimate your Section 179 tax savings:

Step 1: Determine Qualifying Equipment Cost

Add up the cost of all equipment you plan to purchase that qualifies for Section 179.

Step 2: Confirm You’re Under the Limits

Ensure your total equipment purchases are under $2,890,000 and your deduction is under $1,160,000.

Step 3: Calculate Your Tax Bracket

Determine your effective federal tax rate. For most small businesses, this ranges from 22% to 37%.

Step 4: Multiply to Find Savings

Equipment Cost × Tax Rate = Federal Tax Savings

Example: $150,000 equipment × 25% tax rate = $37,500 federal tax savings

Don’t forget state taxes—if your state allows Section 179, add those savings too.

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Timing Your Equipment Purchases

To claim Section 179, the equipment must be purchased AND placed in service during the tax year. This creates strategic timing opportunities:

End-of-Year Planning

If you’re having a profitable year, purchasing and deploying equipment before December 31 allows you to claim the deduction on that year’s return.

Start-of-Year Considerations

If you expect higher income next year, waiting until January might be beneficial—you’ll get more value from the deduction in a higher-income year.

Multi-Year Strategy

If you’re planning major equipment investments, spacing purchases across multiple years might maximize total tax benefits, especially if you’d exceed the annual limits.

Leases and Section 179

Not all equipment financing qualifies for Section 179. Here’s how different arrangements are treated:

Equipment Loans

Fully eligible for Section 179. The full purchase price can be deducted in year one.

Capital Leases ($1 Buyout)

Fully eligible for Section 179. Treated as a purchase for tax purposes.

Operating Leases

Not eligible for Section 179. However, lease payments are deductible as a regular business expense.

Fair Market Value Leases

Not eligible for Section 179. Payments are deductible as a business expense instead.

Vehicle Limitations

Vehicles have special Section 179 rules:

Passenger Vehicles Under 6,000 lbs

Limited to $12,200 Section 179 deduction in 2026 (subject to annual adjustments).

SUVs Between 6,000-14,000 lbs

Limited to $28,900 Section 179 deduction in 2026.

Vehicles Over 14,000 lbs

No special limitation—full Section 179 rules apply.

Work Trucks and Vans

Vehicles designed for cargo or work purposes (not primarily passenger use) may qualify for full Section 179.

Common Section 179 Mistakes to Avoid

1. Missing the Placed-in-Service Requirement

Equipment must be put to use in your business during the tax year. Purchasing equipment in December but not using it until January won’t qualify for the current year.

2. Exceeding Income Limitations

Section 179 deductions can’t exceed your taxable income from active business operations. Plan accordingly or use bonus depreciation instead.

3. Using Wrong Lease Type

If Section 179 is important to you, ensure you’re using an equipment loan or capital lease, not an operating lease.

4. Forgetting State Variations

Some states have different Section 179 limits or don’t allow it at all. Texas has no state income tax, so this isn’t a concern for Dallas businesses.

5. Not Planning Ahead

Last-minute equipment purchases without tax planning may not optimize your benefits. Work with your accountant throughout the year.

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Real-World Example: Dallas Manufacturing Company

A Dallas manufacturing company is considering purchasing a $500,000 CNC machine. Here’s how Section 179 affects their decision:

Without Section 179 (Standard Depreciation):

Year 1 deduction: ~$71,000 (MACRS 7-year)
Tax savings: $17,750 (25% bracket)

With Section 179:

Year 1 deduction: $500,000
Tax savings: $125,000 (25% bracket)

The Difference: $107,250 more in tax savings in year one

If they finance the equipment at 8% for 5 years ($10,138/month), their first-year payments total $121,656—almost entirely offset by tax savings.

Working with Your Tax Professional

Section 179 and bonus depreciation rules are complex and change frequently. Before making major equipment purchases, consult with a qualified tax professional who can:

Analyze your specific tax situation
Determine optimal purchase timing
Calculate your actual savings
Ensure you’re maximizing all available deductions
Help with proper documentation and filing

Maximize Your Equipment Investment

Ready to acquire equipment for your Dallas business while maximizing your tax benefits? Equipment Financing Dallas Pros can help you find the right financing structure to take full advantage of Section 179.

Our team understands the intersection of equipment financing and tax benefits. We’ll work with you to structure your financing in a way that supports your tax planning goals.

Contact us today to discuss your equipment needs and learn how Section 179 can reduce your tax burden while you grow your business.