How is the section 179 deduction limited by income?

It cannot exceed taxable income from the active conduct of any trade or business; the excess carries forward

It can create a net operating loss

Can bonus depreciation create or increase a net operating loss?

Yes; bonus depreciation is not subject to a taxable income limit

No; it is limited to taxable business income, just like section 179

Only if section 179 is also claimed

How does a taxpayer avoid bonus depreciation?

Elect out for all property in a class for the year, by attaching a statement to a timely filed return

Bonus depreciation cannot be avoided

Elect out asset by asset for any property the taxpayer chooses, by notifying the IRS in writing after filing

Is used property eligible for bonus depreciation?

Yes, if the taxpayer (and predecessors) did not previously use it and it is not acquired from a related party

Only used real property qualifies

No, only new property qualifies

Which property may qualify for section 179 expensing?

Qualified improvement property and roofs, HVAC, fire protection and security systems on nonresidential real property

What happens if business use of section 179 property drops to 50% or less before the end of its recovery period?

The excess of the section 179 deduction over the depreciation that would have been allowed is recaptured as ordinary income

The entire original deduction is recaptured

Section 179 and bonus depreciation

For tax years beginning in 2025, OBBBA lets businesses expense up to $2,500,000 of qualifying property under section 179 (phase-out starting at $4,000,000), limited to business income, and restores 100% bonus depreciation for property acquired after January 19, 2025, which has no income limit.

Updated 2026-09-23 · 5 sources · By the EnrolledAgentKit team

Exam part

Part 2

Businesses

IRS domain

Business Tax Preparation

37 of 85 scored Qs

Tax year tested

2025

2026-27 SEE

Practice questions

10 free below

The rules the exam tests

Figures for tax year 2025, the year the 2026-27 SEE tests. Verify against the cited primary source.
Rule	What it says (2025)	Source
Section 179 limit / phase-out	$2,500,000 / $4,000,000 (tax years beginning after 2024)	OBBBA; IRC 179(b)
Superseded 2025 figures	$1,250,000 / $3,130,000 (Rev. Proc. 2024-40, pre-OBBBA)	Rev. Proc. 2024-40
179 income limit	Business taxable income; excess carries forward	IRC 179(b)(3)
179 SUV cap	$31,300 (2025)	Rev. Proc. 2024-40
179 business use	More than 50%; recapture if it drops to 50% or less	IRC 179(d)(10)
Bonus rate	100% if acquired after Jan 19, 2025; 40% if acquired earlier and placed in service in 2025	OBBBA; IRC 168(k)
Bonus election out	By class of property, per year	IRC 168(k)(7)
Used property	Bonus-eligible if not previously used by taxpayer and not from a related party	IRC 168(k)(2)(E)
Who cannot use 179	Estates and trusts	IRC 179(d)(4)

Worked example

Facts: In 2025 a sole proprietor with $80,000 of business income buys $150,000 of 5-year equipment (acquired March 2025).

Option A: Section 179 limited to $80,000 of income; the other $70,000 either carries forward or gets bonus. Option B: 100% bonus on all $150,000, creating a $70,000 loss (an NOL, subject to excess business loss rules). Which is better depends on future rates, state conformity and the QBI deduction.

Exam traps

Section 179 cannot create a loss; bonus can.
Section 179 is taken before bonus on the same asset.
Heavy SUVs: $31,300 cap applies to 179 only.
Listed property at 50% or less business use qualifies for neither.