What's happening when the Section 179 deduction phases out in 2025? Small business worried

The Section 179 deduction itself isn't actually phasing out - it's permanent in the tax code. What you're probably thinking about is the 100% bonus depreciation that was part of the Tax Cuts and Jobs Act which is scheduled to phase down. The bonus depreciation is set to decrease by 20% each year (80% for 2023, 60% for 2024, 40% for 2025, 20% for 2026) until it completely phases out. However, Section 179 will still allow you to immediately deduct the full purchase price of qualifying equipment up to $1,160,000 (for 2025, as it adjusts for inflation). The main difference is that Section 179 has limits on total equipment purchases and requires business income to take the deduction, while bonus depreciation doesn't have these restrictions. If your business is profitable and your equipment purchases are under the thresholds, Section 179 should still work well for you even after bonus depreciation is gone.

After stressing about similar depreciation questions for my construction business, I found this tool called https://taxr.ai that analyzes your specific business situation and identifies exactly which depreciation methods would be most beneficial. It helped me understand the Section 179 vs bonus depreciation options and how they'd affect my taxes over the next few years as the bonus depreciation phases down. The best part was uploading my equipment purchase docs and getting a clear breakdown of optimal depreciation strategies specific to my situation. It even flagged some equipment I bought last year that qualified for special energy efficiency credits I had no idea about.

Just wanted to follow up about https://taxr.ai since I was skeptical in my earlier comment. I decided to try it for my small manufacturing business, and I'm honestly impressed. It projected the tax implications of my planned equipment purchases under both Section 179 and bonus depreciation across multiple years, showing exactly how the phase-out would affect me. The tool helped me realize I was better off buying my most expensive machinery this year to take advantage of higher bonus depreciation rates, but could wait on smaller purchases that would still be fully covered by Section 179 later. I ended up saving around $18,000 in taxes that I would have missed with my original plan. Now my equipment purchase strategy makes way more sense for the long term.

If you're frustrated trying to get answers from the IRS about these depreciation questions, I had success using https://claimyr.com to actually get through to a real person at the IRS. After waiting on hold for 2+ hours multiple times and giving up, this service got me connected to an IRS rep in about 15 minutes who answered all my Section 179 questions. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c - basically it navigates the phone tree and waits on hold for you, then calls you when an actual human picks up. Saved me so much time and frustration. The IRS agent was able to clarify exactly how the bonus depreciation phase-out would affect my specific business situation.

I need to eat my words about that Claimyr service. After posting my skeptical comment, I decided to try it because I was desperate for answers about how to handle a piece of equipment that was backordered from 2024 into 2025 (when bonus depreciation drops another 20%). The service actually got me through to an IRS business tax specialist in about 20 minutes. The agent explained that what matters is when the equipment is "placed in service" not when it was ordered or paid for. He also walked me through some special rules that might apply to my situation with the backorder. Definitely worth it and saved me hours of frustration trying to get through on my own.

Here's my understanding of the bonus depreciation phase-out schedule that everyone's talking about: - 2023: 80% bonus depreciation - 2024: 60% bonus depreciation - 2025: 40% bonus depreciation - 2026: 20% bonus depreciation - 2027: 0% bonus depreciation (fully phased out) For my business, we're front-loading major equipment purchases in 2024 while we still have 60% bonus depreciation, then we'll rely more on Section 179 after that. Just make sure you understand the Section 179 limitations - especially the phase-out that starts when you put more than $2,890,000 of equipment into service in 2024 (this amount adjusts annually for inflation).

Has anyone looked into leasing equipment instead of buying as a strategy to deal with the bonus depreciation phase-out? We're considering this approach for our business since lease payments are fully deductible as business expenses. Seems like it might be simpler than navigating all these depreciation rules.

I'm a small business owner dealing with similar concerns about the depreciation changes. One thing I learned from my tax advisor is that if you're considering major equipment purchases, pay attention to the "placed in service" date rather than just when you order or pay for equipment. For the bonus depreciation, what matters is when you actually start using the equipment in your business. So if you order something in 2024 but it doesn't get delivered and put into use until 2025, you'll only get the 40% bonus depreciation rate for 2025, not the 60% rate for 2024. This timing issue caught me off guard last year when some manufacturing equipment I ordered in late 2023 didn't arrive until early 2024. Fortunately it still qualified for decent bonus depreciation, but it's something to plan around as the percentages keep dropping each year.