Section 179 Deduction and Special Allowance - Form 4562
The Section 179 deduction allows businesses to deduct the full cost of qualifying equipment and property in the year it is placed in service, rather than depreciating it over time. This deduction is reported on Form 4562, Depreciation and Amortization, which is required for any business or activity that claims depreciation or amortization.
Key Features of Section 179 Deduction
- Maximum Deduction Limit (2025): $2,500,000 for section 179 property placed in service during the tax year. This includes qualified section 179 real property.
- Phase-Out Threshold: If the total cost of section 179 property placed in service exceeds $4,000,000, the deduction is reduced dollar-for-dollar.
- Business Income Limitation: The deduction cannot exceed the taxpayer’s taxable income from the trade or business. Any disallowed amount due to this limitation can be carried forward to the next tax year.
- Carryover Rule: Disallowed deductions attributable to qualified section 179 real property can be carried over to the next tax year and reported on line 13 of Form 4562.
Special Depreciation Allowance
Businesses may also claim a special depreciation allowance for certain qualified property, such as qualified production property (QPP). This allowance is an additional deduction available for new machinery or equipment used in farming or other qualifying activities.
- Qualified Production Property (QPP): Includes new machinery or equipment (excluding grain bins, cotton ginning assets, fences, or land improvements) used in farming and placed in service after 2017.
- Reporting QPP: The special depreciation allowance for QPP must be reported on line 14 of Form 4562, with “See attachment” noted in the bottom margin. A separate statement must be attached identifying the property and the amount claimed.
Reporting Requirements
- Multiple Businesses: If you have more than one business or activity, you may allocate your allowable Section 179 deduction among them. However, only one Part I (for computing Section 179 expense) should be completed per return.
- Partnerships and S Corporations: For deductions from partnerships or S corporations, enter “from Schedule K-1 (Form 1065)” or “from Schedule K-1 (Form 1120-S)” in columns (a) and (b).
- Corporations: For corporations (other than S corporations), the deduction is limited to the smaller of the maximum allowable amount or the corporation’s taxable income before Section 179 deductions and other special deductions.
Important Notes
- Do Not Use Form 4562 for Section 179D: Energy-efficient commercial building deductions under Section 179D must be claimed on Form 7205, not Form 4562.
- Listed Property: Special rules apply to listed property (e.g., vehicles). The amount elected for listed property must be reported on line 7 of Form 4562.
- Carryover from Prior Year: Any disallowed deduction from the previous year (e.g., 2024) should be entered on line 10 of Form 4562.
Source:
Form 4562 - Depreciation and Amortization (2025)
Disclaimer: Always verify details with official Federal or State Department of Revenue Forms and Instructions. OLT (Online Taxes) provides guidance based on retrieved context but does not guarantee accuracy for individual circumstances.