Should You Buy That Equipment Before December 31? Section 179 and Bonus Depreciation Explained
· RKube Services
Thinking about a year-end equipment purchase for the tax break? Here's how Section 179 and bonus depreciation work in 2025, what changed this year, and when buying doesn't make sense.
This time of year, we hear some version of the same question almost daily: "Should I buy a new truck before December 31 to lower my taxes?"
Sometimes the answer is yes. Often it's "only if you were going to buy it anyway." Here's how the rules work for 2025, including the changes from this summer's tax law.
The Basic Idea
Normally, when a business buys equipment, it deducts the cost over several years through depreciation. Two provisions let you speed that up and deduct much or all of the cost in the first year:
- Section 179 expensing: you elect to deduct the cost of qualifying property up front, up to an annual limit.
- Bonus depreciation: an additional first-year deduction on qualifying property, applied automatically unless you elect out.
They overlap a lot, but they behave differently in a few ways that matter.
What Changed in 2025
The One Big Beautiful Bill Act, signed July 4, 2025, made two big changes:
- 100% bonus depreciation is back, and permanent, for qualifying property acquired after January 19, 2025. Before the new law, bonus depreciation was phasing down and would have been 40% for 2025.
- The Section 179 limit rose to $2.5 million, with the phase-out starting at $4 million of qualifying purchases, for tax years beginning after 2024.
Property acquired before January 20, 2025 generally falls under the old phase-down rules, so the acquisition date matters if you signed a contract early in the year.
Source: IRS: One Big Beautiful Bill provisions
Section 179 vs. Bonus Depreciation
| Point | Section 179 | Bonus depreciation |
|---|---|---|
| How it applies | You elect it, asset by asset | Automatic unless you elect out by class |
| Can it create a loss? | No. Limited to business taxable income; excess carries forward | Yes |
| Annual cap | $2.5 million, phased out above $4 million | No dollar cap |
For most small businesses, either one can wipe out the full cost of a normal equipment purchase. The choice becomes more interesting when your income is low or you want to spread deductions out.
Source: IRS Publication 946, How to Depreciate Property
The "Placed in Service" Rule
This is where year-end purchases go wrong. You don't get the deduction when you pay. You get it in the year the asset is placed in service, meaning it's ready and available for its intended use in your business.
If you pay for a machine on December 20 but it's delivered and set up on January 8, the deduction belongs to 2026. Same with a vehicle that's ordered but sitting at the dealer. If you're buying this month, confirm the delivery date in writing.
Example Scenario
A landscaping company expects about $160,000 of profit for 2025. The owner is considering a $48,000 piece of equipment. It's delivered and in use on December 12.
- With 100% bonus depreciation or Section 179, the full $48,000 can be deducted in 2025.
- If the owner's top federal rate is 24%, that's roughly $11,520 less federal income tax this year, with some self-employment tax savings on top depending on how the business is set up.
- But the business still spent $48,000. The tax savings cover about a quarter of that.
If the company needed the equipment anyway, buying in December instead of February pulls the deduction into a year with solid income. If it didn't need it, the owner just traded $48,000 in cash for roughly $12,000 in tax savings.
Don't Buy Just for the Deduction
A few other things to keep in mind:
- It's mostly timing. Taking the whole deduction now means no depreciation on that asset in later years.
- Selling later can trigger recapture. If you sell the asset, some of that early deduction can come back as ordinary income.
- Financing is fine, but cash flow is real. You can deduct financed equipment placed in service this year, but you still have the payments.
- States may not follow. North Carolina and several other states don't fully conform to federal bonus depreciation, so your state deduction may be spread out differently. Check with the NC Department of Revenue or your state's agency.
- Vehicles have their own limits. Passenger vehicles are subject to annual depreciation caps, and heavier SUVs have a separate Section 179 limit. Publication 946 has the current figures.
How RKube Helps
- Projecting your 2025 profit so you know whether a big deduction is useful this year
- Modeling Section 179 vs. bonus depreciation vs. regular depreciation for a planned purchase
- Tracking fixed assets, placed-in-service dates, and state adjustments in your books
- Flagging recapture issues before you sell or trade in equipment
If you'd like to run the numbers before you sign anything, call us at (984) 234-7030 or start with a free 30-day bookkeeping trial through our campaign page.
Final Thoughts
The 2025 rules are generous. If you need the equipment, getting it in service before December 31 can make a real difference to this year's taxes. Just make the business decision first and let the tax benefit follow.
This is general information; talk with a tax professional about your specific purchase.
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