What Qualifies for Section 179 Deduction? Real Estate Investor’s Guide

If you're a real estate investor or business owner looking to reduce your taxable income, Section 179 of the IRS tax code could be your best friend.

This powerful deduction allows you to write off the entire cost of qualifying business property in the year it’s placed in service boosting cash flow and accelerating ROI.

In this post, we’ll cover what qualifies, what doesn’t, how it differs from bonus depreciation, and how cost segregation plays a critical role in maximizing your tax savings.

Key Takeaways

• In 2025, businesses can deduct up to $1,220,000 in qualifying property purchases under Section 179 with the deduction phasing out after $3,050,000 in total spending.
• Eligible assets include business equipment, vehicles over 6,000 lbs., software, and interior improvements to nonresidential buildings.
• With bonus depreciation dropping to 40% in 2025, strategic use of Section 179 becomes even more valuable for real estate investors and business owners.

Table of Content

• Key Takeaways
• What Is the Section 179 Deduction?
• What Qualifies for Section 179 Deduction?
• What Doesn’t Qualify?
• Section 179 vs. Bonus Depreciation in 2025
• Why Cost Segregation Matters?
• Conclusion

What Is the Section 179 Deduction?

Section 179 allows businesses to deduct the full purchase price of qualifying equipment and property used in the course of business—rather than depreciating it over several years.

Section 179 Limits for 2025:

• Maximum deduction: $1,220,000
• Phase-out threshold: Begins at $3,050,000 in total equipment purchases

Once total qualifying purchases exceed the threshold, the deduction is reduced dollar for dollar and phased out completely at $4,270,000.

What Qualifies for Section 179 Deduction?

1. Tangible Business Equipment

These include assets used more than 50% for business purposes:

• Office furniture and desks
• Computers, laptops, monitors
• Printers, phones, networking hardware
• Machinery and manufacturing equipment

2. Business Vehicles Over 6,000 Pounds

Heavy SUVs, trucks, and vans used predominantly for business (more than 50%) can qualify for up to 100% deduction. These must meet IRS weight classifications and usage guidelines.

3. Qualified Improvement Property (QIP)

QIP refers to interior improvements to nonresidential commercial property, such as:

• Drywall
• Ceilings
• Interior doors
• HVAC, electrical, and plumbing (non-structural)

Note: Improvements must be placed in service after the building was originally placed in service to qualify.

4. Off-the-Shelf Software

Software that is:

• Not custom-developed
• Available to the general public
• Used in your business and placed in service during 2025

5. Cost Segregation-Eligible Components

When a cost segregation study is performed on a commercial or rental property, it reclassifies building components into shorter asset classes (5, 7, or 15 years). Many of these components qualify for Section 179, such as:

• Carpeting
• Specialty lighting
• Cabinetry
• Certain plumbing and electrical
• Land improvements (e.g., paving, landscaping)

What Doesn’t Qualify?

• Land
• Building structures (the walls, roof, foundation)
• Property used less than 50% for business
• Inherited or gifted property
• Property acquired from a related party

Section 179 vs. Bonus Depreciation in 2025

As of 2025, bonus depreciation drops to 40%. That makes Section 179 more important than ever for front-loading tax deductions.

Use Both Strategically:

• Deduct up to $1.22M with Section 179 first
• Apply 40% bonus depreciation to remaining eligible assets
• Accelerate depreciation with cost segregation to identify short-life assets

Why Cost Segregation Matters?

A cost segregation study breaks a building down into components eligible for shorter depreciation timelines—many of which can qualify for Section 179 or bonus depreciation.

If you’ve recently:

• Purchased a property
• Renovated a commercial space
• Built out tenant improvements...

A cost segregation study could uncover significant hidden deductions for 2025.

Conclusion

Section 179 isn’t just a line item in the tax code—it’s a strategic advantage for business owners and real estate investors who want to keep more of their hard-earned money.

By understanding what qualifies—and leveraging tools like cost segregation—you can unlock massive first-year deductions, boost cash flow, and reinvest back into your business or portfolio faster.