What Exactly Is Section 179?
When your financial advisors suggest that you should look at “Section 179,” they are referring to a specialized tax deduction that is spelled out in section 179 of the United States Internal Revenue Code. It allows a business—such as a metal fabrication shop—to take a deduction right away in that year’s taxes for business expenses for “depreciable assets,” specifically those things that a business owns for a limited period that are used to make money. If a fab shop buys a press brake or other piece of metalworking equipment this year and puts it into service, then they can lower this year’s tax liability instead of capitalizing that asset and spreading its depreciation over several future tax years. Purchases of vehicles and other equipment—such as office furniture and computers—and even some software can also be deducted through this tax provision.
[Please note that Section 179 information listed on Revolution Machine Tool’s website is given only as an example and is subject to change by the Internal Revenue Service. Please consult a qualified tax professional to confirm current Section 179 limits and how they pertain to your specific tax situation.]
How Does Section 179 Work for the 2024 Tax Year?
The 2024 limits for the Section 179 tax cut are:
- $1,220,000 maximum expense deduction
- $3,050,000 phase-out threshold
Your business can combine several expenses to reach the $1,220,000 total, but there is a limit on how much you can spend on eligible assets and still receive a deduction. The maximum expense deductible amount starts to decrease if more than $3,050,000 worth of equipment is purchased and put into service during 2024.
The phase-out limit was instituted so that the Section 179 deduction was reserved for small and medium-sized businesses. If you purchase $1,220,000 in qualifying equipment this year, then you can write off that amount. You can purchase additional equipment until you reach the $3,050,000 phase-out limit, but if you exceed that amount then your deductions start to decrease dollar-for-dollar after that.
So, if you go $20,000 over that limit, buying $3,070,000 worth of equipment this year, then you lose $20,000 in deductions. The total amount you could then write off on this year’s taxes would be $1,200,000. If you spend $1,220,000 over that phase-out threshold—a total of $4,270,000—then you’ve completely wiped out your Section 179 deduction.
Be aware that if an asset qualifies for a Section 179 deduction, it must be purchased and placed in service during this tax year. So, if a press brake is purchased in 2024, it must also be delivered, installed, and have begun production no later than 11:59 PM on December 31 of 2024 to qualify for the taxes you will file in 2025.
Is there a Bonus Depreciation for 2024?
There is a special depreciation allowance of 60% for certain qualifying property in 2024.
Unlike normal depreciation—which a business must write off over the “useful life” of an asset—this special depreciation allows a company to deduct a significant percentage of the asset’s purchase price in its first year of being placed in service. The IRS rules allow you to take the deductions offered by both Section 179 and the special depreciation in the same tax year, but Section 179 must be applied first to your purchases up to the deduction limit, then the special depreciation can be applied to any purchases beyond it.
This special depreciation was set at 100% when it was enacted in 2017 and stayed at the full amount through 2022. It drops by 20% each year, so metal fabrication shops and other businesses should consider making purchases sooner rather than later to take advantage of it. It will drop to 40% in 2025, 20% in 2026, and be completely phased out after that.
How Section 179 Benefits Metal Fabricators
Metal fabricators operate in a highly competitive, capital-intensive industry. Their success often hinges on the ability to invest in modern machinery and equipment that can enhance productivity, reduce downtime, and improve overall profitability. The Section 179 tax deduction is a powerful tool that has been helping fabricators and those in other industries to make these investments more affordably.
For metal fabricators, this deduction can have substantial financial and operational advantages. Some of the benefits provided by the Section 179 tax deduction to metal fabricators include:
- Cash Flow. One of the biggest challenges faced by metal fabricators is managing cash flow. The nature of the industry involves large, upfront capital investments in equipment, which can put significant strain on a business’s finances. Metal fabricators often need high-tech machinery like fiber lasers and press brakes to remain competitive, but these pieces of equipment can be extremely expensive. The Section 179 tax deduction offers immediate relief by allowing businesses to deduct the full purchase price of qualifying equipment in the year it is placed into service. For example, if a metal fabricator purchases a $500,000 CNC metalworking machine, the business can deduct that entire amount from its taxable income, instead of depreciating the cost over several years. This translates into significant tax savings in the first year, thereby freeing up cash that can be reinvested into the business or used to improve liquidity. This immediate tax relief can also help businesses avoid the need to borrow, thus reducing debt and interest expenses.
- Growth. By lowering the overall tax burden, Section 179 allows metal fabricators to reinvest in their business, whether through additional equipment purchases, workforce expansion, or marketing efforts. This reinvestment can fuel business growth and position the company for long-term success. In many cases, the ability to take advantage of the Section 179 deduction can be the difference between maintaining the status quo and expanding into new markets. For instance, a metal fabricator that has been focused on serving local clients may be able to purchase new machinery, improve efficiency, and take on larger or more distant projects. With increased capacity and reduced costs, the business can expand its service offerings and geographic reach, leading to greater market share and increased revenue.
- Competitiveness. The deduction is particularly beneficial for small and mid-sized fabricators, which may not have the same access to capital as larger competitors. Section 179 helps level the playing field by making it easier for these smaller businesses to invest in the same cutting-edge equipment as their larger counterparts. This can lead to greater competitiveness in the marketplace, allowing smaller fabricators to bid on larger projects, improve the quality of their products, and offer more competitive pricing.
- Investment in New Technology. The Section 179 tax deduction makes it easier for metal fabricators to justify the cost of new technology. By allowing businesses to write off the full purchase price of equipment up to a certain limit ($1.22 million for 2024), Section 179 reduces the net cost of the investment. This effectively lowers the barrier to entry for adopting advanced technology and makes it more feasible for fabricators to invest in equipment that can streamline operations, increase precision, and boost output. For example, modern CNC machines equipped with state-of-the-art software can significantly reduce material waste, improve accuracy, and enable faster production times. However, such machines often come with hefty price tags. Section 179 enables fabricators to upgrade to this type of equipment without bearing the full financial burden upfront. By reducing the tax liability in the year the equipment is purchased, the deduction accelerates the return on investment (ROI) and allows metal fabricators to start benefiting from the productivity gains of new machinery sooner.
- Flexibility. One of the most appealing aspects of Section 179 is its flexibility. The deduction applies not only to new equipment but also to used equipment, if it meets certain criteria. This is especially beneficial for metal fabricators who may not always need brand-new equipment but can benefit from purchasing pre-owned machinery in good condition. This flexibility allows fabricators to find the best deal that suits their needs and still take full advantage of the tax savings. Furthermore, Section 179 is not limited to equipment purchases. It also covers certain software, office furniture, and vehicles used for business purposes. This broad applicability ensures that metal fabricators can maximize their tax savings across a range of necessary business investments.
The Section 179 tax deduction offers companies a powerful tool for managing finances as they grow their businesses. For metal fabricators operating in a capital-intensive and highly competitive industry, this tax deduction is not just a benefit; it is a key component of long-term success and sustainability.
