Can startups use Section 179?

Yes. Any U.S. business that purchases qualifying property can use Section 179, including startups. However, the deduction cannot create a loss — it is limited to your business's taxable income for the year. Any unused amount carries forward.

Does Section 179 apply to used equipment?

Yes. Unlike bonus depreciation rules that have changed over time, Section 179 has always applied to both new and used property, as long as it is new to the taxpayer.

Deductions & Section 179

What Is Section 179? Business Equipment Deduction Explained

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Key Takeaways

Section 179 lets businesses immediately expense qualifying property costs instead of depreciating over years
Qualifying property: computers, servers, office equipment, certain software, office furniture
Reported on Form 4562 (Depreciation and Amortization)
Property must be used more than 50% for business to qualify
Provides immediate tax savings by reducing current-year taxable income

Section 179: Immediate Expensing for Business Assets

Section 179 allows U.S. businesses to immediately deduct the full cost of qualifying business property in the year it is placed in service, rather than depreciating it over several years. This is reported on Form 4562 and can provide a significant tax benefit by reducing taxable income in the year of purchase.

This rule is particularly valuable for technology companies and startups that purchase servers, computers, development hardware, licensed software, and office equipment. Game development studios, AI companies, and any business making significant equipment investments can benefit substantially.

What Property Qualifies?

Qualifying property includes tangible personal property used in business such as laptops, desktop computers, physical servers, network hardware, office electronics, and office furniture. Certain software — specifically off-the-shelf or locally installed software — also qualifies. The property must be purchased for business use and placed in service during the tax year.

Property must be used more than 50% for business purposes to qualify. If business use drops below 50% in subsequent years, a portion of the deduction may need to be recaptured.

Why This Matters for Your Cash Flow

Without Section 179, a business purchasing $100,000 in equipment would typically depreciate the cost over 5-7 years. With Section 179, the full $100,000 can be deducted in year one, immediately reducing taxable income. For a business in the 21% corporate tax bracket, this could mean $21,000 in tax savings in the first year instead of spreading that benefit over several years.

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