Section 179 can turn a building renovation into ordinary income recapture taxed at up to 37%. Bonus depreciation keeps most of it under the 25% cap.
So why would anyone still choose Section 179?
Because recapture only matters if you sell at a gain. Until then, Section 179 has four real advantages:
- You pick the number.Section 179 is elected asset by asset, for any dollar amount. Bonus applies to an entire class of property unless you opt out of the whole class. If a client needs exactly $70,000 of deductions to stay in the 22% bracket, 179 does that. Bonus can’t.
- It can’t create a loss.Section 179 is capped at business taxable income. Bonus isn’t, which can push a client into a Net Operating Loss (NOL) that only offsets 80% of future income, or burn deductions against income that would have been taxed at 10%.
- State conformity.New York, like many states, decouples from bonus depreciation but generally follows Section 179. Take bonus and you have to add it back on the state return. Take 179 and you get the write-off at both the federal and state levels.
- It covers structural building systems that Bonus misses.Bonus depreciation applies to Qualified Improvement Property (QIP), which is strictly limited to interior improvements. Section 179 goes further: for nonresidential real property, it explicitly covers new roofs, HVAC systems, fire protection, alarm systems, and security systems—allowing an immediate write-off for exterior and structural upgrades that would otherwise be stuck on a 39-year schedule.
Yisroel Meroz, CPA
Founder of Meroz CPA. Big-4 trained, licensed in New York, and focused on tax planning for small businesses and real estate operators. About the firm →