As a metal forming and fabrication manufacturing business, staying on top of tax incentives can save you a lot of money – and 2025 brings important updates to one of the most valuable incentives: IRS Section 179. This tax provision lets U.S. businesses deduct the full cost of qualifying equipment and software in the year of purchase, instead of depreciating it over many years. In this post, we'll explain what Section 179 is, what’s new for 2025 (deduction limits and eligible equipment changes), and why manufacturers should take advantage of it. We’ll also go through some example scenarios to show how it works in practice. Finally, you’ll see why acting promptly on Section 179 can boost your cash flow and strengthen your business.
What Is Section 179?
Section 179 of the Internal Revenue Code is a tax deduction aimed at encouraging businesses to invest in equipment and other assets. In simple terms, Section 179 allows companies to immediately expense (deduct) the full purchase price of qualifying equipment, machinery, vehicles, or software placed in service during the tax year. This is a big advantage over normal depreciation, which would only let you deduct a fraction of the cost each year. By using Section 179, you get the entire deduction in the year you buy the asset, reducing your taxable income dollar-for-dollar.
Key benefits of Section 179 for businesses include:
- Immediate Tax Savings: You don’t have to wait years to recover the cost – your 2025 tax bill is lower right away. This improves cash flow because you keep more money in the business now rather than later.
- Lower After-Tax Equipment Costs: A Section 179 deduction effectively reduces the net cost of equipment. For example, if you’re in a 21% tax bracket, a $100,000 machine could save you $21,000 in taxes, meaning the machine’s cost after tax savings is only $79,000. (In a higher tax bracket, the savings are even greater.)
- Encourages Investment and Growth: The ability to write off equipment immediately incentivizes companies to invest in new machinery, technology, and upgrades. This is especially important in manufacturing – it helps you afford the latest equipment to increase productivity and stay competitive.
In short, Section 179 is a government incentive meant to spur business investment. It was created to encourage business owners to invest in their companies by providing accelerated depreciation benefits, essentially a tax boost for buying capital equipment. Next, we'll look at how Section 179 works and what the rules are, especially the changes for 2025.
Eligible Equipment and Purchases (What Qualifies in 2025)
Not all purchases qualify for Section 179, but the list is quite broad, Manufacturing companies will be happy to know most of their typical equipment investments are eligible. For 2025, qualifying property includes a wide range of tangible business items and certain software. Here are the main categories of Section 179 eligible assets:
- Manufacturing Machinery and Equipment: Machines, tools, and equipment used in your plant or shop all qualify. Whether it’s a new CNC machine, an assembly line conveyor, robotics, forklifts, or other heavy equipment, you can deduct the cost under Section 179 (subject to the annual limit). Importantly, both new and used equipment qualifies – the equipment just has to be “new to you” (your business). You cannot deduct equipment you already owned or used in the past, but a used machine purchased from another company is eligible.
- Business Vehicles: Section 179 can be used for vehicles used in your business, including trucks, vans, and heavy SUVs. There are special limits for “passenger” vehicles due to luxury auto rules – for example, SUVs and pickups with gross weight over 6,000 lbs can take a maximum first-year Section 179 deduction of $31,300 in 2025 (with the remaining cost depreciated normally). Heavy vehicles above 6,000 lbs (like delivery trucks, freight trucks, etc.) generally can be fully expensed without that cap. If your manufacturing company purchases a new delivery truck or cargo van, it likely qualifies for Section 179 (just check the weight and usage).
- Off-the-Shelf Software: Software that is “off-the-shelf” (not custom-developed specifically for you) qualifies for Section 179 expensing. This is great news for manufacturers investing in new software systems – for example, buying or licensing a Manufacturing Execution System (MES), Enterprise Resource Planning (ERP) software, CAD/CAM design software, or other productivity software. As long as the software is available for general purchase and is used more than 50% for business, you can deduct its full cost.
- Certain Building Improvements (Qualified Real Property): Section 179 also covers certain improvements to non-residential buildings. Specifically, improvements like HVAC systems, roofs, fire protection and alarm systems, and security systems for a building can be deducted under Section 179 (provided these improvements are placed in service after the building was first placed in service). So if you upgrade your factory’s ventilation or install a new security system in 2025, those costs may be immediately deductible. Note that the building itself or structural expansions generally do not qualify – only these specific categories of improvements do.
To use Section 179, the asset must be used for business more than 50% of the time, and it must be placed in service during the 2025 tax year (i.e. installed and ready for use by December 31, 2025). Additionally, Section 179 can’t be used to create a tax loss – the deduction is limited to your taxable business income for the year (any excess can be carried forward to next year). Most normal equipment purchases that a manufacturing company makes will meet these criteria.
2025 Updates: New Deduction Limits and Phase-Out Thresholds
Each year, the IRS adjusts Section 179 limits for inflation (and occasionally Congress makes other changes). For tax year 2025, the Section 179 deduction got a boost, which means businesses can write off even more investment in equipment than last year. Here are the specific Section 179 limits for 2025 and how they changed:
- Maximum Deduction Limit (2025): $1,250,000. This is the cap on the total amount you can deduct using Section 179 for the 2025 tax year. In other words, a business can expense up to $1.25 million worth of qualifying equipment purchases. This limit increased from $1,220,000 in 2024, thanks to an inflation adjustment. For most small and mid-sized manufacturers, $1.25 million is plenty to cover all their equipment investments for the year. If you spend up to this amount, you could potentially deduct 100% of those purchases on your 2025 return.
- Spending Cap (Phase-Out Threshold): $3,130,000. This is the point at which the Section 179 deduction begins to phase out in 2025. If your total purchases of Section 179-eligible property exceed $3.13 million, the deduction limit of $1.25M is reduced dollar-for-dollar by the amount over $3.13M. Essentially, Section 179 is aimed at small and mid-size businesses – once you start spending above this threshold, the benefit decreases. Complete phase-out occurs at $4.38 million in purchases. For example, if a company buys $3,230,000 of equipment (which is $100,000 over the threshold), their max Section 179 deduction would be cut by $100,000 (so they could deduct $1.15 million instead of $1.25 million). Companies spending $4.38 million or more on equipment in 2025 won’t get any immediate Section 179 write-off – at that scale, you’d fall back on regular depreciation or other methods. (Most mid-size manufacturers won’t hit that level of capital spending in one year, but it’s good to know the limits.)
- Bonus Depreciation in 2025: In addition to Section 179, 2025 also has bonus depreciation available, but note that bonus depreciation is being phased out. In 2025, bonus depreciation allows you to deduct 40% of the cost of qualifying new or used assets (with a useful life of 20 years or less). This is a drop from 2024’s 60% bonus rate, as the law is gradually reducing bonus depreciation each year(it was 100% in 2018-2022, then 80% in 2023, 60% in 2024, and will go to 20% in 2026, then 0% by 2027). However, in 2025, you can still combine Section 179 and bonus depreciation. You generally apply Section 179 first, then bonus depreciation on any remaining equipment cost above the Section 179 limit. Even though bonus can only cover 40% in 2025, Section 179 can cover the first $1.25M at 100%. So together, if you buy more than $1.25M of equipment, you still get a very large first-year deduction. For instance, if a manufacturer purchases $1.5 million in machinery in 2025, they could expense $1.25M under Section 179, and then take 40% bonus on the remaining $250k – that’s an extra $100k deduction – meaning total first-year deductions of $1.35 million out of $1.5M invested. In effect, almost 90% of the investment could be written off immediately in that scenario.
- No Change to Qualifying Categories: Aside from the updated dollar limits, the types of property that qualify for Section 179 in 2025 remain similar to previous years. As noted earlier, equipment and machinery(new or used), business vehicles, off-the-shelf software, and certain building improvements are eligible. These provisions, expanded by the 2017 Tax Cuts and Jobs Act, remain in effect for 2025. In other words, used equipment still qualifies, and the higher limits established in recent years continue (with inflation adjustments). This consistency means you can plan your 2025 purchases with confidence that they will qualify for the immediate deduction, just as in recent years.
In summary, 2025’s Section 179 deduction limit is the highest ever at $1.25 million, and the phase-out threshold is correspondingly high at $3.13 million. These increases keep Section 179 a powerful tool for manufacturers to deduct equipment costs. However, keep in mind the gradually shrinking bonus depreciation – by 2025 it won’t cover the full cost, making Section 179 even more crucial for getting the maximum write-off in the first year.
Why Manufacturing Companies Should Take Advantage of Section 179
Manufacturing is a capital-intensive industry where success often depends on having the right machinery, technology, and facilities. Section 179 is tailored to help businesses like manufacturing firms, which regularly need to buy or upgrade expensive equipment, in a variety of ways:
- Accelerate Write-Offs for Big Ticket Equipment: Manufacturing equipment (mills, CNC machines, injection molders, 3D printers, robotics, etc.) can easily cost tens or hundreds of thousands of dollars each. Under normal tax rules, you might depreciate those costs over 5, 7, or even 10+ years, taking a little deduction each year. Section 179 lets you write off the entire cost in one year, which is a huge advantage. By deducting the full price of a new machine in 2025, you significantly reduce your taxable income for the year, potentially saving a large sum in taxes. This tax savings effectively makes the equipment cheaper, as if the government pays part of the cost via the tax break. For a profitable manufacturer, this can justify purchasing equipment now rather than later.
- Improved Cash Flow and Financial Flexibility: When you lower your 2025 taxes using Section 179, you keep more cash in the business. That cash can be used for other needs, whether it’s buying raw materials, hiring employees, or investing in another project. In an industry where managing operating cash is vital, the cash-flow boost from an immediate deduction is extremely valuable because it helps you recover your investment faster. For example, if a manufacturing company spends $500,000 on new equipment and gets to deduct the full amount, the tax savings (say around $100–$175k depending on tax rate) stays in their bank account rather than going to the IRS, providing liquidity to cover other expenses.
- Stay Competitive with Up-to-Date Technology: Section 179 provides a strong incentive to invest in modernizing your operations. Manufacturing technology is advancing quickly (automation, Industry 4.0, etc.), and companies that invest in new equipment and software can improve efficiency, product quality, and output. The tax deduction essentially rewards you for reinvesting in your business. If your competitors are upgrading their production lines, you don’t want taxes to be a reason you hold back. Section 179 helps level the playing field by offsetting some of the cost of new equipment. It’s an opportunity to upgrade machinery, incorporate robotics, or implement new software systems while enjoying a tax benefit.
- Broader Range of Qualifying Investments (Including Software and Improvements): Manufacturing companies can use Section 179 for more than just machines. If you’ve been delaying a factory equipment upgrade or IT overhaul, 2025 is a great time to pull the trigger. Need a new ERP system or quality control software? It qualifies. Want to install a better HVAC or security system in your plant? That qualifies too. Few industries have as many qualifying expenses as manufacturing does – from heavy equipment to computers to certain facility upgrades.
- Offsets the Reduction in Bonus Depreciation: As mentioned, bonus depreciation is only 40% in 2025, down from prior years. For the last several years, many manufacturers relied on bonus depreciation (which was 100% for a while) to write off equipment. Now that bonus is shrinking, Section 179 is the primary way to still get a full immediate write-off on new investments. Using Section 179 can make up for the fact that you can’t otherwise deduct the full cost under bonus depreciation alone. Essentially, it’s the best tool to maximize first-year depreciation in 2025.
- “Use-It-or-Lose-It” Annual Benefit: Section 179 is an annual election – if you don’t use it in a given tax year, you can’t retroactively claim it later (aside from carrying forward disallowed amounts due to income limitation). This means there’s a strong reason to plan your purchases within the 2025 calendar year to take advantage of that year’s limit. If you wait until 2026 or later, the rules or limits could change (for example, tax laws could be updated by Congress after 2025). In fact, many provisions of the 2017 tax law are set to change after 2025, and while Section 179’s higher limits are currently slated to continue with inflation adjustments, it’s always possible the incentive could be reduced in the future. Manufacturers should strike while the iron is hot – 2025 offers generous limits and a still-available bonus depreciation. By acting now, you lock in the tax benefit under the current rules.
In essence, Section 179 is a valuable tax tool for manufacturers to improve their bottom line. It rewards the very behavior that helps your business grow: buying new equipment, modernizing facilities, and expanding productive capacity.
Example Scenarios for 2025 Section 179 in Manufacturing
To make the 2025 Section 179 updates more concrete, here are some example scenarios demonstrating how a manufacturing company might use the deduction.
Purchasing New Manufacturing Machinery
ABC Fabrication, Inc. buys a new CNC machining center for $600,000 in mid-2025 to increase its production capability. Because it’s brand-new equipment (and used 100% for the business), it qualifies for Section 179. ABC can deduct the full $600,000 purchase cost on its 2025 tax return. If ABC is in a 21% corporate tax bracket, this deduction could save about $126,000 in federal taxes (meaning $600k of income is sheltered from tax).
In a higher tax scenario (say a small business owner on a 35% combined tax rate), the savings would be $210,000. Either way, ABC effectively lowers the net cost of the machine by the tax saved. Instead of depreciating that machine over, say, 7 years, the company gets the benefit all at once, freeing up cash. This enables ABC to invest in other areas (they might use the tax savings to buy additional tooling or hire a new engineer). Plus, the new CNC machine helps boost their productivity and revenue, showing how Section 179 supports growth.
Upgrading Software and Technology
XYZ Precision Manufacturing decides to upgrade its manufacturing software systems in 2025. They purchase an off-the-shelf ERP and production scheduling software package for $150,000 and also buy $50,000 worth of new computers and network equipment to support the system. These investments total $200,000.
Under Section 179, XYZ can write off the entire $200,000 spent on software and hardware immediately, as all of it qualifies (off-the-shelf software and computer equipment are eligible and the total is well under the limit). The immediate deduction saves XYZ, for example, around $42,000 in taxes (assuming ~21% tax rate) or more if their tax rate is higher. This tax break substantially reduces the effective cost of modernizing their IT infrastructure.
By upgrading their software, XYZ can operate more efficiently (better inventory management, scheduling, accounting, etc.), and Section 179 helps make the upgrade more affordable. Without Section 179, they would have had to capitalize and amortize the software cost over several years, getting only a small deduction each year – but now they get the full benefit in 2025.
Expanding Operations with New Equipment (Large Investment)
Acme Industrial Co. is expanding its factory and needs a range of new machines and equipment. In 2025, Acme purchases multiple pieces of equipment totaling $1.5 million (for example, several assembly robots, conveyors, and quality control machines for a new production line). This scenario exceeds the Section 179 deduction limit, but Acme can still maximize deductions by combining incentives.
First, Acme elects Section 179 on $1,250,000 of those purchases (hitting the 2025 maximum deduction). That leaves $250,000 in equipment cost that wasn’t immediately expensed under Section 179. For that remainder, Acme can use 40% bonus depreciation – giving an additional $100,000 deduction (40% of $250k). The rest ($150,000) will be depreciated normally over its useful life. In total, Acme gets $1.35 million deducted in 2025 out of $1.5 million invested. The tax savings from a $1.35M write-off are substantial (potentially in the hundreds of thousands of dollars).
By utilizing Section 179 (and bonus), Acme significantly reduces the first-year cost of expansion. This makes the expansion more cash-flow friendly and easier to justify financially. If Acme had spent even more – say $3.3 million – they could still use Section 179 and bonus, but once over the $3.13M phase-out threshold, the Section 179 deduction is reduced as explained earlier. (For instance, at $3.3M in spend, Section 179 would be reduced to $1.08M available.) The key point is that even for big expansion projects, Section 179 allows a major portion of the investment to be deducted immediately, which is a huge tax benefit for expanding manufacturers.
Plan Now and Act Before the 2025 Deadline
The window for claiming Section 179 deductions for 2025 runs until December 31, 2025 – that’s the deadline by which you must purchase and put the equipment into service to take the deduction for the 2025 tax year. Manufacturing companies should start planning now to take full advantage.
- Review Your Capital Needs: Look at your operations and identify equipment or software that needs upgrading or replacement. What purchases would boost efficiency or capacity? Prioritize those investments knowing that Section 179 can significantly soften the cost.
- Consult Your Finance Team or Advisor: Work with your CFO or accountant to project your 2025 taxable income and see how much Section 179 deduction you can utilize (remember, it can’t exceed your business income for the year, though excess can carry forward). This will tell you how large an investment makes sense to fully utilize the deduction. If you’re having a strong profit year, it might be a great time to invest in more equipment to offset the income.
- Time Your Purchases: Aim to get equipment in place by late 2025. The gear must be installed and operational by year-end to count. If you order machinery, factor in delivery and setup time so that it’s in use before January 1. Many companies rush in Q4 to buy equipment. you have all year, it’s wise not to wait until the last minute in case of supply or installation delays.
- Combine Section 179 and Bonus Strategically: If you plan a very large purchase, remember the combination effect. Use Section 179 up to the limit on the assets that make the most sense (or on those that might not qualify for bonus – though most equipment will). Then apply bonus depreciation to remaining costs. This way, you maximize your first-year write-off. Your tax advisor can help allocate the deductions in the most advantageous way.
- Stay Informed on Tax Law Changes: Section 179 has been a stable benefit for the last few years (and is adjusted for inflation annually), but tax laws can change. With many tax provisions set to change after 2025, it’s possible that limits or rules could shift for 2026 and beyond. While we can’t predict Congress, the safe move is to utilize the generous 2025 rules as they stand. There’s no guarantee future years will be as favorable. In fact, we already know bonus depreciation will drop further. Section 179 is here now, and it’s one of the best tax breaks available for businesses.
In conclusion, Section 179 in 2025 offers U.S. manufacturing companies a prime opportunity to upgrade their equipment, technology, and operations while enjoying significant tax savings. The deduction limit has never been higher, and it covers a wide array of assets that manufacturers need – from machine tools and robots to software and trucks. By taking advantage of Section 179, you effectively get an interest-free loan from the government in the form of tax relief, which can be a game-changer for managing costs and fueling growth.
Don’t wait until it’s too late. Evaluate your needs and consider making those investments in 2025. This tax benefit is a use-it-or-lose-it proposition each year – once the calendar turns, any unused Section 179 potential for 2025 is gone. By acting promptly, you can put your company in a stronger position: more productive assets on your factory floor and less money sent to the IRS. That’s a win-win for your business. Make sure to coordinate with your tax advisor to maximize the benefit, and happy investing in your manufacturing future!
Note: Always consult with a tax professional to understand how Section 179 applies to your specific situation.
Sources:
- Internal Revenue Code Section 179 – 2025 Deduction Limit and Rules (Inflation Adjusted via Rev. Proc. 2024-40)rsmus.comrsmus.com
- U.S. Bank – “Maximize your deductions: Section 179 and bonus depreciation” (2025 overview of Section 179 and bonus depreciation)usbank.comusbank.com
- FCS Financial/AgDirect – “2025 Section 179 Update” (Summary of 2025 limits and phase-out, bonus depreciation changes)myfcsfinancial.commyfcsfinancial.com
- Balboa Capital – “Section 179 Deduction limit for 2025” (Explanation of 2025 limit $1,250,000 and phase-out threshold $3,130,000)balboacapital.com
- Section179.org – “2025 Section 179 Deduction: Quick Reference” (Qualifying property types, vehicle limitations, and bonus depreciation rate)section179.orgsection179.org