What Is Section 179? And Why Rental Property Investors Usually Use Bonus Depreciation Instead
Section 179 allows immediate expensing of eligible business property, but has a critical limitation for rental investors: it can't create a rental loss. Bonus depreciation has no income limitation and can generate large losses. For most STR investors, bonus depreciation via cost segregation is the better tool.
Section 179 is often discussed alongside bonus depreciation as a way to accelerate deductions. Both allow immediate expensing of eligible assets. But they work differently — and for rental property investors, the differences usually favor bonus depreciation.
Section 179 vs. Bonus Depreciation: Key Differences
| Feature | Section 179 | Bonus Depreciation |
|---|---|---|
| Annual limit (2025) | $1.16M (phases out above $2.9M) | No limit |
| Can create a loss? | No — limited to active business income | Yes — unlimited loss creation |
| Eligible property | New and used personal property, QIP | New and used property (certain categories) |
| Election required? | Yes — must elect §179 | No — applies automatically unless elected out |
| Carry forward unused amount? | Yes | No — must take it or elect out |
| Works with passive rentals? | No — limited by active income | Yes — but losses may be passive |
The critical row is 'Can create a loss?' Section 179 deductions are limited to taxable income from active trade or business activities. Rental income — even for STR investors using the STR loophole — may not qualify as the type of active income that supports §179. Bonus depreciation has no such limitation: it can generate large losses that offset any income (if you have the STR loophole or REPS in place).
When Section 179 Is Useful for Rental Investors
Section 179 can be useful for rental investors who: (1) have an S-corp or other business entity with significant active income, (2) want to expense specific assets like a vehicle used in rental operations, or (3) have rental income exceeding rental losses such that §179's income limitation isn't binding.
For most STR investors pursuing the aggressive year-one deduction strategy with cost segregation, bonus depreciation is the right tool. It's automatic, unlimited, and can create offsetting losses against W-2 income.
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