IRS Section 179 cap and phase-out thresholds: which statement is true?

• A. It has no cap and never phases out.
• B. It has a $500,000 deduction cap and begins to phase out at $2,000,000 of asset purchases.
• C. It only applies to new equipment.
• D. It applies to all assets regardless of type.

Answer: (B)

Section 179 lets you expense the cost of qualifying tangible property up to a fixed dollar cap each year, with the deduction reduced dollar-for-dollar as total eligible purchases exceed a set threshold. In this scenario, the cap is $500,000 and the deduction begins to phase out when total asset purchases reach $2,000,000. Once you pass that $2,000,000 level, the deduction is reduced until it ultimately phases out completely as purchases rise further. This shows why the statement is true: there is both a cap and a phase-out threshold.

The other ideas don’t fit because Section 179 does impose a cap and a phase-out, it can cover used property as well as new (not limited to only new equipment), and it doesn’t apply to all asset types indiscriminately—real property and some other asset categories are excluded or treated differently.