Section 179, bonus depreciation and tax on used CNC machines

Used machines can qualify

Two federal provisions let a business deduct much of the cost of equipment in the year it starts using it, instead of spreading the deduction over many years. Both can apply to used equipment:

• Section 179 expensing. A business can elect to deduct the cost of qualifying equipment in the year it is placed in service. Used equipment generally qualifies if you acquire it by purchase for business use and it is new to you.
• Bonus depreciation. A first-year deduction for qualifying property. Used property can qualify if you (and any predecessor) did not previously use it and you acquire it by purchase from an unrelated party. The IRS notes that 100% bonus depreciation was reinstated for qualified property acquired and placed in service after January 19, 2025 (IRS Publication 946).

The numbers (and where to check them)

For 2025, IRS Publication 946 gives a Section 179 deduction limit of $2,500,000, which begins to phase out when total equipment placed in service passes $4,000,000. These dollar limits are adjusted for inflation each year, so check the current year's figures with your adviser. Section 179 is also limited by your business's taxable income, whereas bonus depreciation is not.

"Placed in service" matters more than the purchase date

Buying a machine in December does not by itself qualify it for that year. The machine generally has to be installed and ready and available for use by year-end. A large machine that needs rigging, electrical work and a foundation can take weeks to be ready, so plan the move early. See our rigging and shipping guide for what the process involves.

Sales tax and Minnesota

Minnesota generally taxes sales of machinery unless an exemption applies and the buyer provides an exemption certificate (Form ST3). Machinery used primarily in manufacturing may qualify for the state's capital equipment exemption. State income tax treatment of depreciation can also differ from federal rules. Confirm both with your adviser or the Minnesota Department of Revenue.

Financing

Banks and equipment lenders finance used machinery, and some lease it. If you plan to finance, ask your lender early what documentation it needs for used equipment, such as the invoice, the serial number and a description of the machine's condition. A lender can also tell you how a loan or lease interacts with the deduction.

Questions to ask your CPA

1. Does this machine qualify as used property for Section 179 and bonus depreciation, given who I'm buying from?
2. What is the current-year Section 179 limit, and does my taxable income limit it?
3. Will installation finish by year-end so the machine is placed in service in time?
4. How do Minnesota rules treat the deduction and the sales tax on this purchase?
5. Does buying versus leasing change the answer?