Section 179 Financing Options
Section 179 allows businesses to deduct the full purchase price of qualifying equipment in the year it’s placed into service — even if the equipment is financed.
This means you can finance or lease equipment, take the full deduction now, and pay for it over time using the cash flow the equipment generates.
Section 179 was designed with financing in mind, making this one of the most powerful tools for small and mid-size businesses.
Why Financing Works With Section 179
Most businesses don’t realize they can deduct 100% of an equipment purchase even if they haven’t fully paid for it yet.
This creates three major financial advantages:
Keep your cash
Financing preserves liquidity for payroll, operating expenses, and growth.
Full tax deduction upfront
You receive the entire Section 179 deduction in the first year, reducing your tax bill immediately.
Equipment pays for itself
The tax savings often exceed the first year’s payments — meaning the deduction can “pay for” a large portion of the equipment.
Equipment Financing Options That Qualify for Section 179
Below are the most common financing structures businesses use to take the deduction.
Equipment Loans (Traditional Term Loans)
How it works:
- Borrow money → buy equipment → place into service → deduct full cost under Section 179.
- You repay the loan over time.
Benefits:
- Ownership from day one
- Fixed payments
- Qualifies for full Section 179 deduction
Best for:
- Businesses buying equipment they will use long-term.
$1 Buyout Leases
One of the most popular ways to qualify for Section 179.
How it works:
- Lease the equipment
- At the end of the lease, buy it for $1
- Treated as a purchase for tax purposes
- Qualifies for Section 179
Benefits:
- Lowest cash upfront
- Full first-year deduction
- Ownership with minimal end-of-term cost
Best for:
- Businesses wanting equipment ownership with flexible monthly payments.
Equipment Finance Agreements (EFAs)
A hybrid between a loan and a lease.
How it works:
- You own the equipment
- The lender files a lien
- You make fixed monthly payments
Benefits:
- Qualifies for Section 179
- Simple documentation
- Fast approvals
- No blanket liens from banks
Best for:
- Small and mid-size businesses wanting fast approvals and straightforward contracts.
Capital Leases
Similar to $1 buyout leases.
How it works:
- Lease structure, but designed to transfer ownership
- Considered a “purchase” for tax purposes
Benefits:
- Low upfront cost
- Qualifies for Section 179
- Predictable payments
- No blanket liens from banks
Operating Leases (FMV Leases) – May Not Qualify
These are true rentals and typically do not qualify for Section 179 unless structured intentionally.
Benefits:
- Lower payments
- Option to return equipment
Best for:
- Businesses needing short-term access or frequent equipment upgrades.
Note: These generally fall under rental expenses, not eligible purchases.
Side-by-Side Comparison of Financing Options
| Financing Type | Section 179 Eligible | Ownership | Upfront Cost | Best For |
|---|---|---|---|---|
|
Equipment Loan |
✔ Yes |
Immediate |
Medium |
Long-term assets |
|
$1 Buyout Lease |
✔ Yes |
End-of-term |
Low |
Maximizing deduction with low cash outlay |
|
Equipment Finance Agreement (EFA) |
✔ Yes |
Immediate |
Low/Medium |
Fast approvals & simple paperwork |
|
Capital Lease |
✔ Yes |
End-of-term |
Low |
Businesses wanting ownership |
|
Operating Lease (FMV) |
✘ Usually No |
None |
Very Low |
Short-term or upgrade cycles |
Financing + Section 179 Example
- Equipment Price: $80,000
- Financing Payment: ~$1,600/month
- Section 179 First-Year Deduction: $80,000
- Estimated Tax Savings (30% bracket): $24,000
Meaning: Your first-year tax savings could cover over an entire year of equipment payments.
This is why Section 179 is often called a “profit multiplier”.
How to Choose the Right Financing Option
Choose a Loan or EFA if you want:
- Simple ownership
- Full deduction
- Predictable monthly payments
Choose a $1 Buyout or Capital Lease if you want:
- Lower upfront cost
- Flexibility during the term
- Same tax benefits as ownership
Choose an Operating Lease if you want:
- A true rental
- Lowest monthly payment
- Ability to swap equipment frequently
What Lenders Look For
While every lender is different, most evaluate:
- Time in business
- Business credit
- Bank statements
- Equipment type
- Financials (for larger transactions)
- Collateral value
Compared to traditional banks, many equipment lenders offer:
- Faster approvals
- More flexible underwriting
- Lower documentation requirements
Frequently Asked Questions About Section 179 & Financing
Yes — financing the entire purchase still qualifies.
$1 buyout and capital leases do. Operating leases usually do not.
Yes — as long as it’s operational by December 31.
Yes, as long as the business has taxable income to offset.
Yes — showing future tax savings can improve underwriting outcomes.