Section 179 Tax Deduction
THE BASICS OF SECTION 179 VEHICLE DEDUCTION
If you own a small- or medium-sized company that uses vehicles for business, you will want to be familiar with the Section 179 tax deduction. Section 179 of the Internal Revenue Tax Code enables business owners to write off up to the total purchase amount of particular trucks, vans, or SUVs instead of depreciating it a little over several years. The two primary requirements are that it must weigh over 6,000 pounds and be used more than 50% of the time for business purposes. Section 179 also applies to other capital expenses, such as equipment and software placed in service during the year. The section 179 deduction can be as high as $1.16 million for 2023 (the figure adjusts for inflation). Two general limits on the allowance’s use include:
- The allowance cannot exceed a business owner’s income from all trades or businesses.
- The allowance phases out if the total amount of qualified assets placed in service in a year exceeds $2.89 million for 2023. This figure also indexes for inflation.
Consequently, a business may not claim an IRC Section 179 expense allowance in 2023 if assets placed in service during the year reach or exceed $4.05 million ($1.16 million + $2.89 million). These limits are to keep the deductions focused on benefitting small businesses.
QUALIFYING CHEVROLET MODELS
While deducting the total purchase price is limited to models of 6,000 pounds or more, smaller upfront deductions can also be made for smaller vehicles. The Section 179 qualifications for vehicles to deduct 100% of the purchase price include:
- Apparent non-personal “work” vehicles (dump truck, backhoe, farm tractor, etc.)
- Specialty vehicles with a specific use (hearse, ambulance, etc.)
- Delivery use vehicles (cargo vans, box trucks)
- Heavy SUVs, pickups, and vans over 6,000 lb. GVWR
Consequently, Chevrolet models qualify for Section 179 in the following ways:
UP TO 100% OF PURCHASE PRICE:
- Silverado 1500 / 2500 / 3500 – Standard and Long Bed
- Silverado 3500 HD Chassis Cab
- Express Cargo Van
- Express Passenger Van (10+ passenger seating only)
- Express Cutaway
UP TO $25,000
Plus up to 80% of the remaining purchase price plus standard depreciation:
- Silverado 1500 – Short Bed
- Tahoe
- Suburban
- Traverse
- Colorado
- Express Passenger Van (below 10 passenger seating)
UP TO $20,200
Plus up to 80% of the remaining purchase price plus standard depreciation:
- The rest of the Chevrolet lineup (deducting a Camaro or Corvette may raise a flag, however)
VEHICLE USAGE QUALIFICATIONS
Deducting a vehicle under Section 179 must be registered in the business name for which you will take the deduction. As stated, the primary qualification is that over 50% of the vehicle’s mileage must be for business use. It is important to understand that business use does not include commuting. The IRS is fairly strict about this. A business logo or even total advertising on the exterior does not qualify the commute as advertising. In addition, a driver conducting business calls or a passenger conducting business during the commute is also not considered vehicle business use.
This means that you will need to keep mileage records of your business vehicles to substantiate that more than 50% of their use is for business. Relevant records include the original invoice, mileage logs, and any related expenses that can verify the claim. There are smartphone apps that are designed to track this very thing. Like other business records, documents that confirm your business use claim should be retained for three years after you file your return in case the IRS audits your tax return.
FINANCING OR PURCHASE USED VEHICLES
The good news is that you can finance a qualifying vehicle over several years and still qualify for the applicable purchase deduction. Nor does it matter when you made the purchase. If you buy the car on December 31st, you can make the full applicable deduction, though it is probably not best to wait that long. The purchase of a used qualifying vehicle will also apply, with the stipulation that the vehicle is new to both you and the business.
Understanding the Section 179 deduction is essential for any small business owner looking to maximize their tax savings. Understand that this is only an introduction to the concept, so Barry’s Chevrolet recommends that you consult with your tax professional and stay updated on the latest tax laws to take full advantage of this valuable tax incentive.