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Section 179 Vehicle Deductions
Section 179 Vehicle Deductions: Driving Your Business Towards Substantial Savings
One of the more popular uses of the Section 179 Deduction has been for vehicles. As a potent tool for businesses, Section 179, often referred to as the “Hummer Tax Loophole,” provides substantial tax benefits upon the purchase of business vehicles. Although the particulars have evolved over time, Section 179 continues to yield valuable deductions on business vehicle acquisitions.
Grasping the Concept of the Business Vehicle Deduction
Vehicles used in your business generally qualify for a Section 179 deduction. But the precise deduction amount is contingent on multiple variables, including:
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Type of vehicle
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Vehicle weight
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The build and intent of the vehicle
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Percentage of the time used for business purposes
Significantly, this deduction is applicable to vehicles bought outright, leased, or financed through Section 179 Qualified Financing
The full policy statement is available at: IRS.gov
Determining Eligible Business Vehicles for the Section 179 Deduction
A spectrum of business vehicles can typically utilize the Section 179 deduction. Here, we delve into the specifics of vehicles that qualify for a full deduction, and those that are eligible for a partial deduction.
Business Vehicles for Full Section 179 Deduction
Work-centric vehicles, mainly used for business, generally qualify for a full Section 179 deduction. These include:
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Vehicles like shuttle vans that can seat more than nine passengers behind the driver’s seat
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Classic cargo vans featuring a fully-enclosed driver’s compartment/cargo area, with no seating behind the driver’s seat
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Over-the-road Tractor Trailers
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“Singular use” business vehicles like ambulances or hearses
Business Vehicles for Partial Section 179 Deduction
Trucks and SUVs exceeding 6,000 lbs. GVWR (Gross Vehicle Weight Rating) qualify for a partial deduction if the business use surpasses 50%. However, deduction limits vary, depending on the vehicle type.
For vehicles weighing between 6,000 lbs. and 14,000 lbs. and with a minimum of 50% business use, the following generally qualify:
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Pickup trucks with a full-size (8’) cargo bed
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Heavy SUVs – with a maximum deduction cap of $30,500 for 2024
Essential Considerations for Business Vehicle Tax Deductions under Section 179
The vehicle may be new or used (“new to you” is the requirement), must be obtained in an “arms-length” transaction, and either purchased outright or financed with Section 179 Qualified Financing. Crucially, the vehicle should be titled in the company’s name (not the company owner’s name) and must be used for business purposes at least 50% of the time.
Remember, you can only claim Section 179 in the tax year when the vehicle is “placed in service” – meaning it’s ready and available, even if you’re not using the vehicle.
Always consult with your accountant or tax professional for advice specific to Section 179 and vehicles. While we strive to provide a comprehensive and accurate resource, we cannot offer individual tax consultation.
Diving Deeper into Vehicle Deduction Categories
It’s critical to comprehend that Section 179 does not treat all vehicles equally. Let’s scrutinize the two primary categories:
1. Work-Use-Only Vehicles
These vehicles are unlikely to be used for personal purposes by their very nature and typically qualify for a full Section 179 deduction. Work-use-only vehicles include:
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Transport vehicles like shuttle vans with seating for nine-plus passengers behind the driver’s seat.
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Classic cargo vans with a fully enclosed driver’s compartment/cargo area, no seating behind the driver’s seat, and no body section extending more than 30 inches ahead of the windshield’s leading edge.
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Heavy equipment such as construction machinery, farm tractors, skid steers, forklifts, and more.
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Over-the-road Tractor Trailers.
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Special-purpose business vehicles, like ambulances and hearses, typically qualify for a full deduction if they are not used for personal purposes.
2. Partial Deduction Vehicles (Trucks and SUVs Over 6,000lbs GVWR)
Trucks and SUVs exceeding 6,000 lbs. GVWR (Gross Vehicle Weight Rating) may qualify for a partial deduction if the vehicle is primarily used for business purposes. The exact deduction limit can vary, making it advisable to consult your tax professional regarding specific makes and models.
Key considerations for this category include:
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Pickup trucks with a full-size (8-foot) cargo bed generally qualify for a deduction equivalent to the percentage of their business use. For example, if you purchase a $60,000 truck used 85% for business, your deduction would be 85% of $60,000, or $51,000.
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Heavy SUVs also qualify based on business-use percentages but are subject to a $30,500 maximum deduction cap for 2024. Contrary to common perception, businesses cannot write off the entire cost of an SUV unless it is at or under the $30,500 cap.
Understanding Section 179 Deduction for Business Vehicles
What is the Section 179 Deduction for business vehicles?
Section 179 is a U.S. tax deduction allowing businesses to deduct full purchase cost of qualifying vehicles bought or leased during the tax year, incentivizing businesses to buy needed equipment and vehicles.
Which business vehicles qualify for Section 179 Deduction?
Qualifying vehicles include shuttle vans seating nine or more passengers, enclosed cargo vans, and heavy vehicles (GVWR over 6,000 lbs), like trucks and SUVs, which may qualify for a partial deduction.
What options are available for financing business-use corporate cars and SUVs?
While most lenders do not offer programs to finance business-use corporate cars and SUVs, there are a select few specialized financing programs that meet this unique need. These offerings separate business and personal assets, preserve tax advantages, and streamline accounting processes, thus fulfilling a critical requirement for businesses. Learn more about these exceptional options here
Can used vehicles qualify for Section 179 Deduction?
Yes, both new and “new to you” used vehicles can qualify for the Section 179 Deduction.
Are there limits on Section 179 Deduction for business vehicles?
Yes. For heavy SUVs (over 6,000 lbs GVWR), the deduction cap is $28,900 for 2023. Also, the vehicle should be used for business purposes at least 50% of the time.
When can a business claim Section 179 Deduction?
Section 179 Deduction can be claimed in the tax year when the vehicle is placed in service or ready for use.
Can leased vehicles qualify for Section 179 Deduction?
Yes, non-tax capital leased vehicles used at least 50% of the time for business can qualify for the Section 179 Deduction.
Does Section 179 Deduction apply to specific industries only?
No, Section 179 Deduction applies to all industries, given the vehicles meet the guidelines and are used for business purposes.
How does the deduction apply if a vehicle is used for both business and personal purposes?
For mixed-use vehicles, the deductible portion depends on the percentage of business use. The vehicle must be used for business at least 50% of the time to qualify.
Is Section 179 Deduction applicable only in the purchase year?
Yes, Section 179 Deduction is generally claimed in the year the vehicle is placed in service or ready for use.
How long must a vehicle be kept under Section 179?
There’s no specific duration set by IRS. However, the vehicle must be used for business purposes at least 50% of the time over its “class life” (typically 5 years). If usage falls below 50%, some of the deduction might need to be recaptured.