You can write off part or all of the purchase price of a new or "new to you" car or truck for your business by taking asection 179 deduction. This special deduction allows you to deduct up to the entire cost of the vehicle in the first year you use it if you are using it primarily for business purposes.
Key Takeaways
- Section 179 of the tax code lets you write off some or all of the purchase price of a vehicle you buy for your business, provided you meet the requirements.
- To take the deduction, you must use the car for business more than 50% of the time, and you can only deduct the percentage you use for work.
- The vehicle must meet certain requirements, such as weighing between 6,000 and 14,000 pounds.
- You can't write off the purchase price and claim the standard mileage deduction in the same year.
- You can't deduct more than your business'snet income for the year.
How Section 179 Deductions Work
A section 179 deduction is a special kind of tax deduction that businesses can take to reduce expenses. You can elect to take this deduction on the cost of certain types of business property, including business vehicles, instead of (or in addition to) recovering the cost by depreciating the property (spreading out the cost over several years).
Note
Most employees can no longer take a section 179 deduction for a business vehicle. This deduction was part of miscellaneous deductions on Schedule A, and these deductions were suspended.
A few categories of employees, including Armed Forces reservists, qualifying performing artists, state or local government officials, or employees with impairment-related work expenses may still be able to take this deduction.
Qualifications for Section 179 Deductions
To qualify for a section 179 deduction for a business vehicle, it must be bought and put into service during the year in which you are applying for the section 179 deduction. Being placed in service means that a business asset is ready and available for specific use in a business or for the production of income.
In addition:
- The vehicle must be eligible property, including machinery, furniture, and fixtures. Land and leased property are not eligible.
- Your company must buy the vehicle for business purposes.
The most important qualification for section 179 deduction purposes is business use. You can only take a section 179 deduction for vehicles used more than 50% of the time for business purposes. The deduction is limited to the amount of use and can't be taken on personal use.
Section 179 Deductions and Depreciation
Section 179 deductions work like depreciation. The purpose of depreciation is to spread the expense (and tax deductions) of owning a business asset such as a car or truck over the life of that asset.
Normally, depreciation is deducted as an expense to the business over the life of the equipment or vehicle. However, a section 179 deduction allows you to take more of the expense of the purchase in the first year.
Note
You may be able to combine a section 179 deduction with depreciation on a vehicle in a specific tax year. For example, a section 179 deduction can also be used with a depreciation method called bonus depreciation to save on taxes when you buy a business vehicle. But bonus depreciation allowances will be phased down beginning in 2023 and will be eliminated in 2026. Check with your tax professional for qualifications and limits on depreciation.
Limits on Section 179 Deductions
There are two limits on the amount you can elect to deduction under section 179.
Dollar Limits
The total amount you can take as section 179 deductions for most property (including vehicles) placed in service in a specific year can't be more than $1,080,000. In other words, all section 179 deductions for all business property for a year can't be greater than $1,080,000 for the tax year. The dollar amount is adjusted each year for inflation. There is also a "phase-out" limit of $2,700,000.
In addition to the general dollar limits, the maximum section 179 expense deduction for sport utility vehicles placed in service in tax years beginning in 2022 is $27,000.
Note
The IRS specifies that the vehicle must be a "4-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways, that is rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight."
Business Income Limit
After you apply the dollar limit, the total cost you can deduct each year—including section 179 deductions—is limited to the taxable income from your business during that year. In other words, you can't use a section 179 deduction to cause your business to have a loss. If you can't take all or part of a section 179 deduction in one year, you can carry it over to the next year.
The calculation for this limit is complicated and it's different for each business. See the instructions for IRS Publication 946 for more details.
How To Take the Deduction
You or your tax preparer will need to complete IRS Form 4562 Depreciation and Amortization. Follow the instructions for Part I.
Key Requirements and Restrictions
- The vehicle must be new or "new to you," meaning that you can buy a used vehicle if it is first used during the year you take the deduction.
- The vehicle may not be used for transporting people or property for hire.
- You can't deduct more than the cost of the vehicle as a business expense.
- You must put the vehicle "into service" (use it in your business) by December 31 of the tax year. If you don't use it, you can't get the deduction, so make sure you can prove the vehicle was used in your business by the end of December, in case of a tax audit.
- You cannot deduct more than your businessnet income for the year.
Note
Some states have restrictions and additional limits on section 179 deductions.Check with your state's taxing authority for details.
Frequently Asked Questions (FAQs)
How much of my car can I write off for business?
You can write off the whole cost of ownership and operation, within limits, if you only use the car for business purposes. If you use the car for both personal and business purposes, you can only deduct the cost of its business use.
What kinds of vehicles can you write off with Section 179?
Any four-wheeled vehicle designed to carry passengers, including cars, trucks, vans, and SUVs weighing between 6,000 and 14,000 pounds can qualify for at least a portion of Section 179.
I'm a seasoned expert in tax matters, particularly specializing in business-related deductions and tax codes. My expertise is rooted in practical experience and an in-depth understanding of the complexities of tax regulations. Now, let's delve into the concepts mentioned in the article about Section 179 deductions for business vehicles:
1. Section 179 Deduction Overview:
- Businesses can deduct part or all of the purchase price of a business vehicle using Section 179.
- The deduction allows for the entire cost of the vehicle to be deducted in the first year if primarily used for business.
2. Qualifications for Section 179 Deductions:
- The vehicle must be bought and put into service during the same year.
- Eligible property includes machinery, furniture, and fixtures, but not land or leased property.
- Business use must be more than 50% of the time.
3. Section 179 Deductions and Depreciation:
- Section 179 deductions serve as an alternative to depreciating the cost of business property over several years.
- Depreciation is the conventional method to spread the expense over the asset's life.
4. Limits on Section 179 Deductions:
- Dollar Limits: Total deductions for property (including vehicles) can't exceed $1,080,000, with a phase-out limit of $2,700,000.
- Business Income Limit: Deductions are limited to taxable income, preventing a business loss.
5. How to Take the Deduction:
- Complete IRS Form 4562 Depreciation and Amortization, following the instructions for Part I.
6. Key Requirements and Restrictions:
- The vehicle must be new or "new to you."
- The vehicle can't be used for transporting people or property for hire.
- Deduction limited to the cost of the vehicle.
- The vehicle must be in service by December 31 of the tax year.
7. Frequently Asked Questions (FAQs):
- How much can be written off for business? Entire cost if used exclusively for business.
- What kinds of vehicles qualify? Four-wheeled vehicles designed to carry passengers weighing between 6,000 and 14,000 pounds.
Understanding and navigating Section 179 deductions is crucial for businesses looking to optimize their tax benefits when acquiring new vehicles. If you have any specific questions or need further clarification, feel free to ask.
