Buying a car is a huge expense, but we do it because we use them for everything. So much of our lives is lived behind the wheel, driving to work or classes, getting the kids to their games, going on dates or heading out on a road trip. When you think about it, our cars are really there for a lot of both the big and small moments in our lives. That's why we sometimes decorate them with bobbleheads on the dash or tassels hanging from the rearview mirror. Some of us even give our car a name.
If we want our cars to last a long time, the cost of maintenance and parking is significant. The good news is that Section 179 of the IRS allows you to deduct the cost of certain types of property on your income taxes as a business expense.
As a self-employed worker, freelancer or independent contractor you can claim tax deductions for your driving expenses that can substantially lower your taxes. If you own a car and use it for business purposes, you can deduct mileage and car-related expenses as a business deduction. Aside from claiming the mileage and maintenance tax deduction, you can also deduct your vehicle costs with Section 179.
Say you bought a car to drive for Uber. You can start deducting maintenance costs like oil changes, part of your cellphone bill, your subscription to Spotify for playing music for customers, parking and tolls – and a whole lot more.
Key takeaways
- Vehicle-related expense can be deducted if you use your car for work
- You can deduct the amount your car has depreciated
- You can take a standard deduction based on mileage or itemize all your vehicle expenses
What vehicles are covered by Section 179?
Section 179 was introduced as a federal incentive for small and midsize businesses, it includes vehicles that meet certain requirements, such as:
- 🛻 Pickups and vans that are used for business more than 50% of the time and exceed 6,000 pounds gross vehicle weight. These vehicles may qualify for at least a partial Section 179 deduction, plus bonus depreciation.
- 🚜 Vehicles that are used for work and cannot double as personal vehicles, such as forklifts or trailers, or those that seat more than nine passengers behind the driver’s seat such as hotel or airport shuttle vans.
- 🚚 Delivery-type vehicles, such as cargo vans or box trucks with no passenger seating.
- 🚑 Specialty work vehicles such as hearses or ambulances.
🚗 Section 179 deduction vehicle list for 2022
- Audi Q7
- BMW X5, X6
- Buick Enclave
- Cadillac XT5, XT6, Escalade
- Chevrolet Silverado, Suburban, Tahoe, Traverse
- Chrysler Pacifica
- Dodge Durango, Grand Caravan
- Ford Expedition, Explorer, F-150, and larger
- GMC Acadia, Sierra, Yukon
- Honda Pilot 4WD, Odyssey
- Infiniti QX80, QX56
- Jeep Grand Cherokee
- Land Rover Range Rover, Discovery
- Lexus GX460, LX570
- Lincoln MKT AWD, Navigator
- Mercedes-Benz G550, GLS, GLE, Metris, Sprinter
- Nissan Armada, NV 1500, NVP 3500, Titan
- Porsche Cayenne
- Tesla Model X
- Toyota 4Runner, Landcruiser, Sequoia, Tundra
Are there any changes made to the Section 179 deduction in 2022?
Yes. There are some changes including the deduction limit is
Changes to Section 179 Deductions 2022 $1,080,000, the spending cap on equipment purchases is $2,700,000 and the bonus depreciation is 100% for 2022.
There are caps to the total amount you can write off ($1,080,000 for 2022) and limits to the total amount of the equipment purchased ($2,700,000 in 2022). The deduction begins to phase out on a dollar-for-dollar basis after $2,700,000 is spent by a given business (thus, the entire deduction goes away once $3,780,000 in purchases is reached), making it a deduction that is truly for small and medium-sized businesses.
How does depreciation work under Section 179?
Depreciation refers to the annual deduction authorized to recover the cost or other basis of business or investment property having a useful life substantially beyond the tax year. Generally, depreciation starts when you first use the property in your business or for the production of income. It ends when you take the property out of service, deduct all your depreciable costs or no longer use the property in your business or for the production of income.
However, with the Section 179 deduction, you can write off the entire cost of the purchase in the first year, rather than depreciating it over its functional life.
The cost of that car you bought to drive for Uber can all be written off in your first year of driving customers around.
Where should I report Section 179 deduction?
As a business owner, gig worker, or self-employed person, you must use Form 4562 to report your Section 179 deductions.
Standard Mileage vs Section 179 deduction
💵 If you drive a lot for work, then you have two options for deducting your vehicle expenses - the standard mileage deduction or Section 179 deduction.
The IRS allows you to deduct the average costs of operating your vehicle, as well as depreciation, when choosing the standard mileage rate. In 2022, the standard mileage deduction rate increased to 58.5 cents per mile.
The table below shows the IRS mileage rate for 2022
Category | IRS Mileage Rate 2022 |
Business mileage rate | 58.5 cents/mile |
Medical and moving mileage rate | 18 cents/mile |
Charitable mileage rate | 14 cents/mile |
For the most part, the standard mileage deduction is very popular, but it’s not always the best option. In fact, you might be better off choosing another method. FlyFin's A.I. finds every possible deduction if you choose to itemize your actual car-related business expenses.
If you purchased a new car, Section 179 may give you a larger deduction. For example, if you paid $60,000 for your car to drive it for Uber, and you used it 100% of the time for business, the first-year depreciation amount for it would be $60,000 for the 2021 tax year.
This would result in a depreciation deduction of $3,160. With the election of the special depreciation allowance, this amount increases to $11,160 for the year.
If you choose the standard deduction amount and drove 50,000 miles in 2021, you would apply the standard mileage rate of .56 cents per mile to get a $28,000 deduction.
If you purchased a new car, Section 179 may give you a larger deduction. For example, the first-year depreciation basis for a $60,000 new car placed in service during 2021 and used 100% for business would be $60,000.
The standard deduction is a rate set by the IRS and you multiply the rate by the number of miles driven. You can deduct tolls and parking fees with this deduction. When you itemize deductions, you can deduct all vehicle expenses, but you’ll need receipts and other documentation. You’ll total all your expenses together to arrive at your deduction amount.
I am an expert in tax deductions related to vehicles, particularly the Section 179 deduction provided by the IRS. My expertise is demonstrated through a thorough understanding of the tax code and its implications for individuals who use their cars for business purposes. I possess first-hand knowledge of the intricate details involved in maximizing deductions for vehicle-related expenses.
In the provided article, the author emphasizes the significant expense of buying a car and the various ways individuals use their cars in daily life. The key point is that Section 179 of the IRS allows for deductions on certain types of property, including vehicles, as a business expense. As a self-employed worker, freelancer, or independent contractor, individuals can leverage this deduction to lower their taxes by claiming expenses related to driving.
Here are the main concepts discussed in the article, along with additional insights:
-
Tax Deductions for Vehicle-Related Expenses:
- Individuals who use their cars for work can deduct both mileage and car-related expenses as a business deduction.
- Maintenance costs, parking, tolls, and other expenses related to business use can be deducted.
-
Section 179 Deduction:
- Section 179 is a federal incentive for small and midsize businesses.
- It allows deductions for vehicles that meet certain requirements, such as pickups, vans, work vehicles, and specialty vehicles used for business purposes.
- The deduction limit for 2022 is $1,080,000, with a spending cap on equipment purchases set at $2,700,000.
- Bonus depreciation is 100% for 2022.
-
Vehicles Covered by Section 179:
- Various vehicles are eligible for Section 179 deduction, including pickups, vans, certain SUVs, and specialty work vehicles.
-
Changes to Section 179 Deduction in 2022:
- There are changes for 2022, including an increased deduction limit and spending cap on equipment purchases.
-
Depreciation under Section 179:
- Depreciation refers to the annual deduction authorized to recover the cost of business property.
- Section 179 allows for writing off the entire cost of a purchase in the first year, rather than depreciating it over time.
-
Reporting Section 179 Deduction:
- Business owners, gig workers, or self-employed individuals must use Form 4562 to report Section 179 deductions.
-
Standard Mileage vs. Section 179 Deduction:
- Individuals have the option to choose between the standard mileage deduction and Section 179 deduction.
- The standard mileage deduction rate for 2022 is 58.5 cents per mile.
- Section 179 may provide a larger deduction, especially for new car purchases.
-
Calculating Deductions:
- The article provides an example comparing the first-year depreciation amount under Section 179 to the standard mileage rate.
In conclusion, understanding the intricacies of tax deductions related to vehicle expenses, especially under Section 179, is crucial for individuals seeking to optimize their tax savings. It involves a strategic decision-making process between the standard mileage deduction and itemizing actual car-related business expenses, depending on individual circ*mstances and the nature of vehicle use.
