What is the Section 179 Deduction?
The Section 179 deduction is a tax deduction made available to business owners that purchase certain types of business property. These purchases include vehicles for business use, equipment, office furniture, supplies and other tangible items. Even ownership in a plane can potentially qualify for the Section 179 deduction.
Using the Section 179 deduction you are able to accelerate the depreciation on the qualifying item potentially all into the year that the purchase was made. For business owners making purchases of qualifying property this can have powerful tax implications.
How to Qualify for the Section 179 Deduction
When it comes to purchasing a vehicle, there are a number of considerations you should be aware of when utilizing the Section 179 deduction.
The vehicle must be bought and placed into service the year that the Section 179 deduction is taken. The vehicle must be used at least 50% for business purposes and the deduction proportionately to its business use.
The weight of the vehicle purchased will impact the dollar amount that can be deducted using Section 179.
Light Section 179 Vehicles
Any vehicle with a manufacturer’s gross vehicle weight rating (GVWR) under 6,000 pounds is considered a light vehicle for Section 179.
For 2023, the Section 179 deduction limit for light vehicles is $10,200 in the first year that they are used. When paired with the potential $8,200 of bonus depreciation these vehicles may be eligible for, the combined maximum deduction becomes $18,200 for 2023.
Heavy Section 179 Vehicles
Vehicles with at least 6,000 pounds of GVWR but less than 14,000 pounds qualify as a heavy vehicle for purposes of the Section 179 deduction.
For 2023, these vehicles qualify for a Section 179 deduction of up to $26,200. Bonus depreciation in 2023 allows for depreciation of up to 80% of the cost of the vehicle and that amount is being scaled back by 20% each year until it phases out after 2026.
Limitations for the Section 179 Deduction
Section 179 Deduction Limits
The total amount of Section 179 deduction that a business can take in a year is limited to $1,080,000. This amount begins to get phased out once qualified assets exceed $2,890,000.
Section 179 Business Income Requirements
A business owner is limited on the amount that they can deduct to their taxable income from their business during that year. This means that your Section 179 deduction can’t cause you to have a tax loss and would be limited to taxable income for the year.
In this case, the amount that was not able to be used would be carried over to the next tax year. The deduction is not lost but deferred.
Disclosure: Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.