Vehicles and Section 179
Vehicles and Section 179
One of the more popular uses of the Section 179 Deduction has been for vehicles. In fact, several years ago the Section 179 deduction was sometimes referred to as the “Hummer Tax Loophole,” because at the time it allowed businesses to buy large SUVs and write them off. While this particular use of the tax code has been modified with the limits explained below, it is still true that Section 179 can be advantageous in buying vehicles for your business.
Vehicles used in your business generally qualify for a Section 179 deduction. But they may qualify for different deduction amounts, depending on one or more of several factors: the type of vehicle, how much it weighs, the vehicle’s build/intent, and what percentage of time it’s used for business purposes (full policy statement available at: IRS.gov ).
Note: the deduction for business vehicles is the same whether they are purchased outright, leased, or financed with Section 179 Qualified Financing.
What Business Vehicles Qualify for a Section 179 Deduction?
100% “Work-Use-Only” Vehicles – Full Deduction (usually)
Many “work vehicles” that, by their nature, are not likely to be used for personal purposes usually qualify for a full Section 179 deduction. This includes the following vehicles:
Vehicles that can seat nine-plus passengers behind the driver’s seat (i.e.: Hotel / Airport shuttle vans, etc.).
Vehicles with: (1) a fully-enclosed driver’s compartment / cargo area, (2) no seating at all behind the driver’s seat, and (3) no body section protruding more than 30 inches ahead of the leading edge of the windshield. In other words, a classic cargo van.
Heavy construction equipment and machinery typically qualify for the Section 179 deduction, as do forklifts, farm tractors, skid steers, and similar.
Typical “over-the-road” Tractor Trailers generally qualify.
“Singular Use” business vehicles, like an ambulance or a hearse, usually qualify for a full deduction if no personal use happens.
Trucks and SUVs Over 6,000lbs GVWR – Partial Deduction
Trucks and SUVs over 6,000 lbs. GVWR (Gross Vehicle Weight Rating) qualify if the business use is over 50%. But the deduction limits can vary depending on vehicle type. Note that the GVWR is usually found on the inside driver side door, and may vary depending on model/trim package. Please consult your tax professional for questions regarding specific makes and models.
For vehicles over 6,000 lbs. (but not over 14,000) GVWR and at least 50% business use, the following qualify:
Pickup trucks with a full-size (8’) cargo bed will generally qualify for a Section 179 deduction equal to the business-use percentage (for example, a $60,000 truck used 85% in business will have a deduction of 85% x $60,000, or $51,000).
Heavy SUVs will also qualify for business-use percentage but are capped at a $28,900 maximum deduction for 2023. Contrary to popular belief, businesses cannot purchase an SUV and write off the entire cost unless it was at or under the $28,900 cap.
Update / IRS Guidelines for Vehicles
The vagueness of business vs. personal use can be complicated. To help, please refer to page 6 of these Instructions for Form 2106 to read the exact IRS language. For complete IRS information on Depreciation and Amortization, see Instructions for Form 4562
Vehicles can be new or used (“new to you” is the key). The vehicle must be acquired in an “arms-length” transaction, purchased outright or financed with Section Qualified 179 financing, and titled in the company name (not in the company owner’s name).
The vehicle must also be used for business at least 50% of the time – and these depreciation limits are reduced by the corresponding % of personal use if the vehicle is used for business less than 100% of the time.
Remember, you can only claim Section 179 in the tax year that the vehicle is “placed in service” – meaning when the vehicle is ready and available – even if you’re not using the vehicle. Further, a vehicle first used for personal purposes doesn’t qualify for Section 179 in a later year if its purpose changes to business.
As always, if you have questions, consult your accountant or tax professional for exact rules regarding Section 179 and vehicles. Section179.Org is an informational website, and cannot answer individual tax questions.