The Section 179 Tax Code is a provision that has saved business owners thousands of dollars on the purchase of a new or used vehicle. The program has finally been made permanent and with some very positive advantages. Let’s take a look at how a business owner can save thousands of dollars in taxes for 2018.
What is the Section 179 Tax Code?
Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. That means that if you buy/lease a piece of qualifying equipment, you can deduct the FULL PURCHASE PRICE from your gross income. Not many tax benefits are as strong as this one!
What are the specifics of the program?
Section 179 is permanent at the $1,000,000 level. Businesses exceeding a total of $2.5 million of purchases in qualifying equipment have the Section 179 deduction phase-out dollar-for-dollar and completely eliminated above $3.5 million. Additionally, the Section 179 cap will be indexed to inflation in $10,000 increments in future years. Essentially you can deduct up to $1,000,000 of $2 million in purchases. As an example, if you bought $200,000 in work vehicles you would be able to claim a full deduction of $200,000 and at a 35% tax bracket you would be saving $70,000 in taxes lowering your true acquisition cost to only $130,000!
How does this apply to commercial vehicles?
Vehicles used in your businesses qualify - but certain passenger vehicles have a total depreciation deduction limitation of $11,160 for cars and $11,560 for trucks and vans, while other vehicles, that by their nature are not likely to be used more than a minimal amount for personal purposes, qualify for full Section 179 deduction. Here are the general guidelines for using the Section 179 Deduction for vehicle purchases:
For passenger vehicles, trucks, and vans (not meeting the guidelines below), that are used more than 50% in a qualified business use, the total deduction for depreciation including both the Section 179 expense deduction as well as Bonus Depreciation is limited to $11,160 for cars and $11,560 for trucks and vans.
Exceptions include the following vehicles:
Ambulance or hearse used specifically in your business;
Taxis, transport vans, and other vehicles used to specifically transport people or property for hire;
Qualified non-personal use vehicles specifically modified for business (i.e. van without seating behind driver, permanent shelving installed, and exterior painted with company’s name).
Limits for SUVs or Crossover Vehicles with GVWR above 6,000lbs
Certain vehicles (with a gross vehicle weight rating above 6,000 lbs but no more than 14,000 lbs) qualify for expensing up to $25,000 if the vehicle is financed and placed in service prior to December 31, 2018 and meet other conditions.
What type of vehicles qualify for the full Section 179 deduction?
Many vehicles that, by their nature are not likely to be used for personal purposes, qualify for full Section 179 deduction including the following vehicles:
Heavy “non-SUV” vehicles with a cargo area at least six feet in interior length (this area must not be easily accessible from the passenger area.) To give an example, many pickups with full-sized cargo beds will qualify (although some "extended cab" pickups may have beds that are too small to qualify).
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. Essentially, a classic cargo van.
Any important points a business owner needs to know?
Yes! Here are the major points to remember:
You can take advantage of the program whether you pay cash, finance or lease the vehicles. This program works especially well with commercial TRAC leases (Open ended lease where mileage, residuals, and wear and tear are adaptable.)
The obvious advantage to leasing or financing equipment and/or software and then taking the Section 179 Deduction is the fact that you can deduct the full amount of the equipment and/or software, without paying the full amount this year. The amount you save in taxes can exceed the payments, making this a very bottom-line friendly deduction (you are reading this correctly; in many cases, the tax savings from the deduction will make your bank account larger than if you never financed the equipment in the first place!)
The program applies to new and used vehicles but the important thing to remember is the vehicle must be “new” to you. You can’t take a vehicle you already owned for any period of time and take the deduction.
The vehicle must not only be bought in 2018, it must be put into use before midnight December 31, 2018. If you buy a vehicle but it is not delivered until after December 31, 2018, you cannot take the deduction.
Always seek counsel with a qualified tax professional before making any decisions regarding your taxes.
Section 179 offers businesses located in specific special zones an increase in the overall deduction amounts. The additional deduction amounts vary, depending on which zone your company is currently operating in. If your company is operating in one of the following zones, you may qualify for the increased deduction limits:
New York Liberty Zone
Enterprise Zone and Renewal Community Businesses
Gulf Opportunity Zone (areas affected by recent Gulf Hurricanes)
Don’t wait to decide! The vehicle you want might need to be ordered so the time to act is now!