McDonald Enterprises - Commercial Vehicles and Equipment



Section 179

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Section 179 Deduction

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 (or lease) a piece of qualifying equipment, you can deduct the FULL PURCHASE PRICE from your gross income. It's an incentive created by the U.S. Government to encourage businesses to buy equipment and invest in themselves.

Limits of Section 179 Deduction (Updated as 12/2023)

Section 179 does come with limits - there are caps to the total amount written off ($1,160,000 for 2023), and limits to the total amount of the equipment purchased ($2,890,000 in 2023). The deduction begins to phase out dollar-for-dollar after $2,890,000 is spent by a given business (thus, the entire deduction goes away once $4,050,000 in purchases is reached), so this makes it a true small and medium-sized business deduction.

Who Qualifies for Section 179?

All businesses that purchase, finance, and/or lease new or used business equipment during tax year 2023 should qualify for the Section 179 Deduction (assuming they spend less than $4,050,000).

Most tangible goods used by American businesses, including “off-the-shelf” software and business-use vehicles (restrictions apply) qualify for the Section 179 Deduction.

Also, to qualify for the Section 179 Deduction, the equipment and/or software purchased or financed must be placed into service between January 1, 2023 and December 31, 2023.

For 2023, $1,160,000 of assets can be expensed; that amount phases out dollar for dollar when $2,890,000 of qualified assets are placed in service.

What's the difference between Section 179 and Bonus Depreciation? 

Bonus depreciation is offered some years, and some years it isn't. Right now in 2023, it's being offered at 80%.

The most important difference is both new and used equipment qualify for the Section 179 Deduction (as long as the used equipment is "new to you"), while Bonus Depreciation has only covered new equipment only until the most recent tax law passed. In a switch from recent years, the bonus depreciation now includes used equipment.

Bonus Depreciation is useful to very large businesses spending more than the Section 179 Spending Cap (currently $2,890,000) on new capital equipment. Also, businesses with a net loss are still qualified to deduct some of the cost of new equipment and carry-forward the loss.

When applying these provisions, Section 179 is generally taken first, followed by Bonus Depreciation - unless the business had no taxable profit, because the unprofitable business is allowed to carry the loss forward to future years

Section 179's "More Than 50 Percent Business-Use" Requirement

The equipment, vehicle(s), and/or software must be used for business purposes more than 50% of the time to qualify for the Section 179 Deduction. Simply multiply the cost of the equipment, vehicle(s), and/or software by the percentage of business-use to arrive at the monetary amount eligible for Section 179.

 

What Business Vehicles Qualify for the full Section 179 Deduction?

Note that because many vehicles can serve business and personal function both, the rules for business vehicle deductions are always evolving, and can be complicated. (The following examples of fun and partial deductions are provided as general guidelines. Consult with qualified professions to determine vehicle qualifications.)

Business Vehicles for FULL Section 179 Deduction

  • Vehicles like shuttle vans that can seat more than nine passengers behind the driver’s seat
  • Classic cargo vans featuring a fully-enclosed driver’s compartment/cargo area, with no seating behind the driver’s seat
  • Over-the-road Tractor Trailers
  • “Singular use” business vehicles like ambulances or hearses
  • Business Vehicles for Partial Section 179 Deduction

    Trucks and SUVs exceeding 6,000 lbs. GVWR (Gross Vehicle Weight Rating) qualify for a partial deduction if the business use surpasses 50%. However, deduction limits vary, depending on the vehicle type.

    For vehicles weighing between 6,000 lbs. and 14,000 lbs. and with a minimum of 50% business use, the following generally qualify:

  • Pickup trucks with a full-size (8’) cargo bed
  • Heavy SUVs – with a maximum deduction cap of $28,900 for 2023

    Other Considerations
    Vehicles can be new or used (“new to you” is the key). The vehicle must be acquired in an “arms-length” transaction, financed with certain qualified leases and loans, and titled in the company name (not in the company owner’s name).

    The vehicle in question 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 in a later year if its purpose changes to business.

    Disclaimer
    Information dispensed on this page is for illustrative purposes only and accuracy/completeness is not guaranteed. Please consult with qualified professionals concerning your specific situation.