Are you thinking about purchasing a vehicle for your business? If so, the IRS Section 179 deduction might be able to help. Here are four things you need to know about Section 179 and how it can save you money on your next car or truck purchase:
1. What is Section 179?
Section 179 is a tax deduction that allows you to deduct the entire cost of your vehicle from your taxes. You can use Section 179 for passenger vehicles, trucks, vans, and cars. In fact, many tax professionals suggest this because it’s the most beneficial way to write off your vehicle purchase.
2. Section 179 Does Not Apply To Used Vehicles
Section 179 is for new equipment and does not apply to used vehicles.
Section 179 also does not apply when you personally use the equipment. If you are leasing your vehicle, or if you rent or borrow a vehicle from someone else then these are taxable events and cannot be deducted under Section 179.
3. Section 179 Requirements
There are a few requirements that must be met in order to write off your vehicle.
- The vehicle must be purchased by the business. If you purchase a vehicle out of pocket, as an individual or as a partnership, you can take advantage of Section 179. However, if someone else buys the car for you (for example, your mom), then it's not eligible for this deduction.
- The vehicle must be used for business purposes. While this seems obvious, there are times when people use their personal vehicles for work-related tasks and then claim depreciation on those cars as well.
- You need to use it more than 50% of the time for business purposes.* You need to buy new vehicles only; used cars don't count in this case.* Your company needs to have $2 million or less in gross receipts per year.
4. Limitations of Section 179
Since Section 179 can be used for vehicles bought and sold within the same year (or even several times in one year), it has become a favorite tax deduction among small businesses and self-employed individuals who need to purchase a new car occasionally.
Section 179 does have some limitations:
- You must have purchased your vehicle during the current tax year and plan on using it primarily in your trade or business activities.
- The total amount of deductible purchases cannot exceed $1 million
- There are phase outs based on gross receipts above certain thresholds
- There are limits based on depreciation rates applied over time (the maximum amount allowed under section 179 rules).
We hope this article has answered any questions you may have about Section 179 and what it means for your business. By taking advantage of this tax break, you can write off up to $1 million in equipment purchases each year. It’s important that small business owners take advantage of all financial benefits available because they may not always get enough credit for how much work goes into running a successful business.
