How Does Section 179 Tax Deduction Work?

section 179 tax deduction

The Section 179 Tax Deduction Can Help You Grow Your Business

The Section 179 tax deduction is designed to foster growth in small businesses nationwide. This tax incentive allows you to write off the entire purchase price of qualifying vehicles and other business equipment.

The tax break is staggered based on the amount a given business spends on new assets, which is targeted at helping small businesses such as those in Lexington, KY, grow and develop. There are also limits on the types of vehicles that qualify for the full deduction; we discuss these below.

2023 Section 179 Limits

The Section 179 tax deduction allows you to claim the entire amount spent on a qualifying asset during its first year of use. The Section 179 rules state that the vehicle or other asset must be used for business at least 50% of the time. This deduction is capped at 1.08 million dollars starting in the 2022 tax year.

If a business spends more than 2.7 million dollars on new assets or property, the deduction will be reduced accordingly. Once a company reaches 3.78 million in purchases during a given tax year, it no longer qualifies. Thus, the Section 179 deduction is aimed at small businesses. For 2023, the maximum deduction has increased to 1.16 million.

Now, an example: if your business spent 2 million dollars on new assets in 2022, you could deduct up to 1.08 million from that total with this tax incentive. If you spent more than 2.7 million, you could deduct some of the purchase price(s) on your taxes but not the entire 1.08 million – at this point, the incentive has begun to phase out. Once you hit 3.78 million, your business is not eligible for the Section 179 tax deduction. Please note that these caps change slightly for 2023, as stated above.

Some readers near Louisville, KY, may think that these figures in the millions are far higher than the numbers they encounter when doing the books for their businesses. If you’re in this camp, don’t worry – this means the Section 179 deduction is available in full force for you. You can deduct the purchase price of qualifying assets – including many SUV and wagon vehicles – in their entirety.

Section 179 vs. Bonus Depreciation

The recent Tax Cuts and Jobs Act offers another tax incentive to business owners: increased bonus depreciation. This allows you to deduct more of the value lost to asset depreciation from your taxes. While this federal bill instituted a bonus depreciation rate of 100% for 2022, Kentucky law does not precisely conform to this new rule. Please consult a taxation expert to determine how the bonus depreciation rule can help your small business in concert with the Section 179 tax deduction.

Now, we’ve come to the portion of this article that some readers have been waiting for: a discussion of which vehicles can qualify for the Section 179 deduction. Section 179 vehicles can be new, leased, or pre-owned and must be implemented for business purposes at least 50% of the time. If you use a given vehicle to drive to and from job sites or deliver products, its purchase price can be deducted under this tax code section.

Trucks, SUVs, and vans that weigh more than 6,000 pounds and less than 14,000 pounds can qualify for the Section 179 tax deduction. This is joyous news for some drivers near Cincinnati, OH, who want to get a new work truck or delivery van. Passenger vehicles that do not meet certain requirements may be limited to a 25,000-dollar deduction.

2023 Section 179 Deduction Vehicle List

Vehicles generally only usable for work purposes can qualify for the full Section 179 tax deduction. Some examples include hearses, ambulances, dedicated delivery vans, and semi-trucks. Here are some examples of fully deductible 2023 Section 179 vehicles:

  • Tractor trailers
  • Heavy equipment such as forklifts
  • Cargo vans with no seating behind the front row and a minimum of 6 feet of cargo space
  • Shuttles with nine or more passenger seats behind the driver

You can contact us to learn more about Section 179 vehicles over 6,000 pounds and other cars that can qualify for this tax incentive. Our dealership team does not claim to be experts in this area of finance, but we can provide some advice on what can work for you and your small business in Lexington, KY.

The folks at our finance center will work hard to try to secure you the low-rate financing plan you deserve when you shop with us. Please consult a taxation expert prior to purchasing a vehicle to ensure you qualify for any tax credits or incentives.

FAQ

What is Section 179?

Section 179 is a portion of the tax code that is designed to help small businesses grow. It allows you to deduct the full purchase price of qualifying assets, including some vehicles, during the year in which they were bought and entered into the service of your business. There are some caps and specific rules, so be sure to consult an expert before making a purchase.

Are there any special rules for vehicles under Section 179?

There are numerous qualifying rules for Section 179 vehicles. Automobiles that qualify for the deduction have to be used for business at least 50% of the time and have to meet other criteria. Some cars are eligible for a reduced deduction of $25,000 as opposed to the full purchase price deduction. Please consult an expert before making a purchase.

Can I amend a previous year’s tax return to claim the Section 179 deduction?

It is sometimes possible to amend your taxes in order to claim a deduction, including the Section 179 incentive. Do note that an asset, including a vehicle, has to enter service during the year in which it was deducted. So, if you purchase a work truck in 2022 but put it into service in 2023, it cannot be claimed on your 2022 taxes, for example.

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