How Does Section 179 Tax Deduction Work?

The Section 179 tax deduction is a tax incentive designed to foster growth in small businesses nationwide. In simple terms, Section 179 lets businesses write off the full purchase price of qualifying vehicles and other business equipment.

If you’re curious about how the Section 179 tax break could help your business save next tax season, you can use this comprehensive guide to help you navigate the process. While it may seem complex at first, you can quickly learn how to use Section 179 to your benefit.

The Section 179 Tax Deduction Can Help You Grow Your Business

The U.S. government created Section 179 to help businesses invest in their own potential. In previous years, companies typically wrote off purchases a little at a time through depreciation, but Section 179 lets your company buy equipment, vehicles, or vehicle accessories and deduct the entire purchase price from your gross income for the current tax year. Do you see how this one simple act can significantly reduce your tax burden?

Although Section 179 can benefit businesses of all sizes, it was originally developed by the IRS to help small businesses like yours in Lexington, KY, and across the United States to grow and develop as much as possible. There are limitations on what types of equipment and vehicles can be deducted under Section 179, so let’s take a closer look at the rules and regulations so you’ll be fully prepared next tax-filing season.

2024 Section 179 Limits & Qualifications

Under Section 179, you can claim the entire amount spent on qualifying assets during their first year of use. Rules state that the equipment, vehicle, or other asset must be used for business purposes at least 50% of the time to qualify. In 2024, the Section 179 deduction limit is $1,220,000, after which the deduction phases out on a dollar-for-dollar basis.

Section 179 limits at a glance

• 2024 Deduction Limit: $1,220,000
• 2024 Spending Cap on Equipment Purchases: $3,050,000
• 2024 Bonus Depreciation: 60%

To give you a real-world example, if your business spends $1,300,000 on equipment purchases in 2024, you can write off the maximum amount of $1,220,000 that year. Notice that you can’t write off the full $1,300,000 because it surpasses the 2024 cap. You will, however, also receive a 60% bonus depreciation on the remaining amount after the cap of $48,000, giving you a total first-year deduction of $1,268,000 and a total tax savings of $443,800.

If your business near Louisville, KY, doesn’t spend millions in equipment purchases each year, you might worry that Section 179 doesn’t apply to your company, but this couldn’t be further from the truth. Remember that you can also deduct the purchase price of qualifying assets – including many of our SUV and wagon vehicles – from your company’s gross income.

Wondering if you qualify for Section 179? Any business of any size that purchases, finances, or leases new or used business equipment or vehicles during the 2024 tax year and places them into service during 2024 should qualify for the Section 179 deduction as long as they spend less than $4,270,000 total.

Section 179 vs. Bonus Depreciation: Federal & State Guidelines

Section 179 is an overarching tax code that determines deduction limits, spending caps, and Bonus Depreciation amounts for each tax year. Bonus Depreciation is an incredibly helpful component of Section 179 that enables businesses to recoup some of the depreciation costs of business-use equipment or vehicles. Large businesses that spend more than the Section 179 limit allows may find Bonus Depreciation especially useful.

In previous years, Section 179 applied to new and used equipment, while Bonus Depreciation applied only to new purchases or leases. However, 2024 updates to the federal tax code now include new and used business items under both Section 179 and Bonus Depreciation rules. This is great news for businesses in Lexington, KY, because it means you can take Section 179 provisions first, followed by Bonus Depreciation provisions, and save even more in 2024.

In the past, Kentucky tax law did not conform to the federal rule, but updates to the Kentucky tax code now state that property placed into service on or after January 1, 2020, can qualify for a Section 179 deduction of up to $100,000.

2024 Section 179 Deduction Vehicle List

Qualifying Section 179 vehicles can be new, leased, or pre-owned and must be implemented for business purposes at least 50% of the time. Vehicles generally only usable for work purposes can also qualify for the full Section 179 tax deduction. 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 and SUVs that weigh more than 6,000 pounds and less than 14,000 pounds, as well as cargo and passenger vans, can also qualify for the Section 179 tax deduction. This is excellent news for businesses near Cincinnati, OH, who need to add a new work truck or delivery van to their fleet! SUVs are subject to a $30,500 deduction cap in 2024.

To keep this tax code guide as simple as possible, we’ve compiled a list of vehicles that qualify for the 2024 Section 179 deduction either in full or in part:

Some examples include hearses, ambulances, dedicated delivery vans, and semi-trucks. Here are some examples of fully deductible 2024 Section 179 vehicles:

Qualified for full deduction:

• Over-the-road tractor trailers
• Heavy equipment such as forklifts, construction machinery, skid steers, farm tractors, and more
• Cargo vans with a fully enclosed driver’s compartment/cargo area, no more than 30 inches of body extension beyond the front windshield’s leading edge, and no seating behind the front row/driver’s seat
• Shuttle vans with nine or more passenger seats behind the first row
• Medical vehicles like ambulances or hearses
• Dedicated delivery vans

Qualified for partial deduction:

• Pickup trucks and SUVs between 6,000 and 14,000 pounds
• Trucks must have a full-size, 8-foot cargo bed
• Heavy SUVs have a maximum deduction of $30,500 for 2024

Contact us to learn more about qualifying Section 179 vehicles over 6,000 pounds or to see if your specific models qualify for this tax incentive. Our dealership team does not claim to be experts in this area of tax deductions, but we can provide some advice on what can work for you and your small business in Lexington, KY.

In addition to offering tax credit guidance, our finance center experts will work hard to find you the low-rate financing plan you deserve. Shop with Quantrell Auto Group and maximize your business savings!

Frequently Asked Questions

What is Section 179?

Section 179 is a U.S. tax code designed to help small businesses grow by providing deductions and bonus depreciation credits for the full or partial purchase price of qualifying assets. Section 179 does have limits and rules, and our finance associates are not tax experts, so please consult a tax professional before purchasing a vehicle to ensure you qualify for any tax credits or incentives.

Are there any special rules for vehicles under Section 179?

Yes, Section 179 stipulates that qualifying vehicles or equipment must be used for business at least 50% of the time, fall within specific weight limits, and meet other seating and cargo space requirements. Some models, such as SUVs, are eligible for a reduced deduction of $30,500 instead of a full purchase-price deduction. Please consult a Section 179 tax 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. Talk to a tax expert for advice. Please note that an asset, including a vehicle, must enter service during the year in which it was deducted. So, if you purchase a work truck in 2024 but put it into service in 2025, it cannot be claimed on your 2024 taxes.

^*Information provided is only an overview and does not constitute the replacement of advice from a qualified tax professional.