Section 179 for Vehicles

The section 179 deduction is one of the most popular accelerated methods of deductions for business owners. Often referred to as the “Hummer tax loophole” due to its ability to substantially lower the tax bills for these kinds of vehicles, the section 179 deduction was initially set up by Congress to push businesses to grow by  allowing them to depreciate 100 percent of the cost of newly bought business equipment.

Since business cars and trucks are classified as business equipment, they qualify for section 179, but under special depreciation rules. Generally, these deduction rules are dependent on whether the vehicle is considered as a luxury automobile, van, SUV, truck, or heavy vehicle exclusive of SUV’s.

Here is how the depreciation rules apply under section 179 of the IRS tax code of 2014.

Luxury Automobile

If a vehicle is not considered a truck or SUV, and its unloaded gross weight is 6,000lbs or less, then it is subject to the section 179 luxury automobile depreciation limits.

For luxury vehicles placed in service in 2014, the depreciation is limited to $3,160 during the first year $5,100 for the second year, $3,050 for the third year, and $1,875 for the fourth year in service and thereafter.

However, it is vital to note that these deprecation limits are only applicable to vehicles costing $15, 800 and more.

Light Vans, SUV’s and Trucks

If a vehicle is considered a light van, SUV, or truck, and its unloaded gross weight is 6,000lbs or less, then it is subject to section 179 expense deduction for light automobiles.  Vans such as the Ram Promaster or Chevrolet City Express may fit in this category.  

 For example if the light vehicle was placed in service in 2014, the depreciation limit cannot exceed $3,460 for the first year,  $5,500 for the second year, $3,350 for the third year, and $1,975 for the fourth year in service and thereafter.  Trucks such as some Ram 1500 and Heavy Duty Trucks may fit in this category.

However, the deduction limits for light vehicles do not apply to trucks or vans that are considered as qualified non-personal use vehicles. This means that by reasons of their nature, these vehicles cannot be used for personal purposes. Such vehicles include but are not limited to, bucket trucks, delivery trucks, and refrigerated trucks.  Available for upfit through retailers in the Miami Area such as Miami Lakes Automall, customized commercial vehicles may be the best option to maximize tax savings.

Heavy Vehicles Exclusive of SUV’s

If a vehicles gross vehicle weight is rated at more than 6,000lbs but less than 14,000lbs, (exclusive of SUV’s and trucks with beds less than 6 feet), no depreciation limits will be placed on that vehicle. However, a section 179 deduction may be taken for 100 percent of the vehicle’s purchase price, up to the limit of $500,000.

Heavy SUV’s

If an SUV’s gross weight is rated at more than 6,000lbs, no depreciation limit will be allowed on that vehicle. However, under Section 179(b)(5), a section 179 expense deduction of up to $25,000 may be taken off the purchase price subject to  certain Sec.179 limitations.

Standard MACRS depreciation may also apply on the basis remaining after the application of the Sec.179 deduction. No Sec.179 expense limit applies to SUV’s whose gross weight is more than 14,000lbs.

Bonus Depreciation

Under the bonus depreciation, an additional 50 percent deduction is permitted for qualifying equipment during the first year. For vehicles to quality for bonus depreciation, they must be new and used more than 50 percent for business. Under these rules, bonus depreciation deduction of up to $8,000 may be taken for passenger automobiles for the first tax year. It is paramount to note that the amount is not adjusted for inflation.

As it can be seen, Section 179 deduction is beneficial and choosing just the right vehicle could make a huge difference on your annual tax load.

The opinions shared here are provided through the the research of the writer and are not endorsed or guaranteed by the dealership.  Please consult your personal tax representative before purchasing to review your options to maximize your tax incentive.