Did you know that you can get a tax benefit from buying a new or “new to you” car or truck for your business?
You don’t have to stop yourself from splurging money when it comes to the convenience and smooth operation of your business. All you have to do is check the section 179 deduction vehicle list. Because, thanks to the IRS, now you can claim the percentage of usage the automobile has been put to use using section 179 tax deduction.
This is a special reduction that allows the users to deduct a huge part of their entire cost of the vehicle in the first year you use it. Although, it comes with a variety of limitations as well. One must use it primarily for business purposes, or at least more than 50%. To know the rest, all you have to do is keep scrolling.
How do the Section 179 Deductions Work?
A section 179 deduction is one of the special kinds of tax deduction that many business owners have decided to indulge in to reduce their expenses. You can choose to elect to take this variation of deduction on the cost of certain variations of business properties. Such properties may include gears like vehicles.
Instead of recovering the cost by depreciating the property, this tax allows them flexibility and relaxation.
Section 179 Deductions for Employers
Sources have revealed that most of the employees can no longer take a section 179 deduction to buy a business vehicle. This is a section one can notice on the part of miscellaneous deductions on Schedule A. Moreover, these deductions have been successfully suspended.
Although, keep in mind that a few categories of employees qualify. They are as follows.
- Armed forces reservists
- Performing artist
- State of a local government official
- Employees having impairment-related work expenses.
These are the employees who can still take advantage of section 179.
What are The Qualifications for Section 179 Deductions?
To qualify for the section 179 deduction for the business vehicle, one must buy and put into service the vehicle. However, one has to keep in mind that it has to be put into use in the year in which you are applying for the section 179 deduction. If you start using the vehicle for business purposes, then it would mean that the business asset is ready.
Moreover, it also showcases the fact that it is available for specific use in a business or the production of income.
In addition to these factors, the vehicle just fulfills the following conditions as well.
- The vehicle or any other property one business owner buys must be eligible. The eligible properties include vehicles, furniture, fixtures, machinery. Although, note that lands and leased companies are not eligible.
- Your company should buy the gear for business purposes only.
- The most significant qualification for section 179 is the purpose itself. It should be strictly professional. You can only take one section 179 deduction for vehicles used more than 50% of the time for business purposes. Although the deduction has its limits as well.
A Bit on Section 179 Deductions and Depreciation
One must know that section 179 deductions work like depreciation. The major purpose of the depreciation is to spread the expense as well as tax deductions. It helps the business owners in such a way by lessening the tax of a car or truck over the life of that asset. Normally, the depreciation has to be deducted as an expense to the business over the life of the vehicle or equipment.
However, the section 179 deduction will allow you to take more of the expense based on the usage of the purchase in the first year. Hence, you may be able to combine a section 179 deduction with the depreciation. It will assist in regulating the tax in the specific tax year.
For example, one can also use a section 179 deduction with a depreciation method. We know that method as bonus depreciation. What this method does is save on taxes when one buys a business vehicle.
What are The Limits To Section 179 Deductions?
There are two limits on the amount you can get to deduct via section 179.
The total amount you can take as section 279 deductions for most property cannot be more than 1 million dollars. In other words, all section 179 deductions for the business property for a year cannot be more than 1 million dollars.
The dollar amount shifts each year of inflation. Moreover, there comes a “phase-out” limit. In addition to the general dollar limit, the maximum section 179 expense deduction for the sport utility vehicles may vary as well. It is based on certain criteria that the autos of the business owner have to meet.
- The four-wheeled vehicle is designed to carry passengers over streets, roads, and highways.
- It should be listed at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight.
Business income limit
Once you apply, you have to keep in mind the dollar limit as well. The total cost you can deduct every year has boundaries as well. The taxable income from your business during that year will create an impact.
In other words, you cannot use section 179 deduction dedication to have your business go through a loss. If you cannot take all or part of the section 179 deduction, many suggest that you carry it over to the next.
- The vehicles must be new or at least “new to you”. Furthermore, one should buy it for the sole purpose of making business operations smoother.
- One should not use the vehicle for transporting people or property for hire.
- A business owner cannot deduce more than the cost of the vehicle as a result of their business expense.
- You need to put the vehicle into service by December 31 of the tax year.
One must put the automobile in use so that one can take advantage of the claim. Some States have restrictions and additional limits on section 179 deduction. Hence, make sure that you have gone through them to get an effective result.
Also read: Also read: What are The Top Tips on Commercial Property Renting