The phrase “tax deduction” is like music to all business owners—since who wouldn’t want to use a perfectly legal way to lower their tax bill? If you haven’t investigated a Section 179 tax deduction before, perhaps this is the year you should—since it can potentially lower your tax bill by thousands of dollars if you’ve made qualifying purchases.
What is a Section 179 Tax Deduction?
Section 179 is a deduction that covers many types of property, i.e., the cost of machinery and other equipment. You may be able to deduct what you’ve paid for tangible items like office furniture, technology, supplies and even vehicles.
It’s the latter that often causes significant confusion for business owners so we’ll focus on vehicles for the balance of this post. To begin, Section 179 tax deduction vehicles must:
- Be passenger vehicles, heavy SUVs, trucks or vans purchased new or used and put into service during the applicable tax year
- Be used more than 50% of the time for business purposes
But there’s more to it than just that.
What Types of Vehicles Qualify for This Tax Deduction?
There are three primary groups of vehicles that quality for Section 179 deductions; Light, Heavy and Other. Each has a different allowable deduction for 2023, as follows:
- Light Section 179 vehicles—many passenger cars, crossover SUVs and small utility trucks with a manufacturer’s gross vehicle weight rating (GVWR) under 6,000 pounds—have a tax deduction limit of $12,200 plus a potential bonus depreciation of $8,000.
- Heavy Section 179 vehicles—many full-size SUVs, commercial vans and pickups with a GVWR between 6,000 and 14,000 pounds—have a tax deduction limit of $28,900 plus a bonus depreciation of 80%.
- Other Section 179 vehicles—those with a GVWR over 14,000 pounds or that have been modified for nonpersonal use, including certain shuttle vehicles, delivery vans, ambulances, hearses and work trucks—aren’t subject to any tax deduction limitations; 100% of their cost may be deducted.
How Does the Deduction Work?
As long as a vehicle checks all the boxes—being purchased and put into service during the tax year, used over 50% of the time for business purposes and falling into one of the categories noted above—it qualifies for the applicable deduction. It’s worth noting that vehicles used for less than 100% of time for business purposes will qualify for a more limited deduction than those used full time for business.
How Do I Get Started?
If you’ve purchased one or more vehicles this year for business use, the first step is learning their GVWR to determine which category they fall into. Since there are some nuances involved in calculating the deduction you’re entitled to, it’s best to get some help from an expert.
At Clear Skies Capital, our focus is supporting business owners on their journey to success, and that includes consulting on money-saving opportunities such as Section 179 tax deductions. Give us a call at 800-230-9822 to speak with one of our team members.