Section 179 Deduction

Section 179 is an attractive tax incentive designed to encourage businesses to purchase or upgrade equipment as soon as possible and make investments early rather than later. Businesses taking advantage of this tax break may write off all qualifying costs from equipment purchased within that year’s deduction limit and deduct them entirely in that year, providing an incentive to do so sooner rather than later. Section 179 deductions must be claimed using Form 4562, which requires detailed information about the property purchased and how it will be utilized by your business. Qualifying purchases include computers, vehicles, office furniture, and any tangible business assets used in its operation. However, this deduction comes with certain restrictions; businesses must consult a tax expert before claiming it. Notably, this deduction only applies to items purchased within the tax year.

Businesses should recognize that this deduction will only apply if their trade or business activities include active trade or business activities such as salaries and wages, Section 1231 gains/losses, and income earned from sole proprietorships, partnerships, or S corporations in which the taxpayer actively participated. Additionally, to Section 179, businesses may take advantage of Bonus Depreciation as another IRS incentive that encourages investment in equipment or vehicles by offering tax breaks on first-year depreciation of these assets. These incentives have specific rules and applications, often combined for maximum advantage.

How to Claim Section 179 Deduction

Since the Tax Cuts and Jobs Act of 2017, businesses can now claim 100% Section 179 deduction when purchasing capital assets. Bonus depreciation remains available, though its percentage will gradually reduce starting in 2024 up to an 80% threshold. To claim the Section 179 deduction on its tax return, your business must have purchased or leased qualified property and put it into service in the year you claim a deduction – anything from software licenses and computers to vehicles qualify as qualifying assets. Even if your business doesn’t generate enough taxable income to claim as deductions, a 50% Section 179 deduction for up to $10,000 of qualifying equipment purchased can still be claimed and carried over into next year if your net income allows it.

When purchasing new or used equipment, it’s essential to understand the restrictions placed upon Section 179 deductions and their potential effect on your bottom line. Furthermore, bonus depreciation should also be considered when planning how these deductions can work together for maximum tax savings for your business. Speak with an accountant or tax advisor regarding these tax breaks that could benefit both parties.

Section 179 Vehicle Eligibility

Tax incentives such as Section 179 can save you thousands in taxes while improving cash flow, but certain details must be considered before using this deduction. First step to qualify for this deduction is identifying which vehicles qualify. These fall into three broad categories: cars, trucks, and vans. Cars are four-wheeled vehicles designed primarily to carry passengers over public streets, roads, and highways and have an unloaded gross vehicle weight rating (GVWR) of no more than 6,000 pounds.

Car owners are eligible to claim a maximum first-year Section 179 deduction of $18,200 plus bonus depreciation. At the same time, truck or van drivers who primarily carry cargo can meet these same qualifications, but their GVWR can exceed 6,000 pounds. Heavy SUVs qualify for maximum Section 179 and bonus depreciation limits of $26,200 during their first year, plus you may take advantage of 100 percent bonus depreciation if purchased after September 27, 2017, and before January 1, 2024.