Section 179: Which Vehicles Qualify and How To Get The Most Out Of It!
On February 15, 2023, Idaho’s Governor signed House Bill H0021, bringing Idaho tax law into conformance with the IRS Code regarding section 179 provision of the US tax code. If you own or manage a business and currently or plan to use vehicles for business, you will want to become familiar with this provision. Section 179 allows businesses to deduct the purchase price of vehicles, software, and other qualifying equipment, in the year it was purchased, rather than depreciating it a little at a time over several years. Specifically, IRC Section 179 allows a taxpayer to expense up to $1.16 million of the total cost of new and used qualified assets it places in service for that year. The cap figure is indexed for inflation. There are two general limits on the allowance’s use.
- The allowance cannot exceed a business owner’s income from all trades or businesses she or he owns.
- The allowance phases out if the total amount of qualified assets a firm places in service in a year exceeds a phaseout threshold. For 2023, that figure is $2.89 million and is also indexed for inflation.
Consequently, a business may claim no IRC Section 179 expense allowance in 2023 if it places in service assets with a total cost at or above $4.05 million($1.16 million + $2.89 million). As a result of these limits, the allowance is available primarily to small firms only.
The code is designed to help businesses that need to purchase large vehicles for their business. Vehicles that so qualify for the Section 179 tax write-off include:
- Obvious non-personal “work” vehicles (dump truck, backhoe, farm tractor, etc.)
- Specialty vehicles with a specific use (hearse, ambulance, etc.)
- Delivery use vehicles (cargo vans, box trucks)
- Heavy SUVs, pickups, and vans over 6,000 lb. GVWR
That means from the Chevrolet model lineup, the following vehicles can qualify for Section 179:
Up to 100%
- Express Cargo Van
- Express Cutaway
- Express Passenger Van
- Low Cab Forward
- Silverado 1500
- Silverado 2500 HD
- Silverado 3500 HD
- Silverado 4500 HD
- Silverado 5500 HD
- Silverado 6500 HD
- Silverado HD Chassis Cab
The IRS is specific about how regular road-going vehicles like those listed above can be used. One is that the vehicle must be registered in the business name for which you will take the deduction. The other primary qualification is that over 50% of the vehicle’s usage must be for business use. The IRS divides road-going vehicle use into three categories: business, commuting, and personal. Commuting and personal use do not qualify as business, and they are very strict about this. Using a vehicle for commuting or personal use that has the business logo or even advertising on the exterior does not qualify as business use. Conducting business calls or performing business as a passenger while commuting is also not considered business use.
Consequently, it is vital to keep mileage records of road-going vehicles to substantiate that more than 50% of its use is for business. This includes the original invoice, mileage logs, and any related expenses. These records will help you substantiate your business use claim if the IRS audits your tax return. Thus, it is important to keep these records for at least three years after filing your tax return with the deduction. Many apps for your phone can help you track mileage and expenses.
Financed and Used Vehicles Apply
You can finance a qualifying vehicle over time and still get the full deduction in that year, even if you purchase it late in the year. Also, the purchase of a used qualifying vehicle will apply, as well as a new one, with the stipulation that the vehicle must be new to you and the business. Obviously, the business cannot sell the vehicle to itself and claim the deduction again.
Understanding the Section 179 deduction is important for any small business owner looking to maximize their tax savings. This is only an introduction to the concept, so be sure to consult with your tax professional and stay updated on the latest tax laws to take full advantage of this valuable tax incentive.