What size car can you write off?

Can I Write Off the Car I Buy for My Business?

Khadija Khartit is a strategy, investment, and funding expert, and an educator of fintech and strategic finance in top universities. She has been an investor, entrepreneur, and advisor for more than 25 years. She is a FINRA Series 7, 63, and 66 license holder.

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You can write off part or all of the purchase price of a new or «new to you» car or truck for your business by taking a section 179 deduction. This special deduction allows you to deduct up to the entire cost of the vehicle in the first year you use it if you are using it primarily for business purposes.

Key Takeaways

Section 179 of the tax code lets you write off some or all of the purchase price of a vehicle you buy for your business, provided you meet the requirements.
To take the deduction, you must use the car for business more than 50% of the time, and you can only deduct the percentage you use for work.
The vehicle must meet certain requirements, such as weighing between 6,000 and 14,000 pounds.
You can’t write off the purchase price and claim the standard mileage deduction in the same year.
You can’t deduct more than your business’s net income for the year.

How Section 179 Deductions Work

A section 179 deduction is a special kind of tax deduction that businesses can take to reduce expenses. You can elect to take this deduction on the cost of certain types of business property, including business vehicles, instead of (or in addition to) recovering the cost by depreciating the property (spreading out the cost over several years).

Note

Most employees can no longer take a section 179 deduction for a business vehicle. This deduction was part of miscellaneous deductions on Schedule A, and these deductions were suspended.

A few categories of employees, including Armed Forces reservists, qualifying performing artists, state or local government officials, or employees with impairment-related work expenses may still be able to take this deduction.

Qualifications for Section 179 Deductions

To qualify for a section 179 deduction for a business vehicle, it must be bought and put into service during the year in which you are applying for the section 179 deduction. Being placed in service means that a business asset is ready and available for specific use in a business or for the production of income.

The vehicle must be eligible property, including machinery, furniture, and fixtures. Land and leased property are not eligible.
Your company must buy the vehicle for business purposes.

The most important qualification for section 179 deduction purposes is business use. You can only take a section 179 deduction for vehicles used more than 50% of the time for business purposes. The deduction is limited to the amount of use and can’t be taken on personal use.

Section 179 Deductions and Depreciation

Section 179 deductions work like depreciation. The purpose of depreciation is to spread the expense (and tax deductions) of owning a business asset such as a car or truck over the life of that asset.

Normally, depreciation is deducted as an expense to the business over the life of the equipment or vehicle. However, a section 179 deduction allows you to take more of the expense of the purchase in the first year.

Note

You may be able to combine a section 179 deduction with depreciation on a vehicle in a specific tax year. For example, a section 179 deduction can also be used with a depreciation method called bonus depreciation to save on taxes when you buy a business vehicle. But bonus depreciation allowances will be phased down beginning in 2023 and will be eliminated in 2026. Check with your tax professional for qualifications and limits on depreciation.

Limits on Section 179 Deductions

There are two limits on the amount you can elect to deduction under section 179.

Dollar Limits

The total amount you can take as section 179 deductions for most property (including vehicles) placed in service in a specific year can’t be more than $1,080,000. In other words, all section 179 deductions for all business property for a year can’t be greater than $1,080,000 for the tax year. The dollar amount is adjusted each year for inflation. There is also a «phase-out» limit of $2,700,000.

In addition to the general dollar limits, the maximum section 179 expense deduction for sport utility vehicles placed in service in tax years beginning in 2022 is $27,000.

Note

The IRS specifies that the vehicle must be a «4-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways, that is rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight.»

Business Income Limit

After you apply the dollar limit, the total cost you can deduct each year—including section 179 deductions—is limited to the taxable income from your business during that year. In other words, you can’t use a section 179 deduction to cause your business to have a loss. If you can’t take all or part of a section 179 deduction in one year, you can carry it over to the next year.

The calculation for this limit is complicated and it’s different for each business. See the instructions for IRS Publication 946 for more details.

How To Take the Deduction

You or your tax preparer will need to complete IRS Form 4562 Depreciation and Amortization. Follow the instructions for Part I.

Key Requirements and Restrictions

The vehicle must be new or «new to you,» meaning that you can buy a used vehicle if it is first used during the year you take the deduction.
The vehicle may not be used for transporting people or property for hire.
You can’t deduct more than the cost of the vehicle as a business expense.
You must put the vehicle «into service» (use it in your business) by December 31 of the tax year. If you don’t use it, you can’t get the deduction, so make sure you can prove the vehicle was used in your business by the end of December, in case of a tax audit.
You cannot deduct more than your business net income for the year.

Note

Some states have restrictions and additional limits on section 179 deductions. Check with your state’s taxing authority for details.

Frequently Asked Questions (FAQs)

How much of my car can I write off for business?

You can write off the whole cost of ownership and operation, within limits, if you only use the car for business purposes. If you use the car for both personal and business purposes, you can only deduct the cost of its business use.

What kinds of vehicles can you write off with Section 179?

Any four-wheeled vehicle designed to carry passengers, including cars, trucks, vans, and SUVs weighing between 6,000 and 14,000 pounds can qualify for at least a portion of Section 179.

Tax Credit for Trucks

Although no direct tax credits are available for the business ownership of trucks, a small business can use the tax rule that allows 100 percent deduction of a new truck purchase if the truck is a necessary business expense. The Section 179 tax write-off is the one alternative to buying a truck and then taking depreciation write-offs over many years. Taking a full deduction saves thousands in taxes this year compared to depreciating a truck. The Section 179 deduction lets you pay for part of the cost of a new truck with the taxes saved by deducting the cost.

Section 179 Deduction

The Section 179 tax deduction allows the 100 percent write-off of qualifying equipment purchased for business use. Qualifying equipment includes business machines, office equipment, computer software and furniture, as well as vehicles that qualify for the write-off. For 2012, the maximum Section 179 deduction was $139,000. The maximum a business could spend on qualifying equipment during the year and still take the full write-off was $560,000.

Qualifying Trucks

The types of vehicles that qualify for a full deduction are those with a gross vehicle weight rating — GVWR — of between 6,000 and 14,000 pounds and a separate cargo area at least 6 feet long. Trucks that meet these criteria include long bed pickups, 3/4 ton or larger trucks and cargo vans. Passenger vans that can seat nine or more behind the driver also qualify. Other vehicles purchased for business use may qualify for a partial deduction. These exceptions are primarily smaller passenger vehicles or cargo vans.

Claiming the Deduction

The Section 179 deduction is claimed by completing Internal Revenue Service Form 4562 and attaching the form to a business tax return. The deduction is taken on a per item basis, and you can claim the Section 179 deduction for one purchase and not claim it for another. Say your business purchased two trucks during the year that would qualify for the deduction. You can choose to claim one as a full write-off and take depreciation on the other to spread out the write-off.

Check for Changes

The IRS changes the Section 179 limits every year and may make adjustments to what can be claimed. For example, when the rule first came into existence, a business owner could buy a large sport utility vehicle for business use and take a full write-off. SUVs no longer qualify for a full Section 179 deduction. If you missed the deduction for trucks purchased in past years, you can amend business tax returns back to 2007 to add the Form 4562 and claim the deduction.

Section179: Section 179 at a glance — New for 2012
Section179: Vehicles and Section 179
Section179: Electing the Section 179 Deduction — Form 4562

Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor’s degree in mathematics from the U.S. Air Force Academy.

Tax Deductions for Heavy Vehicles

A majority of U.S. companies invest in heavy vehicles to operate their businesses. They rely on these trucks, SUVs, and vans to transport goods from production to the consumer. Take Amazon, for example. Could you imagine a world nowadays where those dark-gray delivery trucks weren’t trolling through your neighborhood? It goes without saying that these heavy-duty vehicles play an integral role in creating happy customers and prospering businesses.

And though taxpayers see heavy vehicles by the dozen, particularly on highways and busy shopping centers, some aren’t aware that these trucks are one of the biggest investments that business owners make. Not to mention, until recently, there were very minimal tax breaks on trucks of this stature and size. But now, thanks to the new tax law, heavy vehicles are granted huge depreciation deductions throughout 2022.

How much can you write-off for a commercial vehicle?

For passenger vehicles, the IRS sets annual limits on how much you can deduct through depreciation. We break down those IRS restrictions in our guide to the new tax law. But what about heavy vehicles? Do they get treated the same? In contrast to passenger vehicles that are used for business purposes, heavy vehicles (that are more than 6,000 pounds loaded gross weight) are eligible for a different kind of deduction. With the amended changes to the new tax law, companies have two options for heavy vehicle tax deductions:

Bonus depreciation
Section 179

Before TCJA went into effect, bonus depreciation would generally vary by tax year. However, the new tax law made it possible for companies to depreciate the full cost of an expensive heavy vehicle in a single year. This development is rare and frankly an ideal time for business owners to invest in vans and trucks for business use. The other option (Section 179) is a set amount distinguished by the IRS. The new tax law also improved this tax deduction for business owners.

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Does the 2022 tax year have bonus depreciation?

This is the last tax year to deduct 100% of heavy vehicles. The IRS plans to phase out bonus depreciation by 2026, with deduction percentages decreasing each year until then. Because passenger automobile deductions don’t apply to heavy vehicles, companies can take full advantage of bonus depreciation when you purchase a vehicle for business. Essentially, you can deduct 100% of the cost in one year of ownership, as long as you use the vehicle only for business purposes. If you’ve been wanting to buy a heavy vehicle, essentially now’s your chance.

What qualifies as Section 179 deduction?

The Section 179 deduction applies to tangible personal property such as machinery and equipment purchased for use in trade or business, and if the taxpayer elects, qualified real property, according to the IRS. The Tax Cuts and Jobs Act increased the maximum expense deduction from $500,000 to $1 million, but limitations still apply for heavy vehicles. And so, business owners can only deduct $25,000 for trucks and other heavy vehicles. With this information, it’s apparent the bonus depreciation is still the better option for your 2022 tax filing.

Do I need to track mileage?

Yes! To qualify for the bonus depreciation or Section 179 deduction, you must show substantial evidence that your company uses heavy vehicles more than 50 percent of the time. This is true for the full five-year depreciation period that applies to any business vehicle. By chance you dip below the 50 percent mark, you’ll end up having to pay back your bonus depreciation. As a business owner, this is something to be conscious of as you navigate logistics for the year.

In any case, it’s important to track your business mileage. Whether you choose the bonus depreciation or Section 179, you’ll want records of your business drives in the event that you’re audited by the IRS. By far the best way to avoid inconsistent reporting is to invest in a mileage tracking application. With MileIQ, companies can keep contemporaneous logs of all business drives and receive comprehensive reports that comply withIRS standards.

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