What is the Section 179 Vehicle Deduction?

Section 179 of the Internal Revenue Tax code deals with vehicles, equipment, and software that can be fully or partially deducted in the year it was purchased. This is instead of depreciating the purchase price a little over several years. It is designed to help small- or medium-sized company purchases invest in needed large-scale equipment. For vehicles, it is mostly aimed at purchases of large trucks, vans, or SUVs. The two primary requirements for a vehicle purchase to have a 100% deductible the year it was purchased are that it must weigh over 6,000 pounds and be used more than 50% of the time for business purposes. The section 179 deduction can be as high as $1.16 million for 2023 (the figure adjusts for inflation). Two general limits on the allowance’s use include:

1. The allowance cannot exceed a business owner’s income from all trades or businesses. 

2. The allowance phases out if the total amount of qualified assets placed in service in a year exceeds $2.89 million for 2023. This figure also indexes for inflation.

Consequently, a business may not claim an IRC Section 179 expense allowance in 2023 if assets placed in service during the year reach or exceed $4.05 million ($1.16 million + $2.89 million). These limits keep the deductions focused on benefitting small businesses. 

Qualifying Toyota Models

While deducting the total purchase price is limited to models of 6,000 pounds or more, smaller upfront deductions can also be made for smaller vehicles. The Section 179 qualifications for vehicles to deduct 100% of the purchase price include:

• Apparent 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

With those specifications in mind, individual Chevrolet models will qualify for Section 179 in the following ways:

Up to 100% of purchase price:

• Tundra and Tundra i-Force Max

• 4Runner 2WD/4WD LTD

• Sequoia 

• Grand Highlander Hybrid
  

Up to $25,000
Plus up to 80% of the remaining purchase price plus standard depreciation:

• Grand Highlander

• Tacoma

• Sienna
  

Vehicle Usage Qualifications

Any vehicle to be deducted under Section 179 must be registered in the business name for which you will take the deduction. As stated, the primary qualification is that over 50% of the vehicle’s mileage must be for business use. The IRS’s definition of business use does not include commuting. No exceptions are made for vehicles with a business logo or even advertising on the exterior, a driver making business calls while commuting, or a passenger conducting business during the commute. 

This means that you will need to keep mileage records of your business vehicles to substantiate that more than 50% of their use is for business. Relevant records include the original invoice, mileage logs, and any related expenses that can verify the claim. There are smartphone apps that are designed to track this very thing. Like other business records, documents that confirm your business use claim should be retained for three years after you file your return in case the IRS audits your tax return. 

Financing or Purchase Used Vehicles

Fortunately, you can finance a qualifying vehicle over several years and still qualify for the applicable purchase deduction. Nor does it matter when you made the purchase. It can be on December 31st, and you can make the full applicable deduction. The purchase of a qualifying used vehicle will also apply, with the stipulation that the vehicle must be new to both you and the business. 

Understanding the Section 179 deduction is essential for any small business owner looking to maximize their tax savings and this is just an introduction to the concept. Valley Hi Toyota recommends that you consult with your tax professional and stay updated on the latest tax laws to take full advantage of this valuable tax incentive.