What is Section 179 Deduction and Bonus Depreciation for Commercial Vehicles?
What is Section 179 Deduction and Bonus Depreciation for Commercial Vehicles?
As we approach the end of 2024, now is the perfect time for businesses to strategically plan and execute their vehicle purchases, both for the end of this year and for the upcoming tax year. As you shop for work trucks for sale, remember that taking advantage of tax incentives like Section 179 can significantly impact your bottom line. This article provides a guide to Section 179 and bonus depreciation, helping you understand how to maximize these valuable deductions when acquiring new work trucks or vans.
What is Section 179?
Section 179 is a provision in the Internal Revenue Service tax code that allows business owners to deduct the full purchase price of qualifying new or used work trucks and vans in the year they are purchased rather than depreciating the cost over several years.
Section 179 can significantly reduce your tax burden by allowing you to offset the entire cost of a vehicle purchase against your taxable income in the same year, up to the annual limit. This frees up cash flow and can make acquiring new equipment more affordable.
Section 179 Deduction Opportunity and Limits
To qualify for the Section 179 deduction in 2024, the vehicle must be purchased, financed, or leased and put into service by December 31, 2024. The vehicle must also be used more than 50% of the time for business purposes. For 2024, businesses can deduct the full cost of qualifying equipment and software up to $1,220,000. This deduction begins to phase out if your total equipment purchases exceed $3,050,000, but bonus depreciation may still be available for purchases exceeding these limits.
Bonus depreciation, or special depreciation allowance, is another tax incentive that allows businesses to deduct a significant percentage of the cost of qualifying assets in the first year they are placed in service. It works alongside Section 179 and can provide additional tax savings.
Example:
Let's say you purchase a box truck or service truck for $90,000 in 2024.
- Section 179: You first use Section 179 to deduct the maximum amount, which is $1,220,000 for 2024. Since your truck cost less than that, you can deduct the entire $90,000 using Section 179.
Commercial vehicles, like box trucks and service trucks, are eligible for Section 179 deductions.
In this example, you wouldn't need to use bonus depreciation because Section 179 covered the entire cost. However, if the truck, or trucks (A business can combine multiple expenses to reach that total.), cost more than the Section 179 limit, you would then apply bonus depreciation to the remaining amount.
Here's a breakdown of key things to know about bonus depreciation:
- How it works: Instead of depreciating an asset over its useful life, bonus depreciation allows you to deduct a large portion of the cost upfront. This accelerates your tax savings.
- Qualifying assets: Generally, new and used equipment, machinery, and certain other property with a recovery period of 20 years or less qualify for bonus depreciation.
- Current percentage: For assets placed in service in 2024, the bonus depreciation percentage is 60%. This means you can deduct 60% of the asset's cost immediately.
- Phase-out: The bonus depreciation percentage is gradually phasing out. It will decrease to 40% in 2025, 20% in 2026, and will be completely phased out in 2027.
- Combination with Section 179: You can use bonus depreciation in conjunction with Section 179. Typically, you would first take the Section 179 deduction up to the limit and then apply bonus depreciation to the remaining cost.
Important Notes:
- Bonus depreciation rules, including federal depreciation guidelines, can be complex, and it's always best to consult with a tax professional for specific guidance.
- The information provided here is based on current tax laws, which are subject to change.
By understanding both Section 179 and bonus depreciation provisions, you can maximize your tax savings when purchasing work vehicles or other qualifying equipment for your business.
How To Take Advantage Of Section 179 and Bonus Depreciation
Your first step is to consult with a qualified tax professional to ensure you fully understand Section 179 and any other potential tax benefits related to your vehicle purchases. They can provide tailored advice based on your specific business situation.
Once you clearly understand your tax options, visit your preferred dealership and discuss your business needs with a commercial sales consultant. They can help you configure vehicles to maximize efficiency and support your business growth.
References:
Publication 946 (2023), How To Depreciate Property
Accelerated Depreciation Options for Your Business Tax Savings
Important Note: Comvoy / Work Truck Solutions is not a tax advisor; consult a professional for financial and/or tax advice. View More Information at IRS.GOV.
