Section 179 of the U.S. Internal Revenue Code incentivizes businesses to invest in new equipment or property by allowing them to deduct, for tax purposes, the full cost of qualifying assets purchased or financed during the tax year. This allows businesses to reduce their tax liability in the year of purchase instead of spreading out the deduction of the depreciable life of the property or equipment.
For the tax year 2023, the maximum deduction limit for Section 179 is $1,160,000. This means businesses can deduct up to $1,160,000 of the cost of qualifying assets, as long as the total cost of those assets does not exceed $2,890,000. Once the total cost of qualifying assets reaches $2,890,000, the deduction starts phasing out and reduces dollar for dollar until it is completely phased out.
Do My Assets Qualify for Section 179?
To qualify for Section 179, the assets must be tangible, personal property used for business purposes, such as machinery, equipment, furniture, and vehicles. Certain types of property, such as real estate and land, do not qualify for Section 179 depreciation.
Under Section 179 depreciation, certain vehicles can qualify for the deduction. However, it’s important to note that not all vehicles are eligible, and that there are specific requirements that must be met for a vehicle to qualify.
Guidelines for Vehicle Eligibility Under Section 179 Depreciation
Weight: The vehicle must have a gross vehicle weight rating (GVWR) of more than 6,000 pounds. This requirement is based on the vehicle’s weight when fully loaded with passengers, cargo, and fuel.
Use: The vehicle must be used primarily for business purposes. It should be used for business-related activities, such as transporting goods, making deliveries, or carrying out specific job functions related to the business.
Percentage of Business Use: The vehicle’s business use must exceed 50% of its total use. It’s important to maintain accurate records of mileage and document the business-related use of the vehicle.
Note: passenger vehicles, such as sedans, typically do not meet the weight requirement and therefore do not qualify for Section 179 depreciation. However, certain types of vehicles commonly used for business purposes, such as trucks, vans, and SUVs, may meet the weight requirement and could potentially qualify.
Maximize Your Tax Benefits in 2023
In addition, U.S. Internal Revenue Code allows businesses to get an additional bonus depreciation tax deduction for new and used equipment purchased for the business’s purposes. In 2023, bonus depreciation for Section 179 is set at 80% of qualified purchases. Bonus depreciation will ramp down for ensuing years to 60% for 2024, 40% for 2025, and 20% for 2026 and 0% beginning in 2027.
The information, including numbers, listed in this article is as of the date of posting and subject to change.