You may deduct up to $25,000 from the cost of vehicles (for one year) that weigh between 6,000 and 14,000 pounds or more in the year that they are put into service under Internal Revenue Code Section 179.
The maximum section 179 deduction for the first year for a Kia Telluride that weighs under 6,000 pounds is $10,200.
(Please note that the maximum tax deduction is $18,200, which can be obtained by adding an additional $8000 in bonus depreciation to the section 179 deduction.)
We advise buying a car that weighs more than 6,000 pounds if you want to take advantage of bonus depreciation laws that were introduced under the Tax Cuts and Jobs Act. Consider the Tesla Model X in this situation.
In This Article...
What automobiles can be written off under Section 179 in 2021?
any vehicle with a minimum GVWR of 6,000 pounds and a maximum GVWR of 14,000 pounds (3-7 tons). This includes a sizable number of full-size SUVs, vans, and pickup trucks.
Section 179 vehicles get you on the road to big tax deductions.
Have you bought or financed a vehiclenew or usedfor your small business? In that case, you can be eligible for a hefty tax break. As long as your vehicle is eligible for the Section 179 deduction, you may deduct all or a portion of its cost in the first year that you use it for business.
The views expressed in this content are meant mainly for general information and do not constitute personalized advice or suggestions for any particular person.
Types of vehicles that are eligible.
Before we get started, it’s important to be aware that the IRS occasionally publishes changes, instructions, and new regulations pertaining to Section 179. Use this information as a starting point; the eligible automobiles are subject to change.
In general, passenger cars, large SUVs, trucks, and vans used at least 50% of the time for business-related reasons qualify for the Section 179 tax deduction. So, for instance, a pool cleaning company may write off the cost of a brand-new pickup truck it uses to travel to and from clients’ houses.
Small vehicles.
Small automobiles are used every day by millions of small enterprises and lone entrepreneurs. These include tiny utility trucks, crossovers, and passenger automobiles. The Section 179 deduction cap for small vehicles under 6,000 pounds is $10,100 in the first year of use and $18,100 with bonus depreciation.
The deduction allowance is proportionately decreased if the vehicle is not utilized exclusively for business. The cap is $5,050 ($10,100 x.50) if a florist, for instance, buys a vehicle that is used 50% for business.
Heavy vehicles.
A commercial vehicle must weigh at least 6,000 pounds and not more than 14,000 pounds to be considered “heavy.” Many pickup vehicles, SUVs, and vans weigh more than 6,000 pounds. On the label or in the vehicle information packet provided by the manufacturer, the gross vehicle weight rating (GVWR) is frequently mentioned. The inside of the driver’s side door, either on a sticker or a small metal badge, bears the manufacturer’s label, which includes the make, model, features, GVWR, and other information.
The maximum Section 179 deduction for heavy vehicles is $25,000 Let’s imagine you borrow $45,000 to buy a large SUV, and you only use it for your little business. Under Section 179, you may write off $25,000 and receive a $10,000 first-year depreciation (half of the remaining purchase price after the Section 179 deduction). Consequently, the $45,000 SUV purchase will result in a $35,000 first-year deduction. In some circumstances, a regular depreciation percentage is applicable, but only a tax expert can establish this.
Special rules.
You will probably learn about some of the particular regulations when you discuss Section 179 for autos with your accountant or tax advisor. One of these laws relates to pay. First of all, your net taxable income for the year cannot be greater than your Section 179 deduction. Secondly, you are not permitted to use your car to transport people or items for rent or payment.
Whether you acquire a new or used car, you have to put it to use, often known as “commercial use,” during the tax year you buy it before December 31. If you choose to take advantage of the Section 179 deduction, you must show documentation demonstrating your car was utilized for business purposes. If your company is ever subject to a tax audit, this will be useful.
Helpful links for small business owners.
Vehicles under Section 179 infographic An illustration of how Section 179 applies to commercial vehicles
impromptu tax planning A must-read if this year’s tax deadline is approaching.
What kind of car can be deducted under Section 179?
Luxury SUVs lie between 6,000 and 14,000 pounds in weight, while section 179 luxury cars must have a GVWR of 6,000 pounds or less. As previously mentioned, the maximum first-year Section 179, Bonus Depreciation, and ordinary depreciation limit for automobiles is $18,200, while the cap for SUVs is $26,200.
Mercedes G-Class
The V8 engine in this top-of-the-line SUV has 416 horsepower. Its $6,945 pound GVWR and $154,520 MSRP make it eligible for the $26,200 SUV Section 179 deduction for business owners.
Tesla Model X
This high-end crossover SUV has an electric powertrain with a 1,020 maximum horsepower. Its starting MSRP is $79,990, and its GVWR is 6,800 pounds. A section 179 deduction of $26,200 is available to qualified business owners under the SUV Section.
Range Rover P525
The V8 engine in this top-of-the-line, luxurious SUV has 518 horsepower. It has a $105,950 MSRP and a 6,967 pound GVWR, and Section 179 allows qualified business owners to deduct up to $26,200 from that price.
Can my SUV be written off?
Only if the car is utilized exclusively for business purposes AND you purchase it brand-new from the dealer are you eligible for a full write-off (no private party used vehicle). It must be completely new. The figure in the illustration accounts for a new SUV weighing more than 6,000 lbs.
To sum it up:
1) The ratio utilized for business is deductible if it is 100 percent business usage, for example, 65 percent for business use, 65 percent depreciation/deduction schedule. Track your miles! Since it’s uncommon to have 100 percent business use, the example above uses a more cautious 95 percent depreciation rate.
2) Must be a new SUV weighing more than 6,000 lbs.
For SUVs exceeding 6,000 pounds, the IRS permits up to $25K in upfront depreciation (100 percent), PLUS 50% Bonus Depreciation for NEW vehicles that will approach that amount. Over 50% of the miles the vehicle is driven must be for business. You must also subtract the personal usage percentage from the $25K.
Very good! If you want to buy a new SUV, we have a winner here. The IRS permits self-employed people and workers to deduct automobiles under 6,000 pounds using a standard mileage rate, which is 56 cents per mile for business travel in 2021.
You can deduct based on the cost of operating the car if you are unable or unable to do so based on miles. Costs include tires, upkeep, gas, and other expenses. One of the two is true.
Can a 6000 pound truck be written off in 2021?
A provision of the federal tax code known as the “6,000-pound vehicle tax deduction” permits taxpayers to deduct up to $25,000 off the cost of a car on their tax return. The gross vehicle weight rating (GVWR) of the bought vehicle must be greater than 6,000 pounds but less than 14,000 pounds.
Which automobiles qualify for bonus depreciation?
- Section 179 has an annual deduction cap. The yearly maximum deduction is $1,040,000. The amount you can deduct will start to decline if your company spent more than $2,500,000 on assets (equipment or vehicles) during the year.
- At the end of the year, businesses must have a profit or positive income.
- By December 31st, all vehicles must be purchased and used for commercial purposes.
- Only large SUVs, pickup trucks, and vans with a gross vehicle weight (GVW) of over 6,000 pounds are eligible.
- Over 50% of your business activities must include the utilization of vehicles or fleet trucks and vans.
- You have the freedom to decide which purchase(s) qualify for this tax break.
What is the maximum amount of auto depreciation for 2021?
Both the lease inclusion amounts and the luxury car depreciation limits for business cars first leased in 2021 have been released by the IRS.
The annual depreciation reductions for luxury cars placed in service after 2021 are restricted to:
- $10,200 in the first year, bonus depreciation excluded.
- with bonus depreciation, the first year will cost $18,200.
- $21,600 for the following year.
- $9,800 for the subsequent year.
- For years four through six, the cost is $5,860.
For a sport utility vehicle, truck, or van put into service in 2021, the following luxury automobile depreciation caps apply:
The year following the end of the vehicle’s regular depreciation period is used to deduct any extra depreciation that exceeds the annual cap.
This excess depreciation’s yearly cap is:
- $5,860 for personal vehicles, and
- SUVs, trucks, and vans cost $5,860.
A taxpayer must include a lease inclusion amount in gross income each year of a vehicle lease starting in 2021 if the vehicle’s fair market value at the time of the lease is greater than:
- a passenger automobile costs $51,000, or
- $51,000 for a truck, van, or SUV.
The amounts for each year of the lease are shown in the 2021 lease inclusion tables.
The taxpayer’s deduction for lease payments is permanently reduced by the lease inclusion amount.
The following are exempt from the depreciation caps and lease inclusion amounts:
- automobiles with a gross vehicle weight over 6,000 pounds when empty; or
- vehicles with a gross vehicle weight rating (GVWR) of more than 6,000 pounds, including SUVs, trucks, and vans.
Describe a heavy SUV.
According to current tax rules, both new and used business vehicle purchases may be eligible for tax advantages. Review these data before you shop if you require a new car for professional use. Certain automobiles can be eligible for greater deductions than others.
First-Year Depreciation Breaks
According to the Tax Cuts and Jobs Act (TCJA), qualifying new and used assets (including eligible automobiles) that are purchased and put into operation between September 28, 2017, and December 31, 2022, are eligible for limitless 100 percent first-year bonus depreciation. However, a used asset must be brand-new to the taxpayer in order to qualify for 100% first-year bonus depreciation (you or your business entity).
The Section 179 expensing maximum for eligible asset acquisitions was also permanently raised by the TCJA, going from $500,000 in 2017 to $1 million for tax years starting in 2018 and thereafter. However, in 2018 (up from $2 million in 2017), this exemption phased out for eligible acquisitions over $2.5 million.
After 2018, these sums will undergo a yearly inflation adjustment. For 2020, the amounts are $1.04 million and $2.59 million, respectively, after accounting for inflation. The adjusted values for inflation are $1.05 million and $2.62 million for 2021.
For purchases that surpass the threshold amount, Sec. 179 expensing for qualifying asset purchases is gradually phased out on a dollar-for-dollar basis. Therefore, if your total investment in qualified property exceeds $3.63 million in 2020 ($3.67 million in 2021) there is no Section 179 deduction available.
Heavy Vehicles
For tax reasons, large SUVs, pickup trucks, and vans are considered pieces of transportation equipment. Therefore, if utilized more than 50% for business, they are eligible for Sec. 179 expensing and 100% first-year bonus depreciation. The purchase of both new and old heavy trucks may result in a significant tax benefit.
However, you must depreciate the portion of the vehicle’s cost attributable to commercial usage over a six-year period if a heavy vehicle is used for business purposes at least 50% of the time.
To demonstrate the potential savings from these first-year tax advantages, let’s say you spend $65,000 on a new, large SUV that you use exclusively for business purposes in 2020. The 100% first-year bonus depreciation privilege allows you to write off the entire $65,000 in 2020. Your first-year deduction would be $39,000 (60 percent of $65,000) if you only used the car for work purposes 60 percent of the time.
An SUV, pickup, or van must have a manufacturer’s gross vehicle weight rating (GVWR) more than 6,000 pounds in order to be considered a “heavy vehicle.” The manufacturer’s label, which is often located on the inside edge of the driver’s side door where the door hinges meet the frame, can be used to determine a vehicle’s GVWR. The Audi Q7, Buick Enclave, Chevy Tahoe, Ford Explorer, Jeep Grand Cherokee, Toyota Sequoia, and several full-size pickups are a few examples of suitable big vehicles.
Garden-Variety Passenger Vehicles
Less tax advantages are available for passenger cars than for large vehicles, which includes light SUVs, pickups, and vans. The following are the depreciation caps for passenger vehicles purchased after September 27, 2017, and put into service during 2020:
- $18,100 after bonus depreciation in the first year, or $10,100.
- $16,100 the following year,
- for the third year, $9,700, and
- $5,760 for every year after that.
These allowances are reduced proportionately if the vehicle is used for commercial purposes less than entirely.
Important: In order for a vehicle to qualify for these tax benefits, it must be used at least 50% for business-related activities, and the taxpayer cannot choose not to claim the deductions for the class of property that includes passenger cars (five-year property).
Thinking about Leasing?
Tax deductions for leased vehicle business use are possible. The entire leasing fee is deducted as an ordinary business expense if a leased vehicle is used exclusively for work-related activities. However, in order to partially offset the leasing deduction, lessees of more expensive automobiles are required to add a specific amount in income for each year of the lease.
The original fair market value of the leased car and the year of the lease determine the income inclusion amount. For automobiles with lease terms beginning in 2020, the IRS has produced a table to assist taxpayers in determining the inflation-adjusted lease inclusion amounts.
As an illustration, let’s say that on January 1, 2020, your company signs a three-year lease for a light vehicle with a fair market value of $66,500. Assume that it is only utilized for business. Your income inclusion amounts for each year of the lease would be as follows, in accordance with the IRS table:
- $40 in 2020,
- $89 in 2021, and
- $131 in 2022.
The lease inclusion table is made to help evaluate the tax advantages of leasing a high-end vehicle with buying one and taking advantage of the larger first-year depreciation tax incentives.
To examine the advantages and disadvantages of leasing vs. purchasing a company car, speak with your Brady Ware tax advisor. One factor in making this crucial choice is taxes.
Food for Thought
The TCJA increased the Sec. 179 restrictions indefinitely. But starting with tax years beginning in 2023, the first-year bonus depreciation program will progressively start to phase out by 20% annually. And unless Congress extends it, the bonus depreciation program will terminate after 2026.
Be warned that the current tax rates and regulations may not continue to be business-friendly. To support COVID-19 financial assistance and other spending initiatives, Congress may in the future enact legislation that modifies the current tax rates and deductions, or even repeals the bonus depreciation scheme and Sec. 179 deductions entirely. Therefore, it is crucial to be ready for a range of circumstances. In order to take advantage of reduced first-year depreciation deductions and postpone deductions to future years when tax rates are projected to rise, some taxpayers may find it advantageous to forego bonus depreciation and Sec. 179 for 2020.
For More Information
If you have any issues about depreciation deductions for vehicles, get in touch with your Brady Ware tax expert. He or she can assist you in making the best decision for your company.