Section 179 Tax Deduction for Vehicles

How does my GMC Vehicle Qualify for the Section 179 Tax Break and Deduction

Understanding the Section 179 Tax Break for Vehicles

If you own or manage a business and currently or plan to use vehicles for that business, it is important to become familiar with this provision. Section 179 exists to enable small businesses to deduct the purchase price of vehicles, software, and other qualifying equipment, in the year it was purchased, rather than depreciating it over several years. Section 179 allows a taxpayer to expense up to $1.16 million of the total cost of new and used qualified assets it places in service for that year. That figure is indexed 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 she or he owns.
  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 is also indexed for inflation.

Consequently, a business may not claim an IRC Section 179 expense allowance in 2023 if it places assets in service with a total cost at or above $4.05 million ($1.16 million + $2.89 million). As a result of these limits, the allowance is available primarily to small businesses only.

Vehicles That Qualify

The code is designed to help businesses that need to purchase large vehicles for their business. The Section 179 qualifications for vehicles to deduct 100% of the purchase price include:

  • Obvious 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
  • Some smaller vehicles can qualify for a deduction of less than 100% of the purchase price.

That means from the GMC model lineup, the following vehicles can qualify for Section 179:

Up to 100%

Up to $25,000

Plus up to 80% of the remaining purchase price plus standard depreciation
Other trucks, passenger vans, and SUVs – GVWR greater than 6,000 lbs.

Up to $20,200

All vehicles – GVWR 6,000 lbs. or less.

Usage Qualifications

The IRS is specific about how regular road-going vehicles like those listed above can be used. One is that the vehicle must be registered in the business name for which you will take the deduction. The other primary qualification is that over 50% of the vehicle’s usage must be for business use. The IRS divides road-going vehicle use into three categories: business, commuting, and personal. Commuting and personal use do not qualify as business. Commuting or personal use in a vehicle that has the business logo or even an advertising wrap on the exterior does not qualify as business use. Conducting business calls or performing business as a passenger while commuting is also not considered vehicle business use.

Thus, to qualify a vehicle for Section 179, it is vital to keep mileage records of road-going vehicles to substantiate that more than 50% of its use is for business. This will include the original invoice, mileage logs, and any related expenses. Since these records will help you substantiate your business use claim if the IRS audits your tax return, it is important to keep these records for at least three years after filing your tax return with the deduction. There are apps for your phone that can help you track mileage and expenses.

Financed and Used Vehicles Apply

Financing a qualifying vehicle over time still qualifies the purchase for the full deduction even when the purchase is late in the year. The purchase of a used qualifying vehicle will apply as well as a new one, with the stipulation that the vehicle must be new to you and the business.

Understanding the Section 179 deduction is important for any small business owner looking to maximize their tax savings. This is only an introduction to the concept, so be sure to consult with your tax professional and stay updated on the latest tax laws to take full advantage of this valuable tax incentive.