Our daily lives revolve around our vehicles. They help us commute to work, cheer on our kids at games, and head over spontaneous road trips in a snap. However, the expense of car ownership, from fuel to repairs, can quickly add up.
Thankfully, there is a silver lining: the IRS Section 179 deduction. Designed to ease the burden of freelancers, self-employed people, and independent contractors, this tax provision allows individuals to reduce specific property costs - including vehicles - from their income taxes.
So, if you use your vehicle for business purposes - think Uber - you can claim tax deductions not only for mileage but also for maintenance expenses.
This guide will uncover the Section 179 deduction vehicle list 2023 to help you make the most of this tax-saving opportunity.
- What Does Section 179 Entail?
- Section 179 Deduction Vehicle List 2023
- Example of Section 179 Tax Deduction Vehicle
- How to Know a Vehicle's Gross Vehicle Weight Rating (GVWR)?
- Section 179 - Understanding Tax Benefits & Personal Use Implications
- Other Limitations of Section 179 Vehicle Worth Knowing
- Wrapping Up
Small business owners often benefit from self-employed tax deductions to alleviate their overall tax burden. Section 179 is yet another deduction type that helps both self-employed people and businesses.
It covers numerous property types, including vehicles. However, not all vehicles are eligible for this deduction.
When filing their taxes, people who qualify for it can reduce costs for eligible items. This may include business machinery, office supplies, computers, and vehicles.
Note that "vehicles" also include trucks, heavy SUVs, and vans, besides cars. However, they must be purchased and used in the same year.
You can invest in a new or old vehicle, but to qualify for Section 179, it must be used more than 50% for business purposes. Better yet, if you only use it partially for personal use, you can benefit from Section 179, but a few restrictions follow (more on this below).
The IRS divides the vehicles eligible for Section 179 into three categories. The amount of deduction differs for each and might soar yearly. Below, we have shared the Section 179 deduction vehicle list 2023:
- All vehicles boasting a gross vehicle weight rating (GVWR) below 3 tons (or 6,000 pounds) fall under this category.
- Several crossover SUVs, compact utility trucks, and cars fall under this category.
These automobiles qualify for Section 179 tax deductions of around $12,200 in 2023 during the first year of usage. Moreover, considering the additional bonus depreciation of $8,000, the deduction reaches an impressive $20,200.
- Any vehicle falling within the weight range of 6,000 to 14,000 pounds (or 3-7 tons) is categorized as heavy.
- Various commercial vans, full-sized SUVs, and pickup trucks fall under this category.
Vehicles in this weight class are subject to a Section 179 tax deduction limit of $28,900 in 2023. However, the depreciation bonus %age might plummet to 80%.
Vehicles under this weight category exceed 14,000 pounds (or 7 tons). Besides that, those specifically modified for nonpersonal use also qualify for unique tax benefits. These include:
- Delivery vans featuring an interior cargo space of at least 6 feet, which is not easily accessible from the passenger compartment.
- Automobiles equipped with a load-carrying device and an enclosed driver compartment, without rear seating or space extending over 30 inches past the windshield, like work trucks and ambulances.
- Shuttle vehicles accommodating over 9 people behind the driver.
Any automobile that satisfies these modification and weight criteria won't face any Section 179 tax deductions limitations. This implies they can deduct 100% of the vehicle cost under this category, which is a plus.
The above explanation of Section 179 deduction 2023 vehicle list may look confusing. So, let's consider a scenario to demonstrate the perks of utilizing Section 179 for tax deductions.
Meet Alex. He recently invested in a new $60,000 cargo van on June 15 this year. Immediately upon purchase, he put the van to work and used it exclusively for transporting construction supplies for his contracting business.
The van boasts a GVWR of 9,000 pounds, categorizing it as a "Heavy" vehicle for Section 179.
Luckily for Alex, his van meets the criteria essential for Section 179 deductions. Therefore, he qualifies for the Section 179 tax deduction for heavy vehicles.
He can also choose the 80% bonus depreciation option, which will cover a substantial portion of the overall van cost. On top of that, he can benefit from the regular first-year depreciation deduction.
Together, these deductions can significantly offset the initial $60,000 investment. Consequently, it will provide substantial tax relief for his contracting business.
The first step to determine whether your vehicle qualifies for Section 179 deduction is to check its GVWR. Generally, this figure is provided by the manufacturer.
GVMR indicates the maximum weight your vehicle can easily carry. The weight includes the automobile's weight, cargo, gas, passengers, and other car accessories.
You can easily track the GVWR on the manufacturer's label, which is in the form of a thin metal placard or a sticker. It is generally located on the interior of the driver's side door.
However, it is worth noting that certain equipment can affect the overall GVWR, which might disqualify a vehicle from Section 179 deduction. Make sure you confirm your vehicle category to know whether you are eligible or not.
If you do not use your vehicle exclusively for business but it still experiences significant business-related mileage, there's good news - a partial Section 179 tax deduction is still possible. Let's consider Sarah's case to better understand this concept.
Sarah acquired a pre-owned $18,000 minivan on June 10, 2023. She immediately started using her van to cater to her business needs, primarily delivering food for corporate functions and events.
She dedicates approximately 60% of her time to business-related activities and uses her minivan for the purpose. However, she also uses it for personal trips like family outings and grocery shopping.
Given that she uses her minivan for business more than 50% of the time, she is eligible for a partial Section 179 tax deduction. Considering the vehicle GVWR of 3,500 pounds, her light vehicle cap for partial deduction stands at $10,200.
She can claim 60% of this amount, totaling $6,120 against her taxable income. As a result, Sarah can reduce her business’s tax burden by deducting $6,120 from her $18,000 minivan purchase in the first year.
If you are lucky and your vehicle meets the Section 179 requirements, you can significantly reduce the tax burden. However, a few limitations will follow:
Bonus depreciation and Section 179 deduction share similarities but differ in their application. While both have their perks, it is critical to understand the differences.
With bonus depreciation, you can deduct a %age of the cost for eligible purchased property and assets. On the flip side, Section 179 enables you to reduce the predetermined amount of a newly bought business asset, regardless of whether they are new or used.
Most importantly, your business must be profitable to utilize Section 179 deductions.
Also, it is worth noting that once the taxpayer utilizes the bonus depreciation or Section 170, the standard mileage rates do not apply for the time after the depreciation year.
Moving forward, your auto expenses, including repairs, tires, and fuel, will be considered. Make sure you comprehend these nuances to make informed decisions concerning tax strategies.
The vehicle's size, style, and seating also play a vital role in determining the overall tax deductions. Here's a quick overview:
- GVWR Verification: Pay attention to specific models. The extended cab version of a vehicle, for instance, might not qualify for the Heavy HVWR category, while the crew cab version of the same model might. By opting for the Heavy model, you can benefit from substantial first-year deductions.
- SUV Limitation: Crossovers and SUVs with GVWR exceeding 6,000 Ibs are limited to a $28,900 deduction under Section 179. Bonus depreciation, however, is capped at 80%.
- Luxury Vehicle Restrictions: The IRS has imposed certain restrictions for Section 179 to avoid high-value vehicle depreciation. Luxury autos are limited to $20,200 depreciation in the first year, which decreases to $12,200 if bonus depreciation isn't applied due to luxury vehicle restrictions. Make sure you carefully consider these factors to optimize the tax benefits for your vehicle investment.
In a nutshell, Section 179 offers substantial tax benefits for self-employed individuals and businesses alike. It makes vehicle investment a strategic financial move. Yes, it's not without quirks, but there's no rose without a thorn.
Our Section 179 Deduction Vehicle List 2023 guide will help you understand the limitations and nuances to make the right decision and maximize your tax deductions. So, whether you are a business owner or a self-employed person, a bit of strategy and careful vehicle picking is all you need to make it work wonders for your bottom line.