Section 179 Vehicles for 2021

Your guide to Section 179 business vehicle deductions and bonus depreciation in 2021.

Section 179 vehicles get you on the road to big tax deductions.

Did you purchase or finance a new or used vehicle for your small business? If so, you might be able to get a nice tax benefit. The Section 179 tax deduction lets you deduct all or part of the cost of your vehicle in the first year that you use it for business, so long as it qualifies for the Section 179 deduction.

Balboa Capital recommends that you speak to a business accountant or tax professional to find out if the business vehicle you want to purchase is eligible for a deduction, and to find out how much of a deduction your business might qualify for. This information has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal, investing or accounting advice. In the meantime, read on to learn more about Section 179 vehicles and tax deduction rules.

Types of vehicles that are eligible.

Before we begin, it is important to know that the IRS occasionally issues updates, guidance and new rules relating to Section 179. The types of vehicles that qualify for deduction might change, so use this information as an initial guide.

Generally speaking, the Section 179 tax deduction applies to passenger vehicles, heavy SUVs, trucks and vans that are used at least 50% of the time for business-related purposes. For example, a pool cleaning business can deduct the purchase price of a new pickup truck that is used to get to and from customers’ homes.

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Small vehicles.

Millions of small businesses and solo business owners use small vehicles on a daily basis. These include passenger cars, crossovers, and small utility trucks. Small vehicles that weigh under 6,000 pounds have a Section 179 deduction limit of $10,100 in the first year they are used, and $18,100 with bonus depreciation.

If the vehicle is not used 100% of the time for business, the deduction allowance is reduced proportionately. For example, if a florist purchases a van that is used 50% for business purposes, the limit is $5,050 ($10,100 x .50).

young male business owner delivering packages to his customers

Heavy vehicles.

In order for a business vehicle to qualify as “heavy,” it needs to weigh at least 6,000 pounds and no more than 14,000 pounds. Many SUVs, vans and pickup trucks weigh over 6,000 pounds. The gross vehicle weight rating (GVWR) is typically featured on the vehicle manufacturer’s label, or in the vehicle information package. The manufacturer’s label lists the make, model, features, GVWR, and more, and it is located on the inside of the driver’s side door on either a sticker or a thin metal badge.

Heavy vehicles have a Section 179 deduction cap of $25,000. Let us say that you finance a $45,000 heavy SUV and use it 100% for your small business. You would be able to deduct $25,000 under Section 179 and get a first-year depreciation of $10,000 (half of the remaining purchase price after the Section 179 deduction). So, your first-year deduction on the $45,000 SUV purchase is $35,000. In some cases, a regular depreciation percentage applies, but only a tax professional can confirm this.

Special rules.

When you speak to your accountant or tax professional about Section 179 for vehicles, they will probably tell you about some of the special rules that are in place. One such rule deals with income. Your Section 179 deduction cannot exceed your net taxable income for the year. Next, your vehicle cannot be used for transporting people or property for payment and/or hire.

If you purchase a new or used vehicle, it must be put into service, also referred to as “business use,” in the calendar year that you buy it before December 31. You will need to provide proof that your vehicle was used for business when electing the Section 179 deduction. This will be helpful if your business ever has to deal with a tax audit.

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