Understanding the Section 179 Vehicle Deduction
If you own or manage a business that uses company vehicles, it is essential to become familiar with Section 179 of the Internal Revenue Code. It enables small businesses to fully 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 business owner to expense up to $1.16 million of the total cost of new and used qualified assets placed in service for this year. As the figure is adjusted for inflation, it changes every year. Two general limits on the allowance’s use include:
- The allowance cannot exceed a business owner’s income from all trades or businesses they own.
- 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.
Therefore, a business may not claim an IRC Section 179 expense allowance in 2023 if, during 2023, it placed 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:
- Apparent 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
- Road-going vehicles under 6,000 lb. can qualify for a deduction of less than 100% of the purchase price.
That means from the GMC and Buick lineups, the following vehicles can qualify for Section 179:
Up to 100% of purchase price
- Sierra 1500/2500/3500 – Standard and Long Bed
- Sierra 3500 HD Chassis Cab
- Savana Cargo Van
- Savana Passenger Van
(10+ passenger seating only)
- Savana Cutaway
- Buick Enclave
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.
- Sierra 1500 – Short Bed (including Denali)
- Yukon (including Denali)
- Yukon XL (including Denali)
- Acadia (including Denali)
- HUMMER EV Pickup
- HUMMER EV SUV
- Savana Passenger Van (all except 10+ passenger seating)
Up to $20,200
All vehicles – GVWR 6,000 lbs. or less.
- GMC Terrain
- Buick Envision
- Buick Encore
- Buick Enclave
- Buick Envista
The IRS requires the vehicle to 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. Commuting and personal use do not qualify as business. And having a business logo on the exterior or even full advertising on the exterior does not qualify the commute as advertising. In addition, 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, you will need 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 that can substantiate the claim. There are apps for your phone that can help you track mileage and expenses. It is also important to keep these records that help you substantiate your business use claim for three years in case the IRS audits your tax return.
Financed and Used Vehicles
You can finance a qualifying vehicle over several years and still qualify for the full purchase deduction, and that applies to purchases up to the end of the year. The purchase of a used qualifying vehicle will also apply, 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.