How to Write Off a Car For Your Business
Section 179 Deductions for Buying a Business Vehicles
If you purchase a new or used car or truck for your business, you can usually write off part or all of the purchase price by taking a section 179 deduction. Learn more about section 179 deductions below.
Key Facts About Section 179 Deductions:
- Section 179 of the tax code allows you to write off the purchase price of a vehicle you buy for your business, provided the purchase meets the requirements. You may be able to write off the full purchase price, depending on your plans for the car or truck.
- To qualify for the deduction, you must use the car or truck for your business more than 50% of the time. You can deduct the percentage you use for work.
- The vehicle itself must meet certain requirements, such as weighing between 6,000 and 14,000 pounds. Small vehicles that weigh under 6,000 pounds have a Section 179 deduction limit of $11,160 in the first year they are used.
- Your deduction amount is limited by your business’s net income for the year. You cannot deduct more than you earn.
- You cannot write off the purchase price and claim the standard mileage deduction in the same year.
How Do Section 179 Deductions Work?
A section 179 deduction is a specific kind of tax deduction that allows businesses to reduce expenses. You can choose to take this deduction on the cost of specific types of business assets, including business vehicles, instead of (or in addition to) depreciating the property.
How Do I Qualify for a Section 179 Deduction?
To use a section 179 deduction for a business vehicle, you must meet a few requirements:
- You must purchase the vehicle for business purposes.
- You must use the vehicle for business more than 50% of the time.
- You must purchase the vehicle and put it into service during the year in which you take the section 179 deduction.
- The vehicle must be eligible according to the tax code. According to the IRS, the vehicle must be between 6,000 and 14,000 pounds (gross vehicle weight). Smaller cars that weigh less than 6,000 pounds have a Section 179 deduction limit of $11,160.
How is a Section 179 Deduction Different from Depreciation?
In some ways, a section 179 deduction is similar to depreciation. Both allow you to reduce your taxable income by deducting the expense related to an asset you’ve purchased for your business. The main difference is timing: depreciation spreads out the expense over the life of the asset, while a section 179 deduction allows you to deduct some or all of the purchase price in the first year.
In some cases, you may be able to combine a section 179 deduction with depreciation on a vehicle you purchase. A tax expert can advise on the specifics of your situation if this is applicable.
Are There Limits on Section 179 Deductions?
There are two types of limits on the amount you can deduct using section 179:
Dollar Limits on Section 179 Deductions
- For tax years beginning in 2022, the maximum section 179 expense deduction is $1,080,000.
- For tax years beginning in 2023, the maximum section 179 expense deduction is $1,160,000.
- For sport utility vehicles (SUVs): the maximum section 179 expense deduction for SUVs placed in service in tax years beginning in 2022 is $27,000.
- The maximum section 179 expense deduction for sport utility vehicles placed in service in tax years beginning in 2023 is $28,900.
A Prime tax expert can help you determine how to accurately apply these limits to your business assets.
Business Income Limits on Section 179 Deductions
Once you’ve applied the dollar limit, you must also consider the business income limit. Your total deduction amount each year, including section 179 deductions, cannot exceed your taxable income from that year. In essence, you cannot use deductions to create a loss. You can, however, carry over a section 179 deduction to the following year if you are unable to use it in the current year. A tax professional can help you determine your eligible deductions and carryovers.
How Do I Take the Section 179 Deduction?
Follow the instructions for Part 1 IRS Form 4562: Depreciation and Amortization, or get a Prime tax pro to help!