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What's the Section 179 Tax Deduction?

October 28, 2020

Is your business in need of vehicles? The Section 179 tax deduction is one of the few government incentives available to small businesses, and millions of businesses are taking advantage of it to purchase vehicles.

Below is simply our interpretation of how this section of the tax code may be applied to car or truck purchases, for those who qualify. Prior to making a decision that affects your tax planning, please consult with your tax professional as all cases are unique. We are not tax professionals, we are car sales professionals. As such, use the information below as a conversation starter with your tax professional.

 

What is the Section 179 Tax Deduction?

Created by the U.S. government to encourage businesses to buy equipment, the Section 179 deduction allows businesses to deduct from their taxable income up to the full price of qualifying equipment purchased or financed during the tax year. In other words, you can write off your entire purchase in the year you buy it rather than writing off a small amount of depreciation each year. Section 179 can be especially advantageous when buying vehicles for your business.

Are there any limits?

For 2020, the write off limit is $1,040,000, which is more than the entire cost of vehicles for most small businesses. However, if your business spends over $2,590,000 on qualifying equipment, the write off limit is reduced on a dollar-for-dollar basis. Hence, if you spend over $3,630,000 (2,590,000+1,040,000), you do not qualify for any write off.

Assuming it spends less than $3,630,000, any business that purchases, finances, and/or leases a vehicle during tax year 2020 (Jan. 1, 2020-Dec. 31, 2020) should qualify for the Section 179 Deduction. The vehicle can be new or used, as long as it is new to you.

Since buying vehicles has been one of the most popular uses of Section 179, there are a few additional limits in place, so not all vehicles qualify for the full deduction. We’ve summarized what you need to know in the table below:

Ford vehicles that qualify for the Section 179 deduction:

Full Deduction Up to $25,000 deduction Up to $11,560 deduction Up to $11,160 deduction

F-150 Expedition Transit Connect Van Explorer

F-250 F-150 SuperCrew Transit Connect Wagon Edge

F-350 Transit Wagon Escape

Transit Van Focus

Flex

Fusion

Fiesta

Taurus

 

Other considerations

The vehicle must be used for business purposes more than 50% of the time, based on mileage in the first year it’s placed into service, to qualify for the Section 179 Deduction. The monetary amount eligible for Section 179 is the percentage of business use multiplied by the vehicle’s cost.

Contact J.C. Lewis Ford for a personal experience to find the best Ford vehicle to meet your need.

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