Section 179 Expense Deduction

Forum|Forum|5 years ago
December 24, 2020
2 replies
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I was considering purchasing a "new" (used vehicle) for business and potentially personal use, before the end of the year to try to take advantage of the section 179 deduction. However, when I enter a December date, the actual expenses method deduction, i.e. that allows me to choose this option is negligible. I noticed if I enter an in earlier placed in service date the deduction is considerably more. For example difference between a first of the year date and a December date is in my case almost $8k. So, it seems it's in one's interest to buy a vehicle as close to the beginning of the year as possible to maximize this deduction. Is it that simple or are there other nuances I may be missing? I am self-employed, i.e. the vast majority of my income is Schedule C business income. To what degree does the business vs personal use affect the total available deduction?

Best answer by AmeliesUncle

Go back through the vehicle section and look for the question that ask if you kept track of personal miles. Say YES.

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Mike9241

section 179 is limited to net income from your business before the deduction so if you enter the asset before the income no 179 will be allowed and depreciation will revert to 5 year MACRS. under MACRS since the purchase occurred in the 4th qtr the midquarter convention applies so you would only get 5% of the business portion of the cost. the business use must be more than 50% otherwise no section 179 is allowed. you didn't specify what type of vehicle because different types have different rules as to maximum first year depreciation.

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Anonymous

Assume it's >50% biz use and tax year biz profit is significantly more than cost of vehicle and of course that profit is at it's max at the end of the tax year. Are you implying that the income used for reference can span more than one tax year for a schedule 179 deduction? I thought the gist of this deduction was that it allowed you take the majority of the cost of the vehicle in the first year of ownership (service) as opposed to depreciating over multiple years. The essence of my question has to do with the timing of the purchase and placed in service date. As I said, just playing around with different placed in service dates, there's a signficant difference between using a 1/1/2020 and for instance anything more recent than 7/1/20. So, I'm trying to determine if it makes more sense to buy the vehicle next year and take the full deduction then which I assume is based my income for that year.

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Mike9241

well yes it can if you can't use all the 179 deduction in year1 then the carryover can be used in year 2 - again limited to business income before the deduction.

as previously stated the amount of section 179 you can claim on a vehicle depends on what it is.

for example for a passenger auto the maximum 179 deduction for 2020 is $18100. or you can take $15000 in

bonus and $3100 in regular depreciation

the maximum 179 and 168(k) that can be taken depends on what class it falls into there are 6 classes

auto

light truck/van/suv under 6000 lbs

truck or van over 6000 lbs

heavy suv over 6000

heavy truck over 13000 lbs

over the road (primary use long distance trucking)

this link may provide more info

https://bradyware.com/business-vehicle-deductions-2020/

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AmeliesUncleAnswer

Go back through the vehicle section and look for the question that ask if you kept track of personal miles. Say YES.

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Anonymous

Bingo, Amelie's Uncle! This is a Sprinter Cargo Van (GVWR 8550lbs). So as I read in that article I can deduct up to $65,000 of purchase price, correct?

What exactly is the special depreciation allowance?

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AmeliesUncle

Yes, but if the vehicle is subject to the limits, then you can only enter the amount up to the limit (prorated based on business percentage). [EDIT: You added the weight after I started my post, so it seems like the limits won't apply to you.]

However, is there a reason why you are wanting to use Section 179 rather than Bonus Depreciation? For Federal taxes, Bonus has fewer complications than Section 179. However, some states treat Section 179 differently than Bonus, so that may have an impact.