Learn the Basics of Section 179 and What it Means to You
Section 179 of the IRS tax code can allows businesses to deduct 100% of qualifying equipment purchased or financed during the tax year under certain guidelines. Section 179 can be very advantageous in buying vehicles for your business.You can claim the section 179 deduction only in the year you place the car in service. The vehicle is considered to be in service when it is ready and available for its specific use, even if you are not using the property.
Section 179 does come with limits. On Sept. 27, President Obama signed the Small Business Jobs Act (H.R. 5297) into law, reinstating the 50 percent depreciation bonus for 2010 (retroactive to the beginning of the year). He also increased Sec. 179 expensing levels, with caps to the total amount written off ($500,000 in 2010), and limits to the total amount of the equipment purchased ($2,000,000 in 2010.)
For more information on Section 179, CLICK HERE.
Bonus for Buying a Brand NEW Car
Either you or your business can claim up to $8,000 in bonus depreciation on a new car that is purchased on or before December 31st, 2010. This $8,000 is then added to the $3,060 luxury limit for a grand total of $11,060. A combination of Section 179′s expensing and depreciation is used to get this limit. This total is then reduced by personal use. For example, if business use is 70%, then your limit is $7,742 (70% times $11,060). Amounts vary based on weight and value of vehicle.
Bonus for Buying a NEW SUV or Crossover Vehicle Greater than 6,000 lbs
By purchasing and placing in service a new SUV or crossover vehicle, greater than 6,000 lbs, you could be eligible for tax breaks. These tax breaks include: 50% bonus depreciation on amounts not expensed, expensing of up to $25,000, and MACRS depreciation on the balance remaining after the first two mentioned breaks are applied.
Buying a Used SUV or Crossover Vehicle Greater than 6,000 lbs
Section 179 applies to both new and used qualifying vehicles, however, bonus depreciation applies to new vehicles only. Therefore, if you purchased and placed in service a used SUV or crossover vehicle (greater than 6,000 lbs) on or before December 31st, 2010, you may qualify for expensing of up to $25,000.
Switching Your Personal Vehicle to a Business Use Vehicle
If you have a personal vehicle that you originally purchased as new, you can convert if over to business use on or before December 31st, 2010 to qualify for up to 50% bonus depreciation, however there are certain limits. This 50% bonus depreciation is unlimited on SUV’s and cross over vehicles of more than 6,000 lbs. Vehicles (SUV’s, pickup trucks, cars, etc) that are less than 6,000 lbs are limited to $11,060.
Further, a vehicle first used for personal purposes doesn’t qualify for Section 179 in a later year if its purpose changes to business. For example, in 2009 you bought a new car and used it for personal purposes. In 2010, you began to use it for business. Changing its use to business use does not qualify the cost of your car for a section 179 deduction in 2010. However, you can claim a depreciation deduction for the business use of the car starting in 2010.
More than 50% business use requirement.
Vehicle use must be more than 50% for business to claim any section 179 deduction. If you used the vehicle more than 50% for business, multiply the cost of the vehicle by the percentage of business use. The result is the cost of the property that can qualify for the section 179 deduction. These depreciation limits are reduced by the corresponding % of personal use if the vehicle is used for business less than 100% of the time.
Remember, you can only claim Section 179 in the tax year that the vehicle is “placed in service” – meaning when the vehicle is ready and available – even if you’re not using the vehicle. Like mentioned, a vehicle first used for personal purposes doesn’t qualify for Section 179 in a later year if its purpose changes to business.
Just as a reminder, the Depreciation Bonus will expire at the end of 2010!
We at John Harman CPA PLLC have been preparing tax returns for 25 years. We are a member of the McKinney Chamber of Commerce and the Dallas Chapter of CPAs. Our firm was also voted Best Accountant in McKinney for both 2009 and 2010 by the McKinney Chamber of Commerce magazine.
”Business Expenses.” Internal Revenue Service. 06 Dec. 2010 <http://www.irs.gov/businesses/small/article/0,,id=109807,00.html>.
Section 179 Tax Deductions for 2010. Section179.org. Web. 07 Dec. 2010. <http://www.section179.org/>.
”TurboTax® – Summary of Federal Tax Law Changes for 2010-2017.” TurboTax. 06 Dec. 2010 <http://turbotax.intuit.com/tax-tools/tax-tips/IRS-Tax-Return/Summary-of-Federal-Tax-Law-Changes-for-2010-2017/INF12041.html>.