IRS Section 179 allows self employed individuals and small businesses to write off the cost of a qualifying vehicle instead of using regular depreciation methods. Writing off the vehicle as a current expense may reduce a business’s Net Operating Profit or increase its Net Operating Loss. This is a special tax incentive for small businesses and self employed taxpayers. Section 179 tax deductions apply to other tangible assets, however this article focuses on business vehicles only.
Dates for Claiming Section 179 Vehicle Tax Deductions
Qualifying individuals and businesses can write off the price of a vehicle used for business starting in the year the vehicle is purchased. This date is considered as the date the vehicle is “ready” and “available” for service as prescribed by the IRS. A vehicle that is used for personal purpose and then switched to business does not qualify for a Section 179 vehicle write off. However, mixed use is allowed as long as the vehicle is utilized for business at least 50% of the time.
Cars, Vans and Trucks Section 179 Depreciation Allowance
The tax deduction allowed for a vehicle that is used wholly or partly for business varies each year; from the year the vehicle is placed in “service” until the fourth year of service. The following is a current Section 179 limits on vehicles allowed by the IRS by year.
Cars placed in service in 2009
- First year – $10,960
- Second year – $4,800
- Third year – $2,850
- Fourth year - $1,775
Trucks and Vans placed in service in 2009
- First year – $11,060
- Second year – $4,900
- Third year – $2,950
- Fourth year – $1,775
Tips
It’s important to note that these depreciation limits are reduced if the vehicle is used for business less than 100% of the time. The reduction is in proportion to the non-business use of the vehicle. These are limits for Federal income tax purposes; taxpayers should check with their State Finance Department for limits allowed in state filings.
Limit on Deduction Allowed for Sport Utilities and Other Qualified Vehicles
There is a $25,000 limit on the price of SUVs and other vehicles that don’t fall in any of the categories above – Cars, Vans and Trucks. This means no more than $25,000 of the total cost of these vehicles can be used when calculating Section 179 tax deduction. These vehicles can’t be rated in excess of 14,000 pounds and must be used for business.
How to Claim Section 179 Tax Allowance
Small businesses and self employed individuals must use IRS Form 4562 to claim a Section 179 Tax Deduction for vehicles. This form should be filed with the tax return for the year the vehicle was placed in service for business use. Also, the IRS allows amended returns claiming the tax deduction for previous years.
Resources: Public information at the IRS website – Publication 463 -Transportation – Section 179 Vehicle Tax deduction, current as of March 1, 2010.
Sylvia Cruz - Sylvia holds Bachelor and Master degrees in Business Administration with majors in Finance and Accounting. She is also a CIA - Certified ...
