Though it was uttered in 1789, Benjamin Franklin’s famous quote about taxes still rings true today. And it’s always a good time to be thinking about tax implications for the next tax season. Section 179 of the IRS Tax Code allows the deduction of the full purchase price for qualifying equipment, including most medium-duty trucks. No matter the deduction, it is important to consult your tax professional as you determine if a new truck is right for your business.
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Thanks to tax reform, unlike other business purchases, equipment eligible for Section 179 does not have to be deducted each year through depreciation. The full amount of the qualifying purchase price can be deducted from the current year’s tax filing as long as the equipment is placed into service before the new year.
Section 179 was designed to be as simple as possible to encourage reinvestment in and stimulate the economy. For the purchase to be eligible for Section 179, there are a few stipulations the equipment must meet:
Additionally, there are caps to the total amount written off ($1,050,000 for 2021), and limits to the total amount of the equipment purchased ($2,620,000 in 2021). The deduction begins to phase out on a dollar-for-dollar basis after $2,620,000 is spent by a given business (thus, the entire deduction goes away once $3,670,000 in purchases is reached).
All businesses that purchase, finance, and/or lease new or used business equipment during tax year 2021 should qualify for the Section 179 Deduction (assuming they spend less than $3,670,000).
Bonus depreciation is offered some years, and in other years it isn’t offered. Businesses can take advantage of 100% bonus depreciation on both new and used equipment for the entirety of 2021.
The most important difference is that both new and used equipment qualify for the Section 179 Deduction (as long as the used equipment is “new to you”), while Bonus Depreciation has only covered new equipment only until the most recent tax law passed. In a switch from recent years, the bonus depreciation now includes used equipment.
Bonus Depreciation is useful to very large businesses spending more than the Section 179 Spending Cap (currently $2,620,000) on new capital equipment. Also, businesses with a net loss are still qualified to deduct some of the cost of new equipment and carry-forward the loss.
When taking advantage of Section 179, the business must include a brief description of the truck, the total cost, and the amount to be deducted through Section 179 within Part I of the IRS Form 4562. The amount being claimed as Section 179 should be included on Line 6 of Form 4562.
Nothing can take the place of good advice from your tax professional or someone who understands the implications of Section 179 as it relates to your tax situation. However, here is an example of the tax savings on a $50,000 purchase. This calculator can help you determine how much you’ll save.