Tax Code Section 179, the special deduction to write off equipment in the year purchased, has been expanded, but ends January 1st!
The Senate has passed, and the President has signed a bill that extends many of the tax breaks created to stimulate the economy. This includes every business owner’s favorite Section 179 deduction. This special deduction allows businesses to write off up to $500,000 worth of depreciable assets in the year that they are purchased. This can include machinery, heavy equipment, furniture and fixtures, and certain vehicles, mainly SUVs and pickup trucks.
This deduction has been extended permanently, and is also set to increase each year along with inflation, which is a happy new addition to the rule. There are certain limitations to the rule in addition to the $500,000 cap. For example if you purchase more than $2,000,000 in assets for the year, then you will have this deduction phased out. Also, you have to have positive income and not a net loss for the year. However, if you meet these guidelines, then it can be a great idea to move those vehicle purchases you are planning for next year forward to 2015 to take advantage of last minute tax savings. You must purchase the vehicle by January 1, 2016 to get the write-off on your 2015 taxes.
For businesses that do not qualify for Section 179 there is another great tax break, but it expires in 2019. Bonus Depreciation allows you to deduct 50% of the cost of assets in the year of purchase. This deduction is allowed even if you do NOT have income, and has no max amount. You can use this for an unlimited number of purchases, but the deduction is only allowed for NEW assets. For used vehicles this deduction is not allowed, but Section 179 IS allowed. The bonus depreciation deduction will be available at the 50% amount in 2015, 2016, and 2017. In 2018 it will drop to 40% and in 2019 it will drop to 30%.
Keep in mind that vehicles are subject to limitations on any of the depreciation deductions. The vehicle must be used at least 50% for business to qualify. Also, there are top end deductions for different classes of vehicles. For example, small cars under 6,000-pounds are capped at $11,060 of depreciation in the first year. SUVs and crossovers with Gross Weight above 6,000-pounds are capped at $25,000, and pickups and vans with no rear passenger seating that are above 6,000-pounds do not have a cap. Every major brand of pickup (1/2 ton and up) are over 6,000-pounds for purposes of this deduction. This includes Ford, Ram, Chevrolet, Toyota, GMC, and Nissan. When you get down to the mid-sized trucks you might be surprised to find that some of these are right on the line. A 2016 Chevrolet Colorado crew cab is over the weight limit, but the extended cab is not, so it might save enough in taxes to make it worthwhile to upgrade to the bigger size.
Which Vehicles Qualify
Here is a quick reference to some vehicles that are over 6,000-pounds. There may be others not listed here, and I also highly recommend you look on the inside of the driver’s door to verify the Gross Vehicle Weight Rating, sometimes equipment and options push a vehicle over the limit to qualify, and conversely a lack of options can keep a vehicle from qualifying, so do your homework!
- Audi: Q7 (certain models)
- BMW: X6 (certain models)
- Buick: Enclave
- Cadillac: Escalade
- Chevy: Chevy Express vans, Chevy Silverado 1500 and larger, Chevy Tahoe, Chevy Suburban, Chevy Traverse, certain Chevy Colorados
- Dodge: Durango, and certain Grand Caravans
- Ford: Econoline, Ford Explorer, Ford Expedition, Ford F150 and larger trucks, Ford Flex
- GMC: Acadia, GMC Savana vans, GMC Sierra 1500 and larger pickups, GMC Yukon, some GMC Canyons
- Honda: Odyssey minivan
- Infiniti: QX80
- Jeep: Grand Cherokee
- Land Rover: HSE and Sport
- Lexus: GX460, LX570
- Lincoln: MKT and Navigator
- Mercedes Benz: G550, GL350 diesel, GL550, ML350
- Nissan: Armada, NVP, and Titan, and Titan XD
- Porsche: Cayenne
- Ram: Cargo van, ProMaster 1500 and up, Ram 1500 pickups and up
- Toyota: Tundra, 4Runner, Land Cruiser, Sequoia
- VW: Touareg hybrid
Another great automobile deduction that is often overlooked is the mileage deduction. This is a unique deduction because it does not matter how much you actually spend, but matters how much you drive. This is the deduction you use if you are not depreciating the cost of your vehicle. This would be used when mileage is a better deduction than depreciation, or when depreciation is not allowed (for example if you used your vehicle less than 50% for business).
The mileage rate is increasing from the 2014 tax year amount of 56 cents per mile, up to 57.5 cents per mile for the 2015 tax year. The calculation is as simple as it sounds: if you drove 10,000 miles for business purposes, then you get a mileage expense of $5,750.
This deduction is much easier than keeping track of your expenses for gasoline, oil changes, tire replacement, etc. Keep in mind, however, that you cannot double dip and use the mileage deduction in addition to expensing your gasoline, oil changes, tire replacement, etc.
Unfortunately, beginning 2016 the rate is going back down to 54 cents per mile. This will not affect your 2015 tax return that you will be filing in 2016, but will reduce the expense that you get to take on your 2016 tax return.
As always, check with your tax advisor to see what works best for your situation, but if you are doing some year-end planning, a new car might be the most fun way to save on your taxes.
Our certified dealers that sell vehicles that qualify are up to speed on all these programs to save you money! As always, they are at our website: CarProUSA.com, click on CERTIFIED DEALERS.
A special thank you to Bill Caton and Carson Sands, both Certified Public Accountants at Caton Consulting Group, PC for their help in making sure the above information is correct. Website link: www.ccgcpa.com.