IMPORTANT MESSAGE TO ALL CAR PRO SHOW LISTENERS FROM JERRY REYNOLDS, THE CAR PRO:
Below is our annual guide to Tax Code Section 179 for self-employed and business owners who buy a vehicle. This guide encompasses qualifying vehicles purchased and placed in service in the 2024 calendar year.
Tax Code 179, the special deduction to write off equipment in the year purchased, was extended permanently in 2015 legislation. This has been further liberalized by the Tax Cuts and Jobs Act (TCJA) that Congress enacted in December 2017.
This special deduction allows businesses for the 2024 tax year to write off up to $1,220,000 of the cost of depreciable assets if they are purchased and placed in service by December 31, 2024. This can include new and used machinery, heavy equipment, furniture and fixtures, and certain vehicles.
In addition to the 2024 $1,220,000 cap, there are certain limitations to Section 179.
A few of the limitations and considerations are as follows:
Another great tax break, Bonus Depreciation, has been made even better by the TCJA. Bonus Depreciation allows you to deduct a specified percentage of the cost of assets in the year of purchase. This deduction is allowed even if you do NOT have an overall taxable income position. Generally, there is no maximum limitation like there is in the Section 179 calculation. As described below, there are a few limitations for specific types of vehicles. For 2024, the provision for the deduction will be 60% of an asset’s cost and will be reduced annually by 20% until it expires at the end of 2026.
For assets purchased in 2024 there is a $30,500 depreciation cap that applies to SUVs and crossovers with a Gross Weight above 6,000 lbs. Unfortunately, you cannot combine Section 179 depreciation with Bonus depreciation for the same vehicle. However, the good news is that assets eligible for Bonus Depreciation now include newly purchased used assets.
Keep in mind that vehicles are subject to limitations on any of the depreciation deductions based on business use of the vehicle. The vehicle must be used at least 50% for business to qualify for each method described.
Small cars under 6,000 lbs. and luxury autos, are capped at $20,400. The IRS has imposed these limits to help discourage the depreciation of high value vehicles.
SUVs and crossovers with Gross Weight above 6,000 lbs. are capped at $30,500 if Section 179 is taken. SUVs and crossovers with Gross Weight above 6,000 lbs. do not have a cap if Bonus Depreciation is taken. Pickups and vans with no rear passenger seating that are above 6,000 lbs. also do not have a cap. Every major brand of pickup (1/2 ton and up) is 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 2024 Chevrolet Colorado crew cab can be 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. If Section 179 or Bonus depreciation is used, standard mileage rates cannot be used for any periods after the year depreciation is taken and actual auto expenses (fuel, tires, repairs, etc.) must be tracked going forward.
It should be noted that the above limitation caps discussed above assume 100% business use. If the vehicle drops below 100%, the dollar limits are proportionately reduced.
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 the depreciation methods described above are not allowed (for example if you used your vehicle less than 50% for business).
The standard mileage rate beginning on January 1, 2024, is increasing to 67.0 cents per mile. This is up from the amount per mile for the second half of the 2023 tax year, which was 65.5 cents per mile. Pay close attention to this important change.
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. In addition, if Section 179 or Bonus depreciation is used, standard mileage rates cannot be used for any periods after the year depreciation is taken and actual auto expenses (fuel, tires, repairs, etc.) must be tracked going forward.
Here is a quick reference of some vehicles that are over 6,000-pounds GVWR. There may be others not listed here, I 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!
IMPORTANT: This is the list of 2024 models that qualify, however, in 99% of the cases, the 2023 models of the same vehicle will have a higher, not lower GVWR.
Photo Credit: Vitalii Vodolazskyi/Shutterstock.com ; Wellnhofer Designs/Shutterstock.com.