2021 Tax Code 179 and Bonus Depreciation Guide

Self-Employed and Business Owners: 

2021 Tax Code 179 and Bonus Depreciation Information

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 in the 2021 calendar year.

Tax Code 179

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.

Beginning in 2018, this special deduction allows businesses to write off up to $1 million worth of depreciable assets in the year that they are purchased. This can include new and used machinery, heavy equipment, furniture and fixtures, and certain vehicles, mainly SUVs and pickup trucks.

There are certain limitations to the rule in addition to the $1 million cap. For example, if you purchase more than $2,500,000 in assets for the year, then you will have this deduction phased out. Also, you must 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 2021 to take advantage of last-minute tax savings. You must purchase the vehicle, and place in service by December 31, 2021 to get the write-off on your 2021 taxes.

Bonus Depreciation

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 income and has no max amount. You can use this for an unlimited number of purchases. The percentage is doubled to 100% for assets purchased after September 27, 2017. For assets purchased after this date, the $25,000 cap which applies to SUVs and crossovers with a Gross Weight above 6,000 lbs. utilizing Section 179 does not apply to those vehicles utilizing Bonus Depreciation. Assets eligible for Bonus Depreciation now include used assets. The Bonus Depreciation percentage of 100% is temporary and is scheduled to be phased down beginning in 2023. 

Limitations

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 lbs., Luxury autos, are capped at $18,000 of depreciation in the first year, $10,000 if bonus deprecation is not taken due to luxury auto limitations, the IRS has imposed to help discourage the depreciation of high value vehicles. SUVs and crossovers with Gross Weight above 6,000 lbs. are capped at $25,000 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) 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 2018 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. If Section 179 or Bonus depreciation is used standard mileage rates cannot be used for any periods after the year deprecation is taken and actual auto expenses (fuel, tires, repairs, etc.) must be tracked going forward.

Mileage

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 decreasing from the 2020 tax year amount of 57.5 cents per mile, down to 56 cents per mile for the 2021 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 $5,600.

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 or. In addition, if Section 179 or Bonus depreciation is used standard mileage rates cannot be used for any periods after the year deprecation is taken and actual auto expenses (fuel, tires, repairs, etc.) must be tracked going forward.

Which Vehicles Qualify

Here is a quick reference to 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 2021 models that qualify, however, in 99% of the cases, the 2022 models of the same vehicle will have a higher not lower GVWR.

Audi

• AUDI Q7 & SQ7
• AUDI Q8 & SQ8

BMW

• BMW X5 M
• BMW X5 XDRIVE35I
• BMW X6 M
• BMW X6 XDRIVE35I
• BMW X7 (All models)

Bentley

• BENTAYGA

Buick

• BUICK ENCLAVE 2WD
• BUICK ENCLAVE 4WD

Cadillac

• CADILLAC ESCALADE 2WD
• CADILLAC ESCALADE AWD
• CADILLAC XT5
• CADILLAC XT6

Chevrolet

• COLORADO 2.8L AWD
• SILVERADO C1500
• SILVERADO C2500
• SILVERADO C3500
• SILVERADO K1500
• SILVERADO K2500
• SILVERADO K3500
• SUBURBAN C1500
• SUBURBAN K1500
• BLAZER
• TAHOE 2WD LS
• TAHOE 4WD LS
• TAHOE HYBRID
• TAHOE HYBRID
• TRAVERSE 2WD
• TRAVERSE 4WD

Chrysler

• PACIFICA
• PACIFICA HYBRID

Dodge

• DODGE DURANGO 2WD
• DODGE DURANGO 4WD
• DODGE GRAND CARAVAN

Ford

• FORD EXPEDITION 2WD
• FORD EXPEDITION 4WD
• FORD EXPLORER 2WD
• FORD EXPLORER 4WD
• FORD F-150 and larger 2WD
• FORD F-150 and larger 4WD
• FORD FLEX AWD

GMC

• GMC ACADIA 2WD
• GMC ACADIA 4WD
• GMC SIERRA C1500
• GMC SIERRA C2500 HD
• GMC SIERRA C3500 HD
• GMC SIERRA C3500 HD
• GMC SIERRA K1500
• GMC SIERRA K2500 HD
• GMC SIERRA K3500 HD
• GMC YUKON 2WD
• GMC YUKON 4WD
• GMC YUKON HYBRID
• GMC YUKON XL C1500
• GMC YUKON XL K1500

Honda

• PILOT 4WD
• HONDA ODYSSEY
• RIDGELINE AWD

INFINITI

• INFINITI QX56
• INFINITI QX80

Jeep

• JEEP GRAND CHEROKEE
• GLADIATOR RUBICON
• 2022 WAGONEER
• 2022 GRAND WAGONEER

Land Rover

• RANGE ROVER 4WD
• RANGE ROVER SPT
• DISCOVERY
• DEFENDER

Lexus

• LEXUS GX460
• LEXUS LX570

Lincoln

• LINCOLN AVIATOR
• LINCOLN NAVIGATOR

Mercedes-Benz

• MERCEDES-BENZ G550
• MERCEDES-BENZ G Class
• MERCEDES-BENZ GLS
• MERCEDES-BENZ METRIS
• MERCEDES-BENZ SPRINTER

Nissan

• NISSAN ARMADA 2WD
• NISSAN ARMADA 4WD
• NISSAN NV 1500 S V6
• NISSAN NVP 3500 S V6
• NISSAN TITAN

Porsche

• PORSCHE CAYENNE

Ram

• RAM Promaster 1500-3500
• RAM 1500 TO 3500

Subaru

• ASCENT

Toyota

• TOYOTA 4RUNNER 2WD LTD
• TOYOTA 4RUNNER 4WD LTD
• TOYOTA LANDCRUISER
• TOYOTA SEQUOIA 2WD LTD
• TOYOTA SEQUOIA 4WD LTD
• TOYOTA TUNDRA 2WD
• TOYOTA TUNDRA 4WD

Tesla

• MODEL X

Volkswagen

• ATLAS V6 4MOTION