What is the Section 179 Deduction?

Essentially, Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. That means that if you buy (or lease) a piece of qualifying equipment, you can deduct the FULL PURCHASE PRICE from your gross income. It's an incentive created by the U.S. government to encourage businesses to buy equipment and invest in themselves.

Here's How Section 179 works:

In years past, when your business bought qualifying equipment, it typically wrote it off a little at a time through depreciation. In other words, if your company spends $50,000 on a machine, it gets to write off (say) $10,000 a year for five years (these numbers are only meant to give you an example).

Now, while it's true that this is better than no write-off at all, most business owners would really prefer to write off the entire equipment purchase price for the year they buy it. And that's exactly what Section 179 does - it allows your business to write off the entire purchase price of qualifying equipment for the current tax year.

Who Qualifies for Section 179?

All businesses that purchase, finance, and/or lease new or used business equipment during tax year 2022 should qualify for the Section 179 Deduction (assuming they spend less than $3,780,000).

Most tangible goods used by American businesses, including "off-the-shelf" software and business-use vehicles, like the Sprinter, (restrictions apply) qualify for the Section 179 Deduction.

For basic guidelines on what property is covered under the Section 179 tax code, please refer to this list of qualifying equipment. If the vehicle is leased or purchased and placed in service prior to December 31 of the year you are filing taxes for and meets certain other conditions.

For 2022, $1,080,000 of assets can be expensed; that amount phases out dollar for dollar when $2,700,000 of qualified assets are placed in service.

What vehicles are allowed?

Avondale Dealerships offers several SUVs over 6,000 pounds that may qualify for the Section 179 Tax Deduction. IRS Publication 946 mentions the maximum expense deduction for an SUV over 6,000 pounds as being $26,200 for 2022.*

*Disclaimer: Please consult with your tax advisor for more details on the possible tax deductibility.

Avondale Qualifying Models

What's the difference between Section 179 and Bonus Depreciation?

Bonus depreciation is offered some years, and some years it isn't. Right now in 2022, it's being offered at 100%.

The most important difference is 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 $2,700,000) 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 applying these provisions, Section 179 is generally taken first, followed by Bonus Depreciation - unless the business had no taxable profit, because the unprofitable business is allowed to carry the loss forward to future years.

Section 179's "More Than 50 Percent Business-Use" Requirement

Contact your tax professional to see if you can take advantage of the Section 179 Benefits. The equipment, vehicle(s), and/or software must be used for business purposes more than 50% of the time to qualify for the Section 179 Deduction. Simply multiply the cost of the equipment, vehicle(s), and/or software by the percentage of business-use to arrive at the monetary amount eligible for Section 179.