I recently received a mailing from an American automobile company regarding the Section 179 deduction. The letter expressed some urgency to purchase a vehicle before the end of the year to get a large Section 179 deduction. While this is true, the letter left me with the impression that I needed to take action before December 31, 2016, or the deduction would be lost. What they stated was true. However, it is what was left unstated that concerns me.

For the uninitiated, Section 179 allows a business taxpayer to expense in the current year costs of certain equipment purchased during the year rather than taking depreciation over the life of the asset. Currently businesses purchasing less than $2,000,000 in such assets may expense up to $500,000 of Section 179 deduction on their return. This amount was enacted in January 2016 and is permanent until Congress changes it. Thus, the deduction remains at $500,000 and is indexed for inflation for future years. The deduction must be taken in the year in which the asset is placed into service.

In the letter, the company stated that, in order to get the deduction in 2016, the asset needed to be placed into service during 2016. While this is true, it is also true that an asset purchased in 2017 may also be deducted in a similar manner in 2017. This is what Ford did not state. They implied that action must be taken by December 31, 2016 to get the deduction at all. What is true is that the asset must be placed in service by December 31, 2016, in order to deduct it on your 2016 tax return. The only urgency is to purchase the asset now in order to deduct it this year, as with any business expense.

Normally, the full cost of the asset may be deducted under Sec. 179, but due to the luxury automobile limits, the cost of certain motor vehicles may not be fully deducted. There are four categories of vehicles for this portion of the law.

  • Trucks and cargo vans rated over 6,000 pounds GVWR (gross vehicle weight rating). You may deduct up to the full purchase price of this category of vehicle.
  • SUVs and passenger vans rated over 6,000 pounds GVWR. You may deduct up to $25,000 of the cost of this type of vehicle. In addition, you may deduct bonus depreciation of 50% of the remaining cost and then regular depreciation on any remaining balance.
  • Trucks and vans rated under 6,000 pounds GVWR. You may deduct up to $11,560 of the cost of this class of vehicle. In addition normal depreciation may be taken on the remaining balance.
  • Passenger automobiles rated under 6,000 pounds GVWR. The limit here is $11,160 plus normal depreciation on the remaining balance.

Section 179 is a great tax deduction for small businesses. Hopefully, the “permanent” level of $500,000 plus inflation increases will remain in place for years to come. For right now, that is the limit for the foreseeable future. This has only been a quick overview. You should consult a CPA, Enrolled Agent, or other tax professional about the details of Section 179.

This blog post was also posted on TaxConnections.com. Click Here to read more articles written by John Stancil.

John Stancil

Dr. John Stancil has been a CPA since 1979 in the states of Kentucky and Florida. He is a graduate of Mars Hill University, the University of Georgia, and the University of Memphis – holding a Doctor of Business Administration in Accounting. He is a Professor Emeritus of Accounting and Tax at Florida Southern College after 37 years in the teaching profession.

He continues to maintain his tax practice of over 35 years, specializing in taxes, tax planning, and consulting. In addition to the CPA certification, John is also a CMA and CFM. He is a leading expert in tax matters on AllExperts and is a regular blogger for Tax Connections. He has written several academic papers in the area of taxation, and often serves as a speaker to professional and civic groups on various taxation topics. John is a member of the Florida Institute of CPA’s, the National Association of Tax Professionals, the Institute of Management Accountants, and Lakeland Business Leaders. He is the Lead Blogger on Church and Clergy Taxes for Tax Connections as well as a tax writer for CPAmerica.

He has spoken to many professional and community groups on various tax topics, including addressing the National Association of Tax Professional on Church and Clergy Tax Issues and the Small Business Health Care Tax Credit.

John’s civic involvement extends to service on the boards of several not-for profit organizations. Currently, he is an advisor to PowerPoint Ministries, Inc. and ElderPoint Ministries, serves as chair of the Finance Team at Legacy Christian Church, and is a member of the Income Steering Committee for United Way of Central Florida.

In addition to servicing clients in Alabama, Arizona, California, Georgia, Florida, Kentucky, Mississippi, North Carolina, Ohio, South Carolina, Tennessee, Illinois, Virginia, Texas, Washington, and other states, John has several international clients. He serves as a consultant to local tax preparation and CPA firms as well.

http://www.mybaldcpa.com