Tax deduction for Vehicles over 6,000 Pounds
If you run a business, finding tax deductions may become part of your day-to-day regime as the April 15 deadline approaches each year. However, if your business is or includes some form of transportation, there’s a good chance you’ll encounter specific deductions for vehicles weighing more than 6,000 pounds. If not, it’s an opportunity to learn the basics of a seemingly complex tax benefit that millions of taxpayers don’t know. So, how much can you spend on a heavy-duty vehicle in service?
How Section 179 Deduction Vehicle List and Works
The easiest way to get some money back is to rely on what’s called accelerated depreciation. Generally, the IRS allows your business to take a $1 million worth of Section 179 deductions in any given tax year. While this is subject to a strict set of requirements, it remains one of the most beneficial tax breaks available to asset-heavy businesses. Before getting into the various restrictions, let’s analyze the exact types of assets that qualify under this category:
- For commercial use
- Obtained by purchase (not a gift)
- Once you’ve passed the first few requirements, you’ll delve into the details of the asset to really determine if you can deduct it. These details are based on determining whether the asset:
- Tangible personal property such as machinery, livestock, property in buildings
- Off-the-shelf computer software
- Storage facility
- Eligible real property, including improvements to its buildings or interiors
The maximum deduction you can claim under Section 179 is $1 million. Also, you cannot deduct more than the amount of earnings before the deduction. The IRS created this rule to prevent companies from falling into losses for the year due to accelerated depreciation. Additionally, there is a threshold on the amount you can spend on all combined properties. This is called knockout, and it happens whenever your total purchases exceed $2.5 million. If so, you must reduce the maximum deduction by $1 million for every dollar over your taxable limit of $2.50.
Guidelines for Vehicles Over 6,000 Pounds
Since a vehicle weighing more than 6,000 pounds can of course be considered a commercial asset, it can reasonably be expected to have a Section 179 allowance. Some examples of assets that might fall under this section range from traditional vans like the GMC Savanna 2500 to pickup trucks like the Ram 3500. Note that the gross weight of the relevant vehicle must exceed the 6,000 lb. threshold when unlade. Therefore, loading a Ford F-150 with a trailer will not allow you to claim a deduction for your piece of commercial equipment, even though the total weight of each piece of equipment could easily exceed 6,000 pounds. According to the IRS, your maximum tax deduction for using a “heavy” vehicle will be $25,000. That said any SUV, pickup truck or other transport that weighs between 6,000 and 14,000 pounds will be eligible for the Section 179 deduction, up to a limit of $25,000.
So, if your GMC Savanna 2500 costs $40,000, the $15,000 remaining after accelerated depreciation will have to follow a regular depreciation schedule. It is expected that the IRS has several exceptions that apply here. For example, businesses do not have to comply with the $25,000 limit even if the combined weight of some of the following vehicles exceeds 6,000 pounds. These include:
- Any vehicle designed to accommodate more than 9 people behind the driver’s seat
- Any vehicle with an interior cargo area of at least six feet
- While the list continues with more exceptions, these two represent the most common exceptions. After all, if the weight is limited to 6,000 pounds, few companies that operate buses or semi-trucks will be able to expedite spending on new assets.
In addition to the $25,000 that Section 179 allows for depreciation on Vehicles over 6,000 Pounds, the IRS also allows what’s called bonus depreciation. Unlike Section 179, it only applies to newly purchased assets. Any second-hand or second-hand items you purchase are not eligible. Also, unlike most deductions, this deduction has no dollar-based limit. Instead, you are eligible for a tax credit equal to 50% of the purchase price. If you buy a $100,000 truck that means $50,000 can be spent immediately under bonus depreciation in the first year, as long as it’s only used for business.