To encourage businesses to buy equipment as well as cars and trucks Congress passed Internal Revenue Code (IRC) Section 179. For passenger vehicles, trucks, and vans (with a gross weight of less than 6,000 pounds), that are used more than 50% in a qualified business use, the total deduction for depreciation including both the Section 179 expense deduction as well as 50% Bonus Depreciation is limited to $11,060 for cars and $11,160 for trucks and vans. If the automobile cost $20,000 and is used 100% for business the business would get an IRC Section 179 deduction of $11,060 and a regular depreciation deduction of $1,788 (20% of the $8,490.00 difference). If the vehicle is used less than 100% for business both the Section 179 deduction and regular depreciation deduction are reduced proportionately based on the actual business use percentage.
SUV’s, trucks and vans with a gross vehicle weight rating above 6,000 lbs. but no more than 14,000 lbs. qualify for expensing up to $25,000 if the vehicle is financed and placed in service prior to December 31. In addition the business can deduct 50% of the remaining cost over $25,000 as bonus depreciation. However, the 50% bonus depreciation break will expire on December 31, 2014 unless Congress extends it.
For example, a new heavy SUV used 100% for business that costs $52,000 and qualifies for Section 179 could be written-off in 2013 as follows:
First Year Section 179 Deduction: $25,000
Bonus Depreciation (50% of remaining balance): 13,500
Regular Depreciation (20% of remaining balance): 2,700
Total First-Year Write-Off: $41,200
However, businesses that experience net operating losses cannot claim an IRC Section 179 deduction that would create or increase an overall business tax loss. However they may take the 50% bonus depreciation deduction, and carry the remaining net operating loss forward were it can be used in future years.
If you have any questions or need help with your taxes or business deductions call Gregory J. Spadea of Spadea & Associates, LLC in Ridley Park at 610-521-0604. Spadea & Associates, LLC prepares business and individual tax returns year round.