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Section 179 Tax Deduction

Why does a farm truck have to be so big? So that we can deduct it, that’s why.

The new law changed depreciation limits for passenger vehicles placed in service after Dec. 31, 2017

 The following trucks and business vehicles qualify for 100% deduction

  • Vehicles that can seat nine-plus passengers behind the driver’s seat (Hotel / Airport shuttle vans, short buses).
  • Vehicles with: (1) a fully-enclosed driver’s compartment / cargo area, (2) no seating at all behind the driver’s seat, and (3) no body section protruding more than 30 inches ahead of the leading edge of the windshield. In other words, a cargo van ala the A-Team, not the custom captain’s chairs style aka grandma’s conversion van.
  • Heavy construction equipment will qualify for the Section 179 deduction,
  • Typical “over-the-road” semi Tractors will qualify.

And new rules means that as long as its new to you and not purchased from a relative you can expense it right away.

Notice 4 door pickups and SUVS aren’t on that list. They need be heavy vehicles in order to maximize deduction opportunities Over 6,000 lbs.

. Absent invoking bonus depreciation, the maximum depreciation deduction is:

  • $10,000 for the first year,
  • $16,000 for the second year,
  • $9,600 for the third year, and
  • $5,760 for each later taxable year in the recovery period 

 

Other vehicle thoughts.

Your business vehicles should be titled in the business or in a separate entity that then leases to your business. Makes sense, right? How can an asset be listed on the balance sheet if the entity doesn’t have title to it, or at least the right to the title, and risk of loss? However, some insurance companies will now want to charge an additional premium for a business vehicle. This is a money grab silly as risk is based on use, not the name on the title in the glove compartment.

Take a look at how your vehicles are titled, who is an authorized user under the policy and where the vehicle is carried for tax purposes.

I cannot stress the magnitude of the poor of decision it is to lease a vehicle, particularly on business vehicles over $80,000. Vehicle leases are generally not capitalized leases and not eligible for 179 expensing.

The residual value offered on a 36-month lease will be about 60%.

The leasing company takes the degradation in value ($80,000 minus $48,000) and apply a capitalization rate of 8% to 12%. This is essentially your interest rate while leasing.

You must watch mileage limitations such as 10,000 miles per year with penalties for going over the limit. The Little old lady who just drives to church in rural Iowa probably gets 10K in mileage.

Monday, August 19, 2019
  • Patrick B. Dillon
  • Jill Dillon
Dillon Law PC
Patrick B. Dillon enjoys finding solutions to legal issues and catching problems for clients. Pat practices in the Sumner office regularly represents clients in district, associate district and magistrate courts for agricultural, real estate, criminal and collection issues. He drafts wills and trusts, creates estate plans and helps clients through the probate process.
Dillon Law PC
Jill Dillon focuses on family law, estate planning and IRS matters. Jill is a University of Northern Iowa undergraduate (Political Science Cum Laude) and a Drake University Law School graduate. Jill spent extensive time advocating for low income tax payers in front of the IRS and the State of Iowa Department of Revenue while at Drake.

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