Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment for the current tax year — instead of writing off the purchase over the course of several years, which is called depreciation.
The equipment can be new or used, as long as it’s new to you. If you purchase some equipment for your business but don’t use it until the following year (say, you buy some equipment at the end of December but don’t use it until January), you’re only eligible to claim it for the first year you use it.
Section 179 can be confusing and intimidating for business owners seeking equipment financing, especially because the rules for how much business owners could claim as a deduction have fluctuated over the last few years.
This article will explain what when you can take Section 179 on used equipment and how it could positively impact your business.
What Type of Equipment Is Eligible Under Section 179?
To qualify for a Section 179 deduction, your equipment must be tangible property used more than 50% of the time for business use — and you can only deduct the percentage of the equal to the percentage of business use. So, if you buy a cell phone for your business and use it 75% of the time for business, you can claim 75% of the phone’s cost.
Items used for business purposes less than 50% of the time don’t qualify for a Section 179 deduction.
Examples of eligible equipment include:
- Machinery and equipment
- Vehicles with a gross weight between 6,000 and 14,000 pounds
- Business property (i.e., cell phones, office furniture and equipment, off-the-shelf computer software)
- Improvements made to the business building interior and exterior (i.e., HVAC, fire suppression, security alarm systems, and roofing)
For more information about which equipment is eligible for Section 179, the IRS has much more detail in its Instructions for Form 4562 — including tables outlining which vehicles qualify for a deduction.
What Vehicles Qualify for a Section 179 Deduction?
Section 179 is popularly used by businesses to purchase vehicles. In fact, this obscure bit of tax law became famous several years ago when it became known as the “Hummer deduction” or “the SUV tax loophole” because it was used to write off a significant portion of the cost of these vehicles. The regulation has been tightened in recent years.
As with other types of business property, vehicles can be new or used as long as they are new to you. Vehicles also need to be used for business purposes at least 50% of the time and must be registered to the business (not the business owner) to be eligible for the deduction.
There are some vehicles that will always qualify for a full Section 179 deduction because they aren’t likely going to be used for personal purposes. These include:
- Heavy construction equipment
- 18-wheelers
- Vehicles that seat 9+ passengers (such as shuttle vans)
- Cargo vans
- Taxis, vans, and other vehicles that transport people or property for hire
It gets a little more complicated for vehicles such as cars, trucks, and SUVs, since they’re more likely to be used for both business and personal needs. For tax purposes, they’re classified by vehicle weight:
- SUVs, full-size pickup trucks, and vans weighing between 6,000 and 14,000 pounds can deduct up to $25,000
- Cars, light pickup trucks, and light SUVs can deduct up to $11,160 for cars and $11,560 for trucks and SUVs
Remember, you can only claim the Section 179 deduction in the first year you bought or financed the vehicle. Furthermore, a vehicle first purchased or financed for personal purposes doesn’t qualify in a later year if it becomes at least 50% used for business purposes.
Vehicles that are used less than 50% of the time for business purposes don’t qualify for the Section 179 deduction, but you may be able to depreciate the business-use percentage of the vehicle’s cost over a six-year period. Consult a financial professional for more information.
Related: Purchasing Used Equipment? Use This Checklist Before You Buy
What Equipment Is Ineligible for Section 179?
As with other types of tax deductions and expenses, not everything is eligible. Some ineligible items include the following:
- Intangible assets, such as patents and copyrights
- Buildings
- Land
- Trailers
- Fences
- Docks
- Swimming Pools
- Landscaping
Some property is disqualified from consideration for Section 179, including property that is:
- Not used for the business (or is used for business less than 50% of the time)
- Acquired by gift, inheritance, or trade
- Acquired from a relative such as a spouse, sibling, son, daughter, or grandparent
- Used by nonprofits or governmental units
- Held by an estate or trust
- Outside the U.S.
- Used by foreign persons or entities
Section 179 offers businesses a wonderful opportunity to leverage purchasing power. Team Financial Group can answer your questions about financing used equipment and help you secure the right kind of financing to qualify for this deduction.
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The content provided here is for informational purposes only. For financial advice, please contact our commercial financing experts.