Everything You Need to Know about Buying Commercial Vehicles Under IRS Section 179 in 2021
Investing in your business’s operations and workflow is an essential step to progressing in the ever-increasing competition of the current corporate climate. Small changes add up and could mean the difference between you winning customers over or losing them to your better-equipped competitors.
Acquiring equipment, including commercial trucks, is essential for this very reason. It helps you produce more efficiently, deliver more widely, and ultimately enhances every aspect of your business model. The problem is the cost. Most equipment, especially commercial vehicles, is prohibitively expensive. Most small businesses may find it very difficult to justify this type of expense, but fortunately, there is a silver lining.
In this article, we’ll tell you about the 2021 Section 179 tax deductions, we’ll tell you how your next vehicular upgrade can benefit from this, and we’ll give you some commercial truck financing options you may not have considered.
IRS Section 179 Tax Deductions Explained
Before we get into vehicle acquisition itself, we have to understand the 2021 Section 179 tax deduction and how it can benefit you.
In a nutshell, Section 179 of the Internal Revenue Code gives you the opportunity to deduct the cost of approved equipment as a business expense during the tax year. You can essentially absorb the purchase price of said equipment into your business’s overall expenses.
This is useful for small organizations especially as they can upgrade their equipment or purchase new capital to produce better products and offer a higher quality of service to their consumers, without the heavy investment costs that would plague them otherwise.
This is beneficial to the business and the economy, as more commercial activity is a hallmark of a healthy, thriving country. Amidst a global pandemic, any help the economy and businesses can get is definitely a positive
Who Qualifies for IRS Section 179?
Basically, any business that purchases approved equipment for its day-to-day operations can qualify for this tax credit. There are no restrictions on the type of company that can receive the credit and their size is also irrelevant. There are however certain spending and deduction limits. They are as follows:
- $1,050,000 deduction limit for 2021
- $2,620,000 spending limit for 2021
Besides the spending and deduction limits, the equipment you’re purchasing has to fall into one of the following categories:
- Hardware (robots, machinery, computers)
- Off the shelf software
- Vehicles intended for commercial use (shuttle vans, trailers, cargo trucks, etc.)
- Property that does not affect the building’s integrity
- Certain renovations (roofing, alarms, fire systems, etc.)
- Any property that is not intended for personal ownership
Another requirement is that the vehicle or equipment being purchased has to be put to use before midnight of December 31st, 2021 for the tax deductions to take effect.
What Commercial Vehicles Can Be Purchased Under Section 179
To keep it as simple as possible, every vehicle can be written off 100% through IRS Section 179 tax deductions if it falls into one or more of the following categories:
- The vehicle has more than nine passenger seats that can be used.
- The vehicle has no seating behind the driver. An example of this would be a cargo van or a moving truck.
- The vehicle is used for heavy construction work. An example of this would be a forklift or concrete transport truck.
- The vehicle is an over-the-road semi. This includes “big rigs” truck and trailers.
- The vehicle is intended to be used as an ambulance.
- The vehicle is intended to be used as a hearse.
- The vehicle is intended to be used as a shuttle.
- The vehicle is a modified version of a van.
If the type of commercial vehicle you’re eyeing passes this test, then you can effectively take advantage of the full depreciation deduction for 2021. If it doesn’t then you can still get it but you won’t get a full deduction on the money you spend so it may not be the best financial decision for you and your business. This varies on a case-by-case basis so it depends though.
Consult a tax professional to be sure you qualify for any tax write-offs. This article is not intended to be professional tax advice.
Used Commercial Vehicles Under IRS Section 179
Another question that comes up quite often is based on used commercial and vocational vehicles. Is it possible to buy them and still take advantage of the Section 179 tax deductions?
Yes, it is! The IRS defines their requirement as “new to you”. What this means is that as long as you haven’t purchased the commercial vehicle before and are not related to the seller, the deductions will still apply.
There are some caveats which we will elaborate on in the next section, but for the most part, buying used commercial vehicles shouldn’t be a problem at all.
Rules You Must Follow
Here are some things you need to keep in mind when buying vehicles and wanting to benefit from the IRS Section 179 tax deductions:
- The vehicle should be used for qualified business usage at least 50% of the time. Commuting to and from work is NOT business usage.
- The vehicle should be registered in the name of the business.
- Full deductions may only be possible for vehicles that fulfill the requirements we’ve outlined in the previous sections.
- The vehicle must be purchased and put to use by December 31st, 2021.
- There are certain spending caps on vehicle types. SUVs, for example, have a limit of about $26,200 for the year 2021. “Heavy” SUVs have a more relaxed limit owing to the cost of acquisition. To qualify as “heavy”, it has to have a Gross Vehicle Weight Rating (GVWR) of more than 6000 pounds.
- The amount of tax deductions you can make depends entirely on the amount you use the vehicle for EXCLUSIVE business purposes. Some vehicles by design will ONLY be used for work like forklifts and ambulances, but others live SUVs are more difficult to categorize. Technically, it’s a transport vehicle but getting 100% tax deductions may only be possible if you can confidently defend using it for your work only.
Keep all these things in mind when you decide which commercial vehicle to get for your business. The tax deductions have made the process easier than ever and with a plethora of financing options at your disposal, buying the vehicle in question is even simpler!
Using private financing companies like Dimension Funding to purchase your equipment or commercial vehicles allows you to take advantage of the IRS Section 179 deduction while also giving you the benefit of consistent monthly payments and an easy application process among others.
With a quick approval process and all your expenses taken into account, Dimension Funding offers a time-tested, hassle-free approach to securing your next vehicle upgrade. Apply online now to get started on your application.
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