Can anyone clarify the IRS sectiion 179 deduction for trucks?

BigDanSBigDanS Posts: 832 Officer
I am looking into a new truck and I have been reading about the Section 179 deduction for business, for which I qualify.

I understand the $25,000 deduction limit on most vehicles, but it appears I can deduct the whole amount if it is over 6000 lbs GVWR? Is this true if I finance or only if I pay it all up front?

The math looks something like this if I am right...

$40,000 vehicle
$10,000 down payment from vehicle sale

$30,000 out of pocket acquisition cost / financed

$13,200 tax benefit / tax shield from deduction

$16,800 net cost after tax shield and down payment year one

Finance $30,000 over five years $566 per month, with an interest deduction of $1377, and an annual interest tax shield of $455.

That makes the net payment about $530 a month after tax shield. $31,800 in payments.

Final math

$40,000 cost
-13,200 first year depreciation tax benefit
$26,800 cost after tax benefit



First does a pickup truck qualify ( specifically a 4wd Tundra ) for the up front deduction and what happens if you sell it prior to the 5 year period?

Thanks in advance...

D
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Replies

  • Buford CletusBuford Cletus Posts: 1,701 Captain
    No
  • TarponatorTarponator Under a BridgePosts: 8,473 Admiral
    Is there a CPA in the house?
  • dave44dave44 Posts: 6,268 Admiral
    I don't know if that deduction is still active, but the upshot is that you took a bunch of depreciation that first year, then spread the remainder over the next four or five. I believe it was implemented to stir the economy and help you on your banner financial year, and you are hoping you don't need all that depreciation because the following years suck?

    It was for heavy equipment and heavy trucks. Helping bail those companies out of a pickle. I wouldn't have thought a tundra would qualify.
  • Mister-JrMister-Jr Posts: 25,908 AG
    dave44 wrote: »
    I don't know if that deduction is still active, but the upshot is that you took a bunch of depreciation that first year, then spread the remainder over the next four or five. I believe it was implemented to stir the economy and help you on your banner financial year, and you are hoping you don't need all that depreciation because the following years suck?

    It was for heavy equipment and heavy trucks. Helping bail those companies out of a pickle. I wouldn't have thought a tundra would qualify.

    That's actually the way I understood it from my CPA.
    Vote for the other candidate
  • AC ManAC Man Posts: 3,367 Captain
    My trucks qualify. Sure is nice to take the purchase price of a new truck right off the bottom line net profit and classified under depreation. Saves a fortune in income tax. If you sell it you have to list it as income.

    They have been threatening to remove this one time depreation for years, but it was still on my last tax return. Also the banks add the depreation to your net profit so it is a win win if you have a profit at the end of the year. I try and buy one new company truck per year except when the economy tanked a few years ago.
  • dave44dave44 Posts: 6,268 Admiral
    AC Man wrote: »
    My trucks qualify. Sure is nice to take the purchase price of a new truck right off the bottom line net profit and classified under depreation. Saves a fortune in income tax. If you sell it you have to list it as income.

    They have been threatening to remove this one time depreation for years, but it was still on my last tax return. Also the banks add the depreation to your net profit so it is a win win if you have a profit at the end of the year. I try and buy one new company truck per year except when the economy tanked a few years ago.


    That's sweet! If you are in a constant grow it works great!


    I have to wonder how you keep adding quality employees to man that growth? I have problems with that. ( it's a bit of sarcasm, I've seen your posts about it).
    But you have a great market for your field!
  • cadmancadman Gainesville, FlPosts: 23,051 AG
    Ask your CPA.

    Mini Mart Magnate

  • jakejake Posts: 324 Officer
    I am not a CPA but I work for one and am on the way to becoming one.

    There are some exceptions to the $25,000 limit. From the IRS Website on 179:
    You cannot elect to expense more than $25,000 of the cost of any heavy sport utility vehicle (SUV) and certain other vehicles placed in service during the tax year. This rule applies to any 4-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways, that is rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight. However, the $25,000 limit does not apply to any vehicle:
    1. Designed to seat more than nine passengers behind the driver's seat,
    2. Equipped with a cargo area (either open or enclosed by a cap) of at least six feet in interior length that is not readily accessible from the passenger compartment, or
    3. That has an integral enclosure fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver's seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield.

    So, in the past as long as you bought a heavy vehicle you got around the rules, but then people bought Tahoes and Hummers and the IRS closed that little loophole. I tell people to buy trucks with a full-sized bed. It sucks when someone thinks they qualify but then I see a 4 door Silverado outside....Sorry partner, but that's a 5.5 foot bed and unfortunately, yes it matters.

    Really the only things that qualify now are full-sized trucks, work vans and box trucks. The 6000 lb test is important, because vehicles <6000 lbs are defined as "passenger vehicles" and subject to maximum depreciation deductions each year, not necessarily following the standard MACRS depreciation schedule (where you mentioned front-loading the expense.) If you DO buy a truck with a 5.5 foot bed, be aware the limit is 25,000.

    Financing make no difference on the deduction. It is the purchase price of the vehicle only; down payment, interest rate, etc make no difference whatsoever.

    There are also factors that can make your vehicle into a "qualified non personal vehicle" which exempts you from having to keep track of mileage. These include modifications like a lift gate, external tanks, etc that would make it prohibitive from being your daily driver. I have a list at my office of things one educational outfit recommends to meet this criteria, if you're interested.

    Ok, so those are relatively easy compared to the next question. If you sell the truck, ever, you might be subject to depreciation recapture. Lets say you use the truck for your 5 years and completely depreciate it. If you sell/trade it in for 15,000, then the IRS says "hey wait a minute, we gave you an expense for something you didn't actually incur" - meaning that they allowed you to take the vehicle all the way to $0, but you "made money" on the sale of the truck. Depreciation recapture can be very convoluted because certain rates and rules apply to the treatment of the income. I could look it up, but it's a hell of a lot easier to let the software take care of it. One way to avoid this is by setting residual values and not depreciating the vehicle completely.... but no one does this.

    If i can help/clarify further, let me know. And if you want an accountant in Sarasota... new clients would make me look good!
  • jakejake Posts: 324 Officer
    AC Man wrote: »
    They have been threatening to remove this one time depreation for years, but it was still on my last tax return. Also the banks add the depreation to your net profit so it is a win win if you have a profit at the end of the year. I try and buy one new company truck per year except when the economy tanked a few years ago.

    FYI, in 2015 they finally stopped hemming and hawing around and permanently extended the 179 deduction to be a $500,000/yr limit. And more relevant to you, made portable a/c units qualify for 179. Full systems are "building components" and don't qualify, but they funked up the rules on that, too. For example, if you have a place with 3 a/c units and your replace one, you probably can deduct that entire cost since it's not a full replacement of the SYSTEM, only a part of it. It drives me crazy to have to ask people... "well, how many windows do you have in your building, maybe we can write these off if it's less than 1/3ish..."
  • tunamantunaman Posts: 3,701 Captain
    questions like this is why I have a CPA, $300 a yr to do my taxes. I simply download my bank account to Quickbooks online, catergorize it put it on his desk with bank accounts. He prints all the reports, I sign he sends to IRS. EZPZ! Never a problem, had same one 10 yrs.
  • dave44dave44 Posts: 6,268 Admiral
    tunaman wrote: »
    questions like this is why I have a CPA, $300 a yr to do my taxes. I simply download my bank account to Quickbooks online, catergorize it put it on his desk with bank accounts. He prints all the reports, I sign he sends to IRS. EZPZ! Never a problem, had same one 10 yrs.
    Ours was like insurance. It cost more every year. And when my income was falling during the housing crisis his bill was climbing.
  • cadmancadman Gainesville, FlPosts: 23,051 AG
    tunaman wrote: »
    questions like this is why I have a CPA, $300 a yr to do my taxes. I simply download my bank account to Quickbooks online, catergorize it put it on his desk with bank accounts. He prints all the reports, I sign he sends to IRS. EZPZ! Never a problem, had same one 10 yrs.

    Mine is $1000 for my business return. Gives me my Schedule K and I do my personal on Turbo Tax.

    Mini Mart Magnate

  • jakejake Posts: 324 Officer
    $300 is cheap. Our only product is time, so the longer it takes, the more it costs unfortunately. The actual tax returns are (usually) relatively easy - the big time-sinks are when people's Quickbooks are a mess and we have to straighten those out.
  • AC ManAC Man Posts: 3,367 Captain
    dave44 wrote: »
    That's sweet! If you are in a constant grow it works great!


    I have to wonder how you keep adding quality employees to man that growth? I have problems with that. ( it's a bit of sarcasm, I've seen your posts about it).
    But you have a great market for your field!

    Not necessarily adding to the fleet. Most of the time I'm just rotating a old truck out and a new one in. And no I still can't find employees.
  • BigDanSBigDanS Posts: 832 Officer
    Crap... a Crewmax Tundra has a 67" bed.... 5'7" and misses the requirement by 10 inches.

    D
    CAMTEQ Computers - Networks - Service - Sales
    We do it all for business and home
    http://www.camteq.net
    Save $125 on your first service call
  • tunamantunaman Posts: 3,701 Captain
    dave44 wrote: »
    Ours was like insurance. It cost more every year. And when my income was falling during the housing crisis his bill was climbing.

    Does anything cost less every year??
  • tunamantunaman Posts: 3,701 Captain
    jake wrote: »
    $300 is cheap. Our only product is time, so the longer it takes, the more it costs unfortunately. The actual tax returns are (usually) relatively easy - the big time-sinks are when people's Quickbooks are a mess and we have to straighten those out.

    Messed up? My acct. called me a few yrs ago and said"you can't deduct this, you can't do that" I said, "hey, that P&L tells you where my money went now you dou your job, leave me alone so I can do mine".
  • AC ManAC Man Posts: 3,367 Captain
    tunaman wrote: »
    Messed up? My acct. called me a few yrs ago and said"you can't deduct this, you can't do that" I said, "hey, that P&L tells you where my money went now you dou your job, leave me alone so I can do mine".

    Tunaman, I couldn't agree more. I got buddies that seem to be doing very well and never have a tax bill for the business. They just smile. Ticks me off. You would think my accountant works for the IRS.


    Can't blame them, they are not going to loose their business for you or me. However, still can't figure out how some business always seem to break even.


    Edit. On second thought, they can only report what you tell them. I'm sure people run a false set of books. I just can't do that.
  • tunamantunaman Posts: 3,701 Captain
    Exactly ACman. I know little about it and not saying some never has gone directly into my pocket. I have a saying, "you can claim anything as a business expense.......until you get audited". I don't need any red flags waving.
  • cadmancadman Gainesville, FlPosts: 23,051 AG
    dave44 wrote: »
    Ours was like insurance. It cost more every year. And when my income was falling during the housing crisis his bill was climbing.

    Mine went down after a few years. I made a list every time he asked a question and corrected the errors. Now I send him everything he needs in one manila envelope and he does his thing and emails back the return with a bill. I did not want to deal with the rules regarding basis, depreciation, salary versus distribution, etc. etc.. Well worth the money in my opinion.

    Mini Mart Magnate

  • jcbcpajcbcpa Posts: 1,386 Officer
    cadman wrote: »
    Mine went down after a few years. I made a list every time he asked a question and corrected the errors. Now I send him everything he needs in one manila envelope and he does his thing and emails back the return with a bill. I did not want to deal with the rules regarding basis, depreciation, salary versus distribution, etc. etc.. Well worth the money in my opinion.

    CPA heaven right here. Only sends me what I need, no time spent trying to convince him that he shouldn't do what he was told that he could by his buddies at "The John Deere Place", no time spent trying to make sure that he hasn't posted a loan draw into an income account, no time spent reconciling his checking account to his quickbooks etc, etc, etc. And last but surely not least, no time arguing with him about his bill because once again he heard at "The John Deere Place" that Jeff's bill was only $1,000 and his just wasn't that different than Jeff's.
    The intelligent man finds almost everything ridiculous, the sensible man hardly anything.
    Johann Wolfgang von Goethe
  • mustang190mustang190 Posts: 8,425 Admiral
    Buy a Peterbilt, add the tags, IFTA stamp, Plates, weight permits, authority fee and other documents and taxes then try and figure out your taxes with your CPA. By the way you ain't even included your trailer(s).
    2013 Pathfinder 22 TE , 150 Yamaha,
  • AC ManAC Man Posts: 3,367 Captain
    My accountant in my small business loves my office manager to death. She provides up to date paper work and a perfect file from quick books. We never get asked one question. I just sign and pay what they tell me. Biz tax return $1500, personal $350. Same as the last company I used. My CPA does nothing except sign off on a assistant. Quick Books have reduced their job to nothing. I remember when a business owner dropped off a box of bills and income. Said here you go.
  • dave44dave44 Posts: 6,268 Admiral
    AC Man wrote: »
    My accountant in my small business loves my office manager to death. She provides up to date paper work and a perfect file from quick books. We never get asked one question. I just sign and pay what they tell me. Biz tax return $1500, personal $350. Same as the last company I used. My CPA does nothing except sign off on a assistant. Quick Books have reduced their job to nothing. I remember when a business owner dropped off a box of bills and income. Said here you go.

    Yep. QuickBooks makes it pretty easy on them.
  • cadmancadman Gainesville, FlPosts: 23,051 AG
    dave44 wrote: »
    Yep. QuickBooks makes it pretty easy on them.

    Fishing forums where you can ask accounting questions helps too. :)

    Mini Mart Magnate

  • jakejake Posts: 324 Officer
    tunaman wrote: »
    Messed up? My acct. called me a few yrs ago and said"you can't deduct this, you can't do that" I said, "hey, that P&L tells you where my money went now you dou your job, leave me alone so I can do mine".

    Yeah but the thing is, if you are deducting something that you shouldn't be, and it ever comes back on the CPA, the IRS can and will impose big time penalties on the preparer for negligence.
    AC Man wrote: »
    Quick Books have reduced their job to nothing. I remember when a business owner dropped off a box of bills and income. Said here you go.

    I love businesses who have people like your office manager as well. You wouldn't believe how many people still drop off shoeboxes of stuff and say "here..." and then complain about their bill. There are two types of tax returns, in my eyes. People like you who work on it all year - those should be easy, and cheap. Then you have people who only think about in in February and have nothing ready. Those require substantial work(read: time) and cost more.

    No one blinks to pay attorney's fees when they need them, but for some reason people hate paying accounting bills.
  • dave44dave44 Posts: 6,268 Admiral
    cadman wrote: »
    Fishing forums where you can ask accounting questions helps too. :)

    It shows that even a fishing forum can have helpful information on other topics.

    And some wanted to shut it down so that it might regain its former glory.

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