Does My Vehicle Qualify for Section 179 Deduction?

Buying a car is a huge expense, but we do it because we use them for everything. So much of our lives is lived behind the wheel, driving to work or classes, getting the kids to their games, going on dates or heading out on a road trip. When you think about it, our cars are really there for a lot of both the big and small moments in our lives. That's why we sometimes decorate them with bobbleheads on the dash or tassels hanging from the rearview mirror. Some of us even give our car a name.

If we want our cars to last a long time, the cost of maintenance and parking is significant. The good news is that Section 179 of the IRS allows you to deduct the cost of certain types of property on your income taxes as a business expense.

As a self-employed worker, freelancer or independent contractor you can claim tax deductions for your driving expenses that can substantially lower your taxes. If you own a car and use it for business purposes, you can deduct mileage and car-related expenses as a business deduction. Aside from claiming the mileage and maintenance tax deduction, you can also deduct your vehicle costs with Section 179.

Say you bought a car to drive for Uber. You can start deducting maintenance costs like oil changes, part of your cellphone bill, your subscription to Spotify for playing music for customers, parking and tolls – and a whole lot more.

Key takeaways

  • Vehicle-related expense can be deducted if you use your car for work
  • You can deduct the amount your car has depreciated
  • You can take a standard deduction based on mileage or itemize all your vehicle expenses

What vehicles are covered by Section 179?

Section 179 was introduced as a federal incentive for small and midsize businesses, it includes vehicles that meet certain requirements, such as:

  • 🛻 Pickups and vans that are used for business more than 50% of the time and exceed 6,000 pounds gross vehicle weight. These vehicles may qualify for at least a partial Section 179 deduction, plus bonus depreciation.
  • 🚜 Vehicles that are used for work and cannot double as personal vehicles, such as forklifts or trailers, or those that seat more than nine passengers behind the driver’s seat such as hotel or airport shuttle vans.
  • 🚚 Delivery-type vehicles, such as cargo vans or box trucks with no passenger seating.
  • 🚑 Specialty work vehicles such as hearses or ambulances.

🚗 Section 179 deduction vehicle list for 2022

  • Audi Q7
  • BMW X5, X6
  • Buick Enclave
  • Cadillac XT5, XT6, Escalade
  • Chevrolet Silverado, Suburban, Tahoe, Traverse
  • Chrysler Pacifica
  • Dodge Durango, Grand Caravan
  • Ford Expedition, Explorer, F-150, and larger
  • GMC Acadia, Sierra, Yukon
  • Honda Pilot 4WD, Odyssey
  • Infiniti QX80, QX56
  • Jeep Grand Cherokee
  • Land Rover Range Rover, Discovery
  • Lexus GX460, LX570
  • Lincoln MKT AWD, Navigator
  • Mercedes-Benz G550, GLS, GLE, Metris, Sprinter
  • Nissan Armada, NV 1500, NVP 3500, Titan
  • Porsche Cayenne
  • Tesla Model X
  • Toyota 4Runner, Landcruiser, Sequoia, Tundra

Are there any changes made to the Section 179 deduction in 2022?

Yes. There are some changes including the deduction limit is

Changes to Section 179 Deductions 2022 $1,080,000, the spending cap on equipment purchases is $2,700,000 and the bonus depreciation is 100% for 2022.

There are caps to the total amount you can write off ($1,080,000 for 2022) and limits to the total amount of the equipment purchased ($2,700,000 in 2022). The deduction begins to phase out on a dollar-for-dollar basis after $2,700,000 is spent by a given business (thus, the entire deduction goes away once $3,780,000 in purchases is reached), making it a deduction that is truly for small and medium-sized businesses.

How does depreciation work under Section 179?

Depreciation refers to the annual deduction authorized to recover the cost or other basis of business or investment property having a useful life substantially beyond the tax year. Generally, depreciation starts when you first use the property in your business or for the production of income. It ends when you take the property out of service, deduct all your depreciable costs or no longer use the property in your business or for the production of income.

However, with the Section 179 deduction, you can write off the entire cost of the purchase in the first year, rather than depreciating it over its functional life.

The cost of that car you bought to drive for Uber can all be written off in your first year of driving customers around.

Where should I report Section 179 deduction?

As a business owner, gig worker, or self-employed person, you must use Form 4562 to report your Section 179 deductions.

Standard Mileage vs Section 179 deduction

💵 If you drive a lot for work, then you have two options for deducting your vehicle expenses - the standard mileage deduction or Section 179 deduction.

The IRS allows you to deduct the average costs of operating your vehicle, as well as depreciation, when choosing the standard mileage rate. In 2022, the standard mileage deduction rate increased to 58.5 cents per mile.

The table below shows the IRS mileage rate for 2022

Category

IRS Mileage Rate 2022

Business mileage rate

58.5 cents/mile

Medical and moving mileage rate

18 cents/mile

Charitable mileage rate

14 cents/mile

For the most part, the standard mileage deduction is very popular, but it’s not always the best option. In fact, you might be better off choosing another method. FlyFin's A.I. finds every possible deduction if you choose to itemize your actual car-related business expenses.

If you purchased a new car, Section 179 may give you a larger deduction. For example, if you paid $60,000 for your car to drive it for Uber, and you used it 100% of the time for business, the first-year depreciation amount for it would be $60,000 for the 2021 tax year.

This would result in a depreciation deduction of $3,160. With the election of the special depreciation allowance, this amount increases to $11,160 for the year.

If you choose the standard deduction amount and drove 50,000 miles in 2021, you would apply the standard mileage rate of .56 cents per mile to get a $28,000 deduction.

If you purchased a new car, Section 179 may give you a larger deduction. For example, the first-year depreciation basis for a $60,000 new car placed in service during 2021 and used 100% for business would be $60,000.

The standard deduction is a rate set by the IRS and you multiply the rate by the number of miles driven. You can deduct tolls and parking fees with this deduction. When you itemize deductions, you can deduct all vehicle expenses, but you’ll need receipts and other documentation. You’ll total all your expenses together to arrive at your deduction amount.

FlyFin CPA Team

FlyFin CPA Team

With a combined 150 years of experience, FlyFin's CPA tax team includes tax CPAs, IRS Enrolled Agents and other tax professionals, offering users the most comprehensive tax advice and preparation.

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