2024 Section 179 Deductions
Like many tax deductions, there is a cap on the amount you can deduct from your taxable income under Section 179. This cap varies annually to account for inflation; however, for 2024 (with taxes filed in 2025), the highest Section 179 deduction is set at $1,220,000, reflecting a $60,000 increase compared to 2023.
You can combine several qualifying expenses to hit this limit but stay within the annual maximum deduction. Additionally, Section 179 requires that your deduction not surpass your qualifying taxable net income. If your deduction exceeds your taxable income, you can defer the unused portion of your Section 179 deduction to future tax years.
It is essential to understand that the complete Section 179 deduction only applies to equipment or vehicles utilized exclusively for business activities. However, if the item is employed for business purposes at least 50% of the time, a partial Section 179 deduction can still be claimed. To calculate the deductible amount under Section 179, simply multiply the item’s cost by the percentage of business use exceeding 50%.
Regarding vehicle purchases, there are specific limits to the deductible amounts available through Section 179, which depend on the type of vehicle. More details on this topic are covered below.
2024 Section 179 Spending Limit
Section 179 is designed for smaller businesses with lower expenses, so a spending limit defines the deductible amount using Section 179 in any given tax year based on the total expenditures your company has made on equipment or vehicle acquisitions. For 2024, the spending limit for Section 179 on purchases made between January 1 and December 31 is $3,050,000, reflecting a $160,000 increase from the previous year, 2023.
If your business’s qualifying equipment purchases total $3,050,000 or less in 2024, you can claim the entire Section 179 deduction amount. The deduction limit decreases for every dollar spent on qualifying equipment that exceeds the $3,050,000 threshold. If the total equipment spending reaches $4,270,000, the Section 179 deduction is eliminated, meaning your business will no longer be eligible for this deduction.
Qualifying Vehicles for Section 179 in 2024
In simple terms, vehicles qualify for a Section 179 deduction if they were purchased, financed, or leased and put into use before the close of the tax year for which the deduction is being requested. Therefore, for the tax return you will file in 2025, the vehicle must have been acquired, financed, or leased and put into use before the end of 2024.
According to the Internal Revenue Service (IRS), “placed into service” refers to the point at which the vehicle is ready and available. If a vehicle was bought during the calendar year but was not put into service before midnight on December 31, 2024, it will not qualify for the Section 179 deduction.
The vehicle can be either new or used (as long as it is “new to you”), but it must be obtained through an “arms-length” transaction. Vehicles inherited or received as gifts do not qualify for Section 179, nor do those purchased from immediate family members. Additionally, the vehicle must be titled in your company’s name rather than the owner’s name.
The IRS categorizes vehicles eligible for a Section 179 deduction into Light, Heavy, and Other groups. The maximum deduction amount varies for each category and can be adjusted yearly to reflect inflation changes. Additionally, remember that the deduction limit for each category may be proportionally adjusted based on the percentage of time the vehicle is utilized for business if it is not used exclusively for business.
Light Vehicles – Any vehicles with a gross vehicle weight rating (GVWR) of less than 6,000 lbs. are utilized for business purposes at least 50% of the time. This category encompasses many passenger cars, crossover SUVs, and small utility trucks. The deduction limit for Light Vehicles in 2024: Not Yet Available.
Heavy Vehicles – Any vehicles with a GVWR ranging from 6,001 lbs. to 14,000 lbs. that are employed for business at least half the time. This includes various full-size SUVs, commercial vans, and pickup trucks. The deduction limit for Heavy Vehicles in 2024: $30,500 (an increase of $1,600 from 2023).
Vehicles – Any vehicles with a GVWR exceeding 14,000 lbs. OR those modified for work-related, non-personal utilization. This group includes tractor trailers, cab and chassis, shuttle or passenger vans with a minimum of nine passenger seats, buses, cargo vans, and specialized business vehicles such as ambulances or work trucks. The deduction limit for Other Vehicles in 2024: There are no additional restrictions. You can deduct 100% of the cost for vehicles within this category.
2024 Bonus Depreciation
Alongside the Section 179 deduction, equipment or vehicles you acquire and put into service during the tax year may also be eligible for bonus depreciation, which can further decrease your tax obligation. Both Section 179 and bonus depreciation provide similar advantages but have important distinctions.
Bonus depreciation lets you immediately deduct a percentage of the cost of eligible equipment or vehicles acquired within the calendar year. At the same time, Section 179 permits a deduction of a predetermined dollar amount. In 2024, the bonus depreciation rate is 60% of the value of qualifying acquisitions. Absent any changes in current legislation, this rate will decrease by 20% each subsequent year, falling to 40% in 2025, 20% in 2026, and phasing out by 2027.
In contrast to Section 179, which imposes a fixed deduction limit and an annual spending cap on qualifying business costs, bonus depreciation has no limits or spending thresholds. This implies that larger companies that do not qualify for Section 179 due to their expenses can still deduct a percentage of the cost of acquired items in their first year of use.
Bonus depreciation can be claimed even if your business operates at a loss or is not profitable for the year. On the other hand, Section 179 deductions cannot exceed your taxable business income but can be deferred to subsequent years.
It is feasible to utilize Section 179 and bonus depreciation deductions within the same tax year, although Section 179 deductions are generally claimed first, followed by any applicable bonus depreciation.
Calculating Your Vehicle Deduction Under Section 179
If you have acquired, financed, or leased business vehicles or equipment and set them into operation in 2024 or are planning to make a purchase and start using such a vehicle by the year’s end, it could be advantageous to assess now how much you might save on your 2024 taxes by utilizing a Section 179 deduction.
For instance, suppose your business acquires a pre-owned truck priced at $80,000 and begins using it in 2024. By applying the entire cost of the truck as a Section 179 deduction, you could reduce your tax liability by $28,000 (assuming you’re in a 35% tax bracket), effectively lowering the actual cost of the truck to $52,000. That $28,000 could then be reinvested by your business into other essential equipment this year.
We suggest using the Section 179 calculator available at Section179.org, which is updated to reflect the current limits for 2024 and includes bonus depreciation.
How to Claim Your Section 179 Deduction
When you are prepared to file your taxes for 2024, your initial task will be to comprehend your business’s taxable income to determine the maximum amount you can deduct through Section 179. Next, collect financial documentation for every purchase you plan to claim, including the purchase date, the date the property was first utilized, and the total cost.
After that, you must complete IRS Form 4562 (not yet available for 2024) and detail all the purchases for which you claim a Section 179 deduction. Include any Section 179 deductions you intend to carry forward from earlier years.
It’s important always to seek the guidance of an accountant or tax specialist for tailored advice and strategies related to filing for Section 179 and exploring other potential tax deductions for your business.