Section 179 Expense Deduction

[linguafr1]

I was considering purchasing a "new" (used vehicle) for business and potentially personal use, before the end of the year to try to take advantage of the section 179 deduction.  However, when I enter a December date, the actual expenses method deduction, i.e. that allows me to choose this option is negligible.  I noticed if I enter an in earlier placed in service date the deduction is considerably more.  For example difference between a first of the year date and a December date is in my case almost $8k.  So, it seems it's in one's interest to buy a vehicle as close to the beginning of the year as possible to maximize this deduction.  Is it that simple or are there other nuances I may be missing?  I am self-employed, i.e. the vast majority of my income is Schedule C business income.   To what degree does the business vs personal use affect the total available deduction? 

[Mike9241]

section 179 is limited to net income from your business before the deduction so if you enter the asset before the income no 179 will be allowed and depreciation will revert to 5 year MACRS. under MACRS since the purchase occurred in the 4th qtr the midquarter convention applies so you would only get 5% of the business portion of the cost.  the business use must be more than 50% otherwise no section 179 is allowed.   you didn't specify what type of vehicle because different types have different rules as to maximum first year depreciation. 

[linguafr1]

Assume it's >50% biz use and tax year biz profit is significantly more than cost of vehicle and of course that profit is at it's max at the end of the tax year.  Are you implying that the income used for reference can span more than one tax year for a schedule 179 deduction?  I thought the gist of this deduction was that it allowed you take the majority of the cost of the vehicle in the first year of ownership (service) as opposed to depreciating over multiple years.  The essence of my question has to do with the timing of the purchase and placed in service date.  As I said, just playing around with different placed in service dates, there's a signficant difference between using a 1/1/2020 and for instance anything more recent than 7/1/20.   So, I'm trying to determine if it makes more sense to buy the vehicle next year and take the full deduction then which I assume is based my income for that year. 

[Mike9241]

well yes it can if you can't use all the 179 deduction in year1 then the carryover can be used in year 2 - again limited to business income before the deduction.

as previously stated the amount of section 179 you can claim on a vehicle depends on what it is.  

for example for a passenger auto the maximum 179 deduction for 2020 is $18100. or you can take $15000 in 

bonus and $3100 in regular depreciation 

the maximum 179 and 168(k) that can be taken depends on what class it falls into there are 6 classes

auto 

light truck/van/suv under 6000 lbs

truck or van over 6000 lbs

heavy suv over 6000

heavy truck over 13000 lbs

over the road (primary use long distance trucking)

this link may provide more info

https://bradyware.com/business-vehicle-deductions-2020/ 

[linguafr1]

Thanks for that link.  I'm not clear what distinguishes the 2020 law re: 1st yr vs prior years except for the allowable limits.  Again, the type of vehicle which in my case is a cargo van is really irrelevant to the essence of my question, the placed in service date within the given tax year I'm claiming he deduction.  I'm not concerned with details of deduction limit, vehicle type, %used for business or purchase price at the moment.  This article still doesn't really address that.  "The Tax Cuts and Jobs Act (TCJA) allows unlimited 100% first-year bonus depreciation for qualifying new and used assets (including eligible vehicles) that are acquired and placed in service between September 28, 2017, and December 31, 2022".  The background is that I have a relatively large tax liability this year from business income and I've been shopping for a vehicle for biz use.  I'm simply trying to determine whether purhasing a vehicle between now and end of 2020 represents a potential significant 2020 deduction.  As I mentioned initially, playing around with PIS dates in TT seems to imply that if I were to purchase and PIS, the last week of December this year, which is a practical possibility, the section 179 the 2020 deduction would be negligible, whereas if I had placed in service at the beginning of the year it would be significant.  I hope I've clarified the scenario and the essential question.

[Mike9241]

to take section 179 on a qualified asset in 2020 it must be placed in service anytime in 2020.  it could be placed in service on 1/1 or 12/31.  either way you are entitled to the maximum 179 deduction for the asset.  the same rule applied for 168(k) special depreciation.  the date is irrelevant as long as its place in service during the year.   By the way, there is no business income limitation for 168(k) depreciation  

you are getting the wrong result for the 179. some info you entered is incorrect or there is something you are not telling us. note we can not see your entries or tax file. 

if the van is over 6000lbs you should be entitled to fully expense the cost using 179, 168(k) or a combination

key items that must be entered 

date placed in service

business miles and total miles

amount of 179 you are taking if anty

the question for economic stimulus qualified property must be yes as well as the question was the property acquired after 9/27/17

if the van is over 6000 lbs 

then subject to auto limits should be no

and if you are taking 179 eligible 179 property should be yes

listed property should be no

hopefully, this answers your question

[AmeliesUncle · Accepted solution]

Go back through the vehicle section and look for the question that ask if you kept track of personal miles.  Say YES.

[linguafr1]

Thanks, Mike.  You've addressed the essential question and that's encouraging.  So, as you surmised something is wrong either with my input or the current state of the 2020 program (I know they could be updating some forms).  I'll go back and review input fields.  I can tell you that based on what I've seen so far, many of the options you listed have not appeared.  Just to be clear I'm assuming I'm entering this info in the Business expenses > vehicle summary > tell us about your business vehicle section.  And I did see the output in the Form 4562 under the section 179...although that seems to be greyed out at the moment. 

-amount of 179 you are taking if anty. (I've only seen cost of vehicle field)

-the question for economic stimulus qualified property must be yes as well as the question was the property acquired after 9/27/17 (not seen)

-if the van is over 6000 lbs (yes, and I think may have seen that option)

-then subject to auto limits should be no (not seen)

-and if you are taking 179 eligible 179 property should be yes. (not seen)

-listed property should be no. (not seen)

[linguafr1]

Bingo, Amelie's Uncle!  This is a Sprinter Cargo Van (GVWR 8550lbs).  So as I read in that article I can deduct up to $65,000 of purchase price, correct? 

What exactly is the special depreciation allowance?

[AmeliesUncle]

Yes, but if the vehicle is subject to the limits, then you can only enter the amount up to the limit (prorated based on business percentage).   [EDIT:  You added the weight after I started my post, so it seems like the limits won't apply to you.]

However, is there a reason why you are wanting to use Section 179 rather than Bonus Depreciation?  For Federal taxes, Bonus has fewer complications than Section 179.   However, some states treat Section 179 differently than Bonus, so that may have an impact.

[linguafr1]

"However, is there a reason why you are wanting to use Section 179 rather than Bonus Depreciation?"

I'm not clear on the distinction.  I don't see an option for a "bonus depreciation".  I see a special depreciation allowance option. 

[AmeliesUncle]

Sorry, the "Special Depreciation Allowance" is the same thing as Bonus depreciation.  Bonus is a more casual way of saying it.  Sorry for the confusion.

Although the general rule is that Section 179 has more complexities and potential problems than using the Special Depreciation Allowance, they may not necessarily apply to your situation, but that is the general rule.  But again, some states handle it differently.  Some will force the Special Depreciation Allowance to be spread out over several years, versus they will take the entire Section 179 in the current year.

One other note:  Does your business have enough profit this year to offset the full amount of the vehicle purchase?  If taking the full cost of the vehicle would result in a loss for the business, you may consider changing things.

[linguafr1]

I save $1000 in CA (state) taxes taking the 179 deduction vs special depreciation allowance option.  I think that's a wrap.  Thanks so much for your help.  Now I just need to decide on the vehicle : ).  Actually I have one lined up.  I'm still negotiating price, but there's still time.