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Section 179

Section 179 of the United States Internal Revenue Code allows taxpayers to elect to deduct the cost of certain types of property, including vehicles, on their income taxes as an expense rather than capitalizing and depreciating the property over time.

To qualify for the Section 179 deduction, the vehicle must be used for business purposes more than 50% of the time. If the vehicle is used partially for business, only the percentage of business use can be deducted.

Moreover, the IRS specifies that “You cannot elect to expense more than $28,900 of the cost of any heavy sport utility vehicle (SUV) and certain other vehicles placed in service in tax years beginning in 2023.”

This limit applies to any 4-wheeled vehicle primarily designed to carry passengers over public streets and highways, with a gross vehicle weight rating (GVWR) of more than 6,000 pounds but not more than 14,000 pounds.

For tax years beginning in 2024, the maximum Section 179 deduction for such vehicles is increased to $30,500.

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Lease write-offs

Leasing a vehicle for business purposes can also provide tax benefits, but it’s important to understand the specifics of what can be written off.

To write off lease expenses, the vehicle must be primarily used for business purposes. If the vehicle is also driven for personal use, you can only deduct the portion of the lease payments that corresponds to business use. For example, if you use the vehicle 75% for business and 25% for personal use, you can deduct 75% of the lease payments.

Additionally, the IRS imposes a "lease inclusion amount" for leased vehicles with a fair market value above a specified threshold. When applicable, this amount must be accounted for in each tax year you lease the vehicle. Instead of adding this inclusion amount to your income, you reduce your deductible lease payment by this amount. The exact inclusion amount varies based on the vehicle's value and the specific tax year.

To maximize the potential tax benefits of your next vehicle purchase and ensure compliance with IRS regulations, it is best to consult a tax professional who can help you navigate the complexities of the tax code.