Under the Section 179 tax deduction, business owners can deduct up to $500,000 of qualifying equipment purchases in 2017. It is often referred to as the “SUV tax loophole” or “Hummer deduction,” for its ability to quickly deduct these types of vehicles.
To make tax time a breeze, use QuickBooks to keep track of the equipment purchased throughout the year.
How The Section 179 Deduction Works
Think of the Section 179 deduction as accelerated depreciation. Instead of waiting, 5, 7, 15 or more years to slowly deduct big ticket items like an SUV or expensive equipment, you can elect to depreciate most, if not all of it, in the year of purchase. This is especially good for businesses that are starting up, as high business costs can hinder your future growth.
Property & Equipment That Qualify For Section 179
In general, property that has been purchased to use in your business may be eligible for the Section 179 deduction. Property that you received as a gift or part of an inheritance is not eligible for the Section 179 deduction.
This includes but is not limited to the following tangible personal property:
- Machinery and Office equipment
- Property contained in or attached to a building, such as refrigerators, grocery store counters, signs
- Gas storage tanks and pumps found at retail gas stations
- Off the shelf computer software, such as QuickBooks and Microsoft Office
You can also treat certain qualified real property as section 179 property. If you make the special election for real property, it can include but is not limited to the following:
- Leasehold Improvement Property
- Restaurant Property
- Retail Improvement Property
Keep in mind that you can only use $250,000 of the $500,000 section 179 deduction towards real property.
List of Vehicles that Qualify for Section 179 Deduction
You can also claim the Section 179 deduction for a vehicle that you have purchased this year. If the vehicle is used for both personal and business reasons it must be used more than 50% of the time for business to qualify for the section 179 deduction.
Below is a table summarizing the types of vehicles that qualify for Section 179 deduction and the maximum deduction that can be taken for each. In our car depreciation guide, we show you how to calculate your allowable Section 179 deduction.
Summary Table – Vehicles that Qualify for Section 179 Deduction
|Type of Vehicle||Section 179 Limitation|
|Passenger Trucks and Vans||$11,560|
|SUVs (between 6000-14,000 lbs)||$25,000|
Property That Is Ineligible For Section 179
Property that you have purchased solely for the income that it will generate is not eligible for the Section 179 deduction. This property includes but is not limited to the following items:
- Investment Property, such as homes purchased for the sole purpose of flipping
- Rental Property (unless you’re in the business of renting properties)
- Property that produces royalties
- Land Improvements, such as fences, paved parking or swimming pools
How Much You Can Deduct Under Section 179
In general, the maximum section 179 deduction that you can take is $500,000. If you purchase multiple property that qualifies for this deduction, you can allocate it any way that you see fit as long as it does not exceed $500,000. Let’s take a look at a couple of examples.
The owner of a designer blue jeans company purchased a sewing machine for $500,000 and handheld computers totalling $25,000 for all of their sales reps worldwide.
He could deduct the full $500,000 for the sewing machine under the Section 179 election and depreciate the $25,000 for the handheld computers using the MACRS depreciation.
He could deduct the full $25,000 for the handheld computers & $475,000 for the sewing machine under the Section 179 election; the remaining $25,000 would be depreciated using the MACRS depreciation method.
Below, you will find 3 situations in which you may not qualify to take the full $500,000 deduction:
- The total cost of property placed in service exceeds $2 million.
- Your business is an enterprise zone business.
- You are married filing a joint or separate tax return.
For more details on each of these, refer to IRS Pub 946.
How To Elect Section 179
You can elect to take the Section 179 deduction by completing Part I of Form 4562: Depreciation and Amortization. Below is a snapshot of the Section 179 section.
Bottom Line: Section 179
Now that you know more about the Section 179 deduction, I’m sure you’re eager to know how much you qualify for! Head over to the Section 179 Calculator to find out how much potential tax savings you qualify for!
If you’re in the market for a tax software, we recommend TurboTax; if you’re in the market for a new accounting software, we recommend QuickBooks Online. Head over to our free QuickBooks Course which includes 39 video tutorials and written lessons to help you get your business up and running in no time!