Section 179 Deduction: Can You Really Write Off that New SUV?

By: Scott Sturgeon, JD, MBA, CFP®

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The Section 179 deduction is a tax incentive that allows small businesses to immediately deduct the full purchase price of qualifying equipment from their taxable income. This powerful tool can help small businesses save money on their taxes and invest in the growth of their business, but it’s not without significant limitations.

You’ve probably seen it on social media or even the news. The idea that you can buy a new SUV (typically a luxury model) and deduct the entire amount of the purchase in the year you bought it. Sounds great right?

The reality is that while the Section 179 deduction can be a powerful tax-saving tool for small business owners, it is most certainly not the tax loophole or “tax free SUV” it’s commonly made out to be. There are several requirements business owners need to adhere to in order to take full advantage of a Section 179 deduction and even if you meet those requirements, just because it provides a tax benefit doesn’t mean it’s a prudent financial decision for you or your business.

What is Section 179?

Section 179 is a portion of the Internal Revenue Code that allows business owners to immediately expense and thereby deduct the full value of certain equipment purchased for their business in the year the purchase occurred. Often, businesses will purchase equipment, then capitalize and depreciate that asset over a series of years, essentially deducting it’s value over time. Taking the full deduction in the year of purchase can allow business owners to offset their taxable income by the amount of the purchase and potentially reduce their overall tax bill for that year as a result.

To qualify for the Section 179 deduction, the equipment or software must be new or newly acquired, and must be used at least 50% for business purposes. That means personal use items, like a car you purchase that isn’t used by the business, don’t qualify for the deduction. Additionally, the equipment must be purchased or financed and put into service during the tax year for which the deduction is being taken.

The maximum amount that can be deducted under Section 179 in 2023 is $1.16 million, with a $2.89 million phase-out threshold. This means that if a business purchases more than $2.89 million in qualifying equipment, the deduction will begin to phase out on a dollar-for-dollar basis. Additionally, the total amount you deduct can’t exceed the total amount of taxable income you earned from your business. Lastly, and perhaps most importantly, the maximum amount you can deduct for the purchase of an SUV in 2023 is $28,900.

To take advantage of the Section 179 deduction, businesses will need to complete and file IRS Form 4562 with their tax return. This form allows businesses to calculate the amount of their deduction and claim it on their taxes.

Pros of a Section 179 Deduction

One of the key benefits of the Section 179 deduction is that it allows businesses to immediately deduct the full purchase price of qualifying equipment, rather than having to depreciate the equipment over several years. This can provide a significant tax savings for businesses, especially in the early years when they are most in need of capital to invest in growth.

Another benefit of the Section 179 deduction is that it can be used in conjunction with other tax deductions, such as the bonus depreciation deduction. This allows businesses to potentially deduct even more of the cost of their equipment in the year it is purchased, with a specific carveout in the tax code for large trucks and SUVs.

This latter portion of the code is where a lot of the hype around deducting the value of any of the below-listed trucks or SUV’s comes from. If you own and operate a business that requires you to utilize one of the vehicles listed below, a Section 179 deduction could be really beneficial. Since you’re going to purchase the vehicle anyway, why not receive a tax break in the process?

Section 179 Deduction Vehicles

Below is the list of Section 179 Deduction vehicles that are eligible for both the Section 179 deduction and bonus depreciation as well, thereby allowing business owners to deduct the full value of the vehicle in the year it’s purchased.

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

Limitations of the Section 179 Deduction

While the tax benefits of Section 179 can be substantial, it’s not without it’s drawbacks. Obviously the first is that in order to utilize the deduction you need to own a business that has enough income for the deduction to actually make sense. If you’re a W2 employee without any other income sources, the Section 179 deduction probably isn’t going to be applicable.

Additionally, when it comes to tax planning, there’s an adage to “not let the tax tail wag the dog.” In this instance, just because you can write off a substantial portion of a large SUV you purchased, doesn’t mean that buying a less expensive vehicle wouldn’t be a more prudent financial decision for you or your business. Tax deductions aren’t the same as tax credits, so if you spend $100,000 on a luxury SUV you’re probably not going to get back $100,000 as a refund on your tax return by deducting the price of the SUV alone.

Finally, remember that Section 179 deductions can be used for SUV’s that are new or new to you, so you’re not required to buy a brand-new version of the vehicles listed above in order to utilize the deduction. Additionally, you’re limited to a maximum deduction for an SUV of $28,900.

Parting Thoughts

Overall, the Section 179 deduction can be a valuable tool for small businesses looking to invest in new equipment and grow their business. By allowing businesses to immediately deduct the full purchase price of qualifying equipment, the deduction can provide significant tax savings and help businesses invest in their future.

At the same time, it’s not necessarily a reason in itself to go out and purchase the most expensive truck or SUV for your business just because of the tax break. If you’re trying to determine whether a Section 179 deduction might make sense for you or your business, consider scheduling some time with us to talk through your financial situation.

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