Section 179 Deduction Inquiry 2016

6 Replies

Hello,

I don't need a cargo van for my business at this point in time but after having reviewed the section 179 guidelines, it seems like it might be beneficial considering the tax bracket and financial position my business is in currently. I also read often that it is heavily advised to take advantage of the section 179 deduction.

So - I am trying to crunch the numbers for a potential vehicle purchase for my business and am weighing it against lost profit. From my understanding, I will initially be spending $1 to save $0.40 but the depreciation deductions in the following years will essentially drive those two values closer together.

So in this hypothetical scenario, the most beneficial vehicle would be a 6000>GVW non-passenger work vehicle such as a cargo van. I intend on using it 100% for business purposes. The vehicle in question would cost $40,000

For the first year, we would be allowed to deduct the full cost of the vehicle at $40,000 which essentially brings our out of pocket cost down to $24,000. 

Assuming a depreciation of $10,000 over the next five years, that still leaves a lot left on the table when it comes to the out of pocket cost.

Am I missing something from my formula? Where is this "free ticket" I keep hearing about?

We'll, it's not supposed to be a free ticket.....it's a ticket where you can save .40 on every dollar you spend today, if you're in a 40% bracket.  Also keep in mind, you can get the Same deduction if you instead deduct it each year straight line over the life of the loan, if you are in that bracket each year.  And, there is no "another $10k depreciation over the next five years", if you take the full 179 deduction now, you're taking it all This year.

So in that case it's deducted the same way every other expense is? I was under the impression that the business owner would be able to deduct the full cost of the purchase and then deduct the depreciation during the following years. 

Right.  Section179 simply lets you claim the full depreciation Now, as opposed to being spread out over 5-7 years.  As @Jay Hinrichs mentioned, when/if you sell it, your basis would be zero, so sales price is fully taxable as income.

I see. With that in mind, I am struggling to see the point of section 179. I already expect all my expenses to be subjected to the 40% discount. The new computers I bought are. The shipping envelopes I bought are. As is the coffee I order through WB Mason. Why would company vehicles be any different? I am failing to see what section 179 brings to the table in that case. 

I'm responding via mobile so pardon the short reply. 

You basically get to choose when you take the deduction. It can be a hugely beneficial tool. However if it will cause a loss on your tax return you can't take 179. Additionally, vehicles have very specific 179 rules. You may want to send your CPA the info on yjr specific truck and see based on weight limits which category it falls under 

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