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Everything You Needed To Know About Tax Code 179

Everything You Needed To Know About Tax Code 179

DISCLAIMER: Everything contained here is information gathered by me through various news sources and IRS publications. Be sure to consult your CPA or Tax Attorney before purchasing a vehicle to make sure you qualify.

Background: In the mid 1940s, Congress passed a law that would allow for tax deductions to farmers after World War II that would allow them to write off the cost of new equipment to encourage more people to work the land. Although many people took advantage of the law, it sat on the books for years without any changes to speak of. However, in 1996 the amount of money allowable to be written off started to grow for the sole purpose of encouraging business. Besides farm equipment, other things were added to the list such as vehicles.

To keep to the original spirit of the law, vehicles that have a gross vehicle weight of over 6000 pounds qualify for accelerated tax write-offs in the year they are bought up to a certain dollar amount. Until recently, that amount was $25000. In simple terms, if you qualify, you could write off up to $25000 of the amount of the vehicle in the same year you purchased it, plus the remainder of the price over the following four years.

GREAT NEWS: In May of this year, thanks to the 2003 Tax Act, the amount was raised to $100,000. That means that you can buy one or more eligible vehicles and write-off the entire amount up to $100,000 on your 2003 tax return! This is all documented in Section 179 of the tax code. Prior to this, you could take advantage of writing off depreciation, but it had to be done over five years.

EXAMPLE: So say you spend $40,000 to buy a new truck or SUV thats used 100% in your self-employed business activity (meaning you conduct your operation as a sole proprietor, LLC member, or partner). Provided you make the vehicle purchase before year-end and start using it for business before then, you can probably deduct the entire $40,000 cost on this years business tax forms.

SO WHATS THE CATCH? Only that your newly acquired vehicle will need to be used more than 50% of the time for business purposes. Heres a little more background so youll understand how the Section 179 break works. Ill walk you through steps to complete this process and hopefully reduce your tax liability for THIS YEAR.

STEP ONE is to find a vehicle that qualifies for the deduction. Again, it has to have a gross vehicle weight rating of over 6000 pounds. At the end of this article, I will give you a list of new vehicles that is current AND that for sure qualify based on the weight. You can also usually look on the drivers door of any car, and there will be a sticker with pertinent information on it. GVWR is what you are looking for.

Next, be SURE to PURCHASE the vehicle. Leases do not qualify. However if you DO lease there are certain deductions you can take, but generally you can only take them as you make payments. Interest rates are a non-issue, but rebates will affect the amount you can write off because factory rebates lower the sales transaction price.

MILEAGE LIMITATIONS: As with most vehicle related deductions, you are going to have to document your mileage to protect yourself in the case of an audit. Remember, your vehicle must be used a minimum of 50% of the time for business purposes to even qualify for the deduction, but the AMOUNT of business use will also dictate what amount you can write off this year. For instance, lets say you buy a $50,000 Lincoln Navigator and you use it 100% for your business, then you can write off $50,000 this year. But lets take that same Navigator, and say you only use it for business 60% of the time.... then your write off for the year is $30,000 ($50,000 times 60%=$30,000).

To read the rest of this extensive tax code 179 including a list of affected vehicles visit http://www.prestigeok.com, your one stop shop to buy new or used cars, sell your vehicle, get an online insurance quote, buy spare parts, accessories and even an get an extended warranty. Original article written by Jerry Reynolds, GM of Prestige Ford in Texas.

Everything You Needed To Know About Tax Code 179

Everything You Needed To Know About Tax Code 179

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