Section 179 & Bonus Depreciation: How to Write Off 100% of Equipment in Year One
Section 179 & Bonus Depreciation: How to Write Off 100% of Equipment in Year One
CORE INSIGHTS
- Instant Deduction: Section 179 allows you to deduct the entire cost of equipment (up to ~$1.2M) in the purchase year. IRC § 179
- The 6,000 lb Rule: Vehicles over 6,000 lbs (GVWR) are “heavy equipment,” bypassing luxury auto limits. IRC § 280F(d)(5)
- Profit vs. Loss: Section 179 cannot create a tax loss (only reduce income to zero). Bonus Depreciation can create a Net Operating Loss (NOL). IRC § 168(k)
For business owners, reinvesting is the best tax shelter. The IRS incentivizes this via Section 179 and Bonus Depreciation. Instead of depreciating assets slowly, you expense them immediately to slash your current tax bill.
What-If Scenario: The $80,000 Work Truck
| Strategy | Year 1 Deduction | Tax Savings (35%) |
|---|---|---|
| Standard Depr. | $16,000 (20%) | $5,600 |
| Section 179 | $80,000 (100%) IRS Pub 946 | $28,000 |
Visualizing Deduction Timing
⚠️ Chart loading delayed. Please refresh.
*Figure 1: Deduction Schedule. Section 179 (Green) front-loads the entire benefit.*
Strategic Action Steps
1
Verify GVWR
Check the door jamb sticker. The Gross Vehicle Weight Rating must be > 6,000 lbs to qualify as heavy equipment. 5,900 lbs = No Deal.
Check the door jamb sticker. The Gross Vehicle Weight Rating must be > 6,000 lbs to qualify as heavy equipment. 5,900 lbs = No Deal.
2
Track Business Use
You can only deduct the business percentage. Keep a mileage log. If usage drops < 50% later, you face Recapture Tax.
You can only deduct the business percentage. Keep a mileage log. If usage drops < 50% later, you face Recapture Tax.
3
Time the Purchase
Buy and place in service before Dec 31st. Ordering isn’t enough; it must be ready to use to claim the deduction this year.
Buy and place in service before Dec 31st. Ordering isn’t enough; it must be ready to use to claim the deduction this year.
The Bottom Line: Who Should Choose What?
- Use Section 179: Profitable businesses wanting to zero out current tax liability.
- Use Bonus Dep: Businesses operating at a loss or with massive CapEx exceeding Section 179 limits.
What is the ‘Hummer Loophole’?
Vehicles over 6,000 lbs (GVWR) are classified as ‘heavy equipment,’ allowing business owners to deduct a much larger portion (often 100%) in the first year.
What is the difference between Section 179 and Bonus Depreciation?
Section 179 is limited to taxable income (cannot create a loss). Bonus Depreciation has no cap and can create a Net Operating Loss (NOL).
Can I deduct a car used 50% for business?
Yes, but only the business percentage. If you use a $60,000 truck 60% for business, your basis is $36,000. Usage must stay >50%.
Disclaimer: This content is for informational purposes only. Consult a CPA.