With tax season around the corner, it’s a great time to see if your fleet’s equipment, vehicle and software purchases qualify for the Section 179 deduction — an especially beneficial break for small and medium businesses.
Getting to Know Section 179
Tax season may not always be the happiest time of year, but capitalizing on deductions for your fleet can ignite a spark of joy. The Section 179 deduction, for instance, is geared toward providing relief to small and mid-size businesses, although large businesses can also benefit from it. But what is Section 179? According to the official website of Section 179, it’s an IRS tax code that "allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. That means that if you buy (or lease) a piece of qualifying equipment, you can deduct the FULL PURCHASE PRICE from your gross income."
There is a spending cap on business equipment purchases, as well as a deduction limit, both of which change from year to year:
The spending cap for 2021 is $2,620,000, up from $2,590,000 in 2020.
The deduction limit for 2021 is $1,050,000, up from $1,040,000 in 2020.
This means that you can expense a total of $1,050,000, but once you place $2,620,000 of qualified assets into service, the expense total depreciates dollar-for-dollar. By the time your fleet spends and puts into service $3,670,000 worth of assets, the deduction no longer applies.
For any asset to qualify, it must be used and/or put into service between January 1, 2021 and December 31, 2021.
As it was in 2020, Bonus Depreciation is once again being offered at 100 percent this year, now covering both new and used (as long as it’s new-to-you) equipment. Bonus Depreciation is usually taken after the Section 179 deduction, and can be beneficial for businesses that exceed the Section 179 spending cap.
Qualifying Business Equipment
Now that we’ve covered the numbers, let’s talk about what it takes for equipment and software to qualify for the Section 179 deduction. According to Section179.org, "Almost all types of ‘business equipment’ that your company buys or finances will qualify for the Section 179 deduction." This includes GPS and telematics devices, fleet management and other software, office furniture, computers, vehicles, heavy equipment and more. There are, however, further eligibility requirements when it comes to vehicles and software.
What Vehicles are Eligible for Section 179?
Vehicles that qualify for the full Section 179 deduction include (but are not limited to) vehicles that can seat nine-plus passengers behind the driver’s seat, taxis and other vehicles used in transportation-for-hire, cargo vans, heavy construction equipment, forklifts and similar equipment, tractor trailers, and hearses. For more details, visit Section179.org. For passenger vehicles that don’t meet the above criteria, but are used for business 50 percent or more of the time, the combined deduction of both Section 179 and Bonus Depreciation can’t exceed $11,160 for cars and $11,560 for trucks and vans.
What Software is Eligible for Section 179?
To qualify for the Section 179 deduction, according to the official website, software must be purchased or financed with specific qualifying lease or loan, used in your business for income-producing activity, have a determinable useful life, be expected to last more than one year, be readily available for purchase by the general public and subject to a non-exclusive license and must not have been substantially modified.
And since we mentioned qualifying loans, during your next vehicle replacement and procurement cycle, you may be interested in checking out Section 179 Qualified Financing.
Getting Organized in Fleetio With Automated Reports
One pain during tax season is gathering all the documentation you need on all your fleet expenses over the course of the year. Fleetio automates all your fleet’s data into easy-to-read reports that you can quickly filter by vehicle, date, expense type and more! Easily pull fuel summaries for IFTA fuel tax reporting and find assets purchased and put into service for a given tax year.
Ensure you have all the information you need to maximize your fleet’s tax deductions. Start your free trial of Fleetio or request a demo today!