Section 179 Deduction

Gregory J. Cook, EA, CPA+ Accredited Tax Advisor Past President Alabama Society of Enrolled Agents Past President Alabama Association of Accountants

Section 179 Deduction
"The section 179 deduction allows you to treat part or all of the business cost of a car as a current expense rather than taking depreciation deductions over a number of years."

TIP – The limit on total section 179 and depreciation deductions (discussed later) may reduce or eliminate any benefit from claiming the section 179 deduction.

You can claim the section 179 deduction only in the year you place the car in service. For this purpose, a car is placed in service when it is ready and available for a specific use, whether in a trade or a business, a tax-exempt activity, a personal activity, or for the production of income. Even if you are not using the property, it is in service when it is ready and available for its specific use.



A car first used for personal purposes cannot qualify for the deduction in a later year when its use changes to business.

Example. In 2005 you bought a new car and placed it in service for personal purposes. This year, you began to use if for business. Changing its use to business use does not qualify the cost of your car for a section 179 deduction this year. However, you can claim a depreciation deduction for the business use of the car. See Depreciation Deduction, later.

More than 50% business use requirement - You must use the property more than 50% for business to claim any section 179 deduction. If you used the property more than 50% for business, multiply the cost of the property by the percentage of business use. The result is the cost of the property that can qualify for the section 179 deduction.

Example. Peter purchased a car in April 2006 for $19,500 and he used it 60% for business. The total cost of Peter’s car that qualifies for the section 179 deduction is $11,700 ($19,500 cost × 60% business use). But see Limit on total section 179 and depreciation deductions, discussed later.
Limits. There are limits on:

*The amount of the section 179 deduction,
*The section 179 deduction for sport utility and certain other vehicles, and
*The total amount of the section 179 deduction plus the depreciation deduction (discussed later) you can claim for a qualified property.

Limit on the amount of the section 179 deduction - For 2010, the total amount you can choose to deduct under section 179 generally cannot be more that $500,000.

If the cost of your qualifying section 179 property placed in service in 2010 is over $2,000,000, you must reduce the $500,000 dollar limit (but not below zero) by the amount of cost over $2,000,000. If the cost of your section 179 property placed in service during 2010 is $2,500,000 or more, you cannot take a section 179 deduction.

The total amount you can deduct under section 179 each year after you apply the limits listed above cannot be more than the taxable income from the active conduct of any trade or business during the year.

If you are married and file a joint return, you and your spouse are treated as one taxpayer in determining any reduction to the dollar limit, regardless of which of you purchased the property or placed it in service.

If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit. You must allocate the dollar limit (after any reduction) between you.

For more information on the above section 179 deduction limits, see Publication 946.


Limit for sport utility and certain other vehicles - For sport utility and certain other vehicles placed in service in 2006, the portion of the vehicle’s cost taken into account in figuring your section 179 deduction is limited to $25,000. This rule applies to any 4-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways, that is not subject to any of the passenger automobile limits explained under “Depreciation Limits”, later, and that is rated at no more than 14,000 pounds gross vehicle weight. However, the $25,000 limit does not apply to any vehicle:

*Designed to have a seating capacity of more than nine persons behind the driver’s seat,

*Equipped with a cargo area of at least 6 feet in interior length that is an open area or is designed for use as an open area but is enclosed by a cap and is not readily accessible directly from the passenger compartment, or

*That has an integral enclosure, fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver’s seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield.

Limit on total section 179 and depreciation deductions - Generally, the total amount of section 179 and depreciation deductions that you can claim for a qualified car that you placed in service in 2006 is $2,960. The limit is reduced if your business use of the car is less than 100%. See Depreciation Limits, later, for more information.

Example. In the earlier example under More than 50% business use requirement, Peter had a car with a qualifying cost (for purposes of the section 179 deduction) of $11,700. However, Peter’s total section 79 and depreciation deduction is limited to $1,776 ($2,960 limit × 60% business use).


Cost of car - For purposes of the section 179 deduction, the cost of the car does not include any held by you at any time. For example, if you buy (for cash and a trade-in) a new car to use in your business, your cost for purposes of the section 179 deduction does not include your adjusted basis in the car you trade in for the new. Your cost includes only the cash you paid.

Basis of car for depreciation - The amount of the section 179 deduction reduces your basis in your car. If you choose the section 179 deduction, you must subtract the amount of the deduction from the cost of your car. The resulting amount is the basis in your car that you use to figure your depreciation deduction.

When to choose - If you want to take the section 179 deduction, you must make the choice in the tax year you both purchase the car and place it in service for business or work.

How to choose - Employees use Form 2106 to make this choice and report the section 179 deduction. All others use Form 4562.

File the appropriate form with either of the following:

*Your original tax return filed for the year the property was placed in service (whether or not you file it timely).

*An amended return filed within the time prescribed by law. An election made on an amended return must specify the item of section 179 property to which the election applies and the part of the cost of each such item to be taken into account. The amended return must also include any resulting adjustments to taxable income.

CAUTION – You must keep records that show the specific identification of each piece of each piece of qualifying section 179 property. These records must show how you acquired the property, the person you acquired it from, and when you placed it in service.

Revoking an election - An election (or any specification made in the election) to take a section 179 deduction for 2006 can be revoked without IRS approval by filing an amended return. The amended return must be filed within the time prescribed by law. The amended return must also include any resulting adjustment to taxable income. Once made, the revocation is irrevocable.

Reduction in business use - To be eligible to claim the section 179 deduction, you must use your car more than 50% for business or work in the year you acquired it. If your business use of the car is 50% or less in a later tax year during the recovery period, you have to recapture (include in income) in that later year any excess depreciation. Any section 179 deduction claimed on the car is included in calculating the excess depreciation.

Dispositions - If you dispose of a car on which you had claimed the section 179 deduction, the amount of that deduction is treated as a depreciation deduction for recapture purposes. You treat any gain on the disposition of the property as ordinary income up to the amount of the section 179 deduction and any allowable depreciation (unless you establish the amount actually allowed).