Section 179 of the United States Internal Revenue Code allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. With two months left in 2021 business owners may think they have plenty of time to consider qualifying equipment purchases but several factors make it urgent for businesses to act now.
Section 179 has tightened deduction limits for vehicles
In 2020, the tax code provided a dollar-for-dollar deduction for businesses purchasing certain passenger vehicles. For tax year 2021, that deduction is limited to just $11,160.
In the early 2000’s, Section 179 was referred to as the “Hummer deduction” thanks to a generous allowance granting business owners the ability to write off heavy vehicles like Hummers provided they are used for at least limited business purposes. That generosity has been severely curtailed. In 2020, vehicles with a Gross Vehicle Weight Rating (GVWR) of over 6,000 pounds but less than 14,000 could enable a 100% deduction. In 2021, the deduction maximum is $25,000, provided the vehicle meets certain conditions including being purchased and placed in service prior to December 31, 2021.
While section 179 deductions are geared to incentivize the purchase of work vehicles (trucks, cargo vans, etc.), its GVWR stipulation may also be the reason that the Mercedes-Benz G-Class is now the quickest-selling vehicle in America. The G-Wagon’s gross vehicle weight is more than 6,000 pounds – making it eligible for deduction.
Supply chains are in critical condition
Section 179 stipulates that equipment eligible for a 2021 deduction must be purchased and put into service by midnight, 12/31/2021. However, according to Fox News contributor Stuart Varney, supply chains are in critical condition. The average lead time for equipment manufacturers and distributors is oscillating from 8-12 weeks, meaning businesses that do not act now are at severe risk of failing to secure the Section-179 write off.
If you’re considering purchasing equipment for your business, act now. Current interest rates are incredibly low, and based on rising inflation, may go up by as much as 75 basis points. If you have questions regarding equipment financing, please contact us at firstname.lastname@example.org.