Section 179 and trucking
By: Phil Sneed
In the middle of December 2015, Congress passed a piece of legislation known as Protecting Americans from Tax Hikes Act, which was subsequently signed by the president.
This massive bill totaled 2,009 pages and was classified as an omnibus spending bill, which is when smaller appropriation bills are part of one large spending package.
December's PATH Act was no different and according to The Hill, the legislation aims to improve local economies and the lives of working individuals.
One portion of the bill may have been glossed over – Section 179. This beneficial tax deduction has been around for a few years at this point and represents an excellent way for the those within the trucking industry to obtain equipment and receive tax deductions.
The basics of Section 179
Section 179 is part of the IRS tax code that allows businesses to deduct the full purchasing price of equipment, with limits, from the gross income. Because this deduction is able to be applied to almost any type of equipment – even office furniture – companies can truly benefit from it.
"Section 179 is truly meant for small to medium companies, and this includes trucking."
For 2016, the deduction limit is $500,000 for companies with a spending cap of $2,000,000. In some ways, Section 179 is truly meant for small to medium companies, and this includes trucking.
Furthermore, according to section179.org, the tax benefit is not terribly complicated. Prior to the deduction, companies would write off costs through depreciation. For example, a carrier may spend $60,000 on equipment purchases but is only able to write off $10,000 for six years.
With Section 179, that entire $60,000 purchase can be written off in full during the year the equipment was purchased. This enables businesses to potentially add more equipment than they might have originally.
The PATH Act is important to remember because in it, the federal government made the deduction permanent for the foreseeable future. In prior years, companies would often have to wait until the final month and weeks of the year to find out what the deduction limits would be set at.
Truck companies can rest easy knowing that, until they're told otherwise, $500,000 of equipment purchases will be fully deductible.
It's also worth noting that trucks are not the only pieces of equipment whose full price can be written off during the year.
What equipment qualifies?
Virtually any type of business equipment qualifies, including computers, software and trucks. The IRS has a set of guidelines to help carriers, shippers and others in transportation ensure their purchases will be deductible.
Requirements that must be adhered to include:
- Equipment must be acquired by purchase for business use
- Purchases must fall under eligible property
- Items cannot be classified as purchases that do not qualify
From there, companies must then ensure purchases meet the eligible property guidelines:
- Tangible personal property
- Integral parts in the furnishing of transportation services
- Computer software bought off the shelf
The IRS classifies tangible personal property as machinery, equipment and office furnishings, such as fax machines. Trucking and logistics management companies can benefit from Section 179 by ensuring offices are fully furnished with the latest hardware.
When it comes to software, companies have to make sure it is available for the general public to purchase, has not been customized and is subject to a nonexclusive license.
Additionally, all property that is bought outright or leased can be deducted. Anything that is a gift or acquired by inheritance is not deductible.
Other than computers and telephones, semi-trailers represent the most important aspect of the industry, and perhaps the largest cost, as prices typically fall within a six-figure range.
"Trucks can qualify for Section 179 deductions."
According to the IRS, trucks can qualify for Section 179 deductions if they are equipped with a cargo area of at least six feet that is not easily accessible by the driver.
The tax deduction arrived at a perfect time for some drivers, as they are able to upgrade semi-trailers or trade them in for newer ones that have better gas mileage to meet regulations regarding fuel mileage.
Unlike passenger vehicles, trucks can qualify for a full deduction because of their nature.
In a guest column for Fleet Owner, Jane Clark, vice president of member services at NationLease, said the bonus depreciation of 50 percent through 2017 represents a great gift for the industry. Starting in 2018, the depreciation rate will decrease to 40 percent. This gives fleets and owners a chance to change the trade cycle to utilize the higher depreciation rates.
Extra cash can therefore be invested into fleets and employees at a time when the industry continues to experience growth.
As the new year kicks into high gear, truck companies stand to benefit from Section 179. Whether fleets need office equipment or semi-trucks, they can purchase everything knowing that up to $500,000 can be claimed.