What is the impact of claiming a Section 179 deduction on the first-year depreciation of trucks above 14,000 pounds?
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To determine the impact of claiming a Section 179 deduction on the first-year depreciation of trucks above 14,000 pounds, it is necessary to analyze the interaction of Section 179 expensing, bonus depreciation, and MACRS depreciation rules as they apply to such vehicles.
1. Section 179 Deduction for Trucks Above 14,000 Pounds
Eligibility and Limits:- Section 179 allows a taxpayer to expense the cost of qualifying property, including trucks, in the year the property is placed in service, up to an annual limit ($2,500,000 for 2025, with a phase-out beginning at $4,000,000).- The special lower Section 179 cap for SUVs (e.g., $31,300 for 2025) does not apply to vehicles with a gross vehicle weight rating (GVWR) over 14,000 pounds. The cap applies only to SUVs between 6,000 and 14,000 pounds.- Therefore, for trucks above 14,000 pounds, the full Section 179 limit is available, subject to the overall business income limitation.
2. Order of Deductions
- Section 179 deduction is applied first to the cost of the truck.
- After Section 179, any remaining basis is eligible for bonus depreciation (if the taxpayer does not elect out and the property qualifies).
- After both Section 179 and bonus depreciation, any remaining basis is depreciated under MACRS.
3. Bonus Depreciation
- For 2025, bonus depreciation is generally 40% for property acquired before January 20, 2025, and 100% for property acquired after January 19, 2025, under the new law.
- Trucks with a recovery period of 20 years or less (which includes most trucks) are eligible for bonus depreciation, provided they are not required to be depreciated under ADS and other requirements are met.
4. MACRS Depreciation
- After Section 179 and bonus depreciation, any remaining basis is depreciated under MACRS.
- For heavy trucks, the MACRS recovery period is typically 5 years, using the 200% declining balance method with a half-year convention under GDS.
5. First-Year Depreciation Calculation Example
Assume:- Truck cost: $200,000- Placed in service in 2025- GVWR: 16,000 pounds (so not subject to the SUV cap)- Taxpayer has sufficient business income and does not elect out of bonus depreciation- Truck is not required to use ADS
Step 1: Section 179 Deduction- Up to $1,250,000 (2025 limit) can be expensed, but not more than the cost of the truck.- Section 179 deduction taken: $200,000 (entire cost).
Step 2: Bonus Depreciation- No remaining basis after Section 179, so no bonus depreciation is available.
Step 3: MACRS Depreciation- No remaining basis after Section 179 and bonus depreciation, so no MACRS depreciation is available.
Result:- The entire $200,000 cost is deducted in the first year under Section 179. No further first-year depreciation is available because the basis is reduced to zero.
If Section 179 is less than the cost (e.g., $100,000 Section 179 deduction):
Remaining basis: $100,000
Bonus depreciation (assuming 40% for property acquired before January 20, 2025): $40,000
Remaining basis for MACRS: $60,000- MACRS first-year deduction (5-year, 200% DB, half-year convention): $12,000 (20% of $60,000)
Total first-year deduction: $100,000 (Section 179) + $40,000 (bonus) + $12,000 (MACRS) = $152,000
6. Additional Considerations
- Section 179 deduction cannot exceed the taxpayer’s aggregate business income for the year; any excess is carried forward.
- If the truck is not used more than 50% for business, Section 179 and bonus depreciation are not available, and MACRS must use the straight-line method over the ADS recovery period.
- Recapture rules apply if business use drops to 50% or less during the recovery period.
Summary: Claiming a Section 179 deduction on a truck above 14,000 pounds allows the taxpayer to expense up to the full cost of the truck (subject to the annual Section 179 limit and business income limitation) in the first year. Any remaining basis after Section 179 is eligible for bonus depreciation and then MACRS depreciation. If the entire cost is expensed under Section 179, no further first-year depreciation is available. The special Section 179 cap for SUVs does not apply to trucks above 14,000 pounds.
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