The Tax Cuts and Jobs Act (TCJA) included good news for taxpayers that use cars, SUVs, pickups and vans for business purposes. Specifically, it permanently liberalized the Section 179 first-year depreciation rules. It also temporarily expanded the first-year deductions for bonus depreciation, along with other favorable changes to the depreciation rules for vehicles used more than 50% for business.
Expanded Sec. 179 deductions. For qualifying property placed in service in tax years beginning after December 31, 2017, the maximum Sec. 179 deduction increased to $1 million (up from $510,000 for tax years beginning in 2017) and the Sec. 179 deduction phaseout threshold increased to $2.5 million (up from $2.03 million for tax years beginning in 2017). These limits are adjusted annually for inflation.
For the 2024 tax year, the inflation-adjusted maximum Sec. 179 deduction is $1.22 million (up from $1.16 million for 2023). For the 2024 tax year, the Sec. 179 deduction phaseout threshold increased to $3.05 million (up from $2.89 million for 2023).
More generous first-year bonus depreciation. Under the TCJA, for qualified property placed in service between September 28, 2017, and December 31, 2022 (or by December 31, 2023, for certain property with longer production periods), the first-year bonus depreciation percentage increased to 100% (up from 50% in 2017). The 100% deduction was allowed for both new and used qualifying property.
The first-year bonus depreciation deduction was reduced to 80% for property placed in service in calendar year 2023. It has further decreased to only 60% for property placed in service in calendar year 2024.
In later years, the first-year bonus is scheduled to be reduced as follows:
- 40% for property placed in service in calendar year 2025, and
- 20% for property placed in service in calendar year 2026.
Important: For certain property with longer production periods, the preceding cutbacks are delayed by one year. For example, the 80% deduction rate will apply to properties with long production periods that are placed in service in 2024.
