Section 179 and Bonus Depreciation

By Jason Watson, CPA
Posted Sunday, December 29, 2024

Let’s talk about the Hummer Loophole since that is where most taxpayer confusion comes from. Yes, at some point, long ago, in a galaxy far far away, businesses could buy heavy trucks and deduct them 100%. Was this a loophole of sorts? Yes. Does Congress and the IRS like loopholes? Not really, unless it benefits them. Did Congress change the Hummer Loophole? Yes. What is the current state of affairs?

The following trucks and business automobiles qualify for 100% deduction in Year 1-

• Automobiles that can seat nine-plus passengers behind the driver’s seat (i.e.: Hotel / Airport shuttle vans, etc.).

• Automobiles with: (1) a fully-enclosed driver’s compartment / cargo area, (2) no seating at all behind the driver’s seat, and (3) no body section protruding more than 30 inches ahead of the leading edge of the windshield. In other words, a classic cargo van.

• Heavy construction equipment will qualify for the Section 179 deduction, as will forklifts and similar.

• Typical “over-the-road” Tractor Trailers will qualify.

This is straight from the Section179.org website who does a fantastic job of explaining this stuff. So, what are the Section 179 deduction limits for passenger automobiles and heavy trucks that don’t meet the list above? That is another really good question!

According to IRS Revenue Procedure 2024-13 for the 2024 tax year, passenger or what are also called light vehicles, have an IRC Section 179 limit of $12,400. When combined with IRC Section 168(k) bonus depreciation $8,000 the total is $20,400.

You say, “so, my heavy SUV doesn’t qualify for a 100% deprecation deduction under Section 179 because of the seating and configuration of the cargo hold, so now what?” Another really good question! Keep ‘em coming! We have the answers.

The order of depreciation is Section 179 expensing, then Bonus Depreciation and then regular depreciation. This means you apply limits, subtract the allowance and then apply subsequent laws to the remaining amounts. A truck or SUV that weighs more than 6,000 pounds is not considered a luxury automobile and therefore is not limited by IRC Section 280F in the same way.

As such, the first-year depreciation deduction for your heavy business automobile would be-

• IRC Section 179 limit of $31,300 for the 2025 tax year according IRS Revenue Procedure 2024-40 which makes inflation adjustments), plus

• 40% Bonus Depreciation (for the 2025 tax year) under IRC Section 168(k), plus

• First year regular depreciation assuming 20% MACRS rate on the remaining cost basis.

Here is a table assuming 100% business use-

As such, that $100,000 Ford F-250 truck that comes in around 6,700 pounds would enjoy a $31,300 + $27,480 + $8,244, or $67,042 deduction in year 1. Wow! That is good news, right? Right! The Hummer Rule is back baby! Do I have to buy a new heavy truck to qualify for the bonus depreciation? No. The old rule was Yes, but the TCJA changed that too. Here is the blurb from the IRS website–

• The taxpayer didn’t use the property at any time before acquiring it (read, new to you not “brand” new or never been used, emphasis emphatically added).

• The taxpayer didn’t acquire the property from a related party.

• The taxpayer didn’t acquire the property from a component member of a controlled group of corporations.

• The taxpayer’s basis of the used property is not figured in whole or in part by reference to the adjusted basis of the property in the hands of the seller or transferor.

• The taxpayer’s basis of the used property is not figured under the provision for deciding basis of property acquired from a decedent.

There you go. The problem remains with luxury passenger automobiles weighing under 6,000. Other things to keep in mind-

• For Section 179 expensing and bonus depreciation, you must have at least 50% business use.

• Section 179 cannot create a loss in the business whereas bonus depreciation may.

• Section 179 has limitations whereas bonus depreciation does not.

• If using bonus depreciation, all property in the same class (e.g., 5-year property) must be depreciated with bonus. You cannot pick and choose, but Section 179 expensing only might yield better results.