This deduction can be applied to almost any type of equipment including trucks, tractors, and trailers. What changed from the temporary bill is the deduction limit increased to $500,000 with a spending cap of $2,000,000. This will benefit all companies with a fleet, but especially small and medium companies.
To better understand the new Section 179, and what it means to transportation managers, we sat down with Kirk Morton, Director of Sales Operations for National Accounts at Ryder, for a Q&A:
Q: What is a Section 179 company?
A: Section 179 refers to a company that has no more than $2 million in purchased capitalized assets in one year. If they fall into this category, they can deduct 100 percent of the first $500,000 in capitalized assets purchased in the calendar year. Capitalized assets include items like computers, machinery, furniture, and trucks.
Q: What is bonus depreciation?
A: Under the new law, any company can write off 50 percent of an asset’s value in year one. For vehicles, after the first 50 percent is taken, the remaining asset value is then deducted using MACRS. For a tractor, the write off in year one is effectively 67 percent. Also, bonus depreciation will be phased out to zero in 2020. It will be reduced in the ensuing years.
Q: Does the law apply to all vehicles?
A: Section 179 is for new or used vehicles with gross vehicle weight (GVW) greater than 10,000 pounds. For bonus depreciation, it applies only to new vehicles.
Q: How does the 2016 Tax Law change impact the lease vs. own decision?
A: The law provides for bonus tax depreciation in the first year for the owner of the asset. This provides an earlier write-off of the asset, plus additional tax savings to the equipment owner in the first year.
Q: Can I lease a truck and still benefit from Section 179?
A: Yes, you can lease and still benefit from the tax deduction, based on the type of lease you have. At Ryder, we have a solution called Ryder VOSA, which give you a lease with the tax benefits of ownership. This is actually more beneficial in the long-term than owning as the tax depreciation is now only applied for owners in year one. However, by choosing a Ryder VOSA you get the added benefit of a reliable fleet, with predictable monthly costs, included maintenance, and your asset won’t lose value at the end of your term.
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Authored by Kirk Morton
Kirk Morton is Director of Sales Operations for National Accounts and is responsible for the Total Cost of Ownership model that is used in assisting Customers to have more insight into their transportation costs. Kirk has been with Ryder for over 40 years spending most of his career in Sales and Sales Leadership positions.