IRS Rules for Accelerated Depreciation Deductions

The section 179 deduction allows you to choose to treat part or all of the business cost of a car as a current expense rather than taking depreciation deductions over a specified recovery period.

Even though you may be able to claim a section 179 deduction, the limit on total section 179 and depreciation deductions (discussed later) may reduce or eliminate any benefit from claiming it.

You can claim the section 179 deduction only in the year you place the car in service. For this purpose, a car is placed in service when it is ready and available for a specific use, whether in trade or business, the production of income, a tax-exempt activity, or a personal activity. Even if you are not using the property, it is in service when it is ready and available for its specific use. A car first used for personal purposes cannot qualify for the deduction in a later year when its use changes to business.

Example. In 1997 you bought a new car and placed it in service for personal purposes. This year, you began to use it for business. Changing its use to business use does not qualify the cost of your car for a section 179 deduction this year. However, you can claim a depreciation deduction for the business use of the car. See Depreciation Deduction, later.

Limits. There are limits on:

1.      The total cost of property qualifying for a section 179 deduction, and

2.      The total amount of the section 179 deduction plus the depreciation deduction (discussed later).

Limit on cost of qualifying property. Generally, you can choose to treat up to $19,000 of the cost of qualifying property as a section 179 deduction in 1999. (The amount increases each year up to 2003.) The yearly limit, however, depends on the percentage of business use, and you must use the property more than 50% for business to claim any section 179 deduction.

Example. Peter purchased a car this year for $4,500 and he used it 60% for business. The total cost of Peter's car that qualifies for the section 179 deduction is $2,700 ($4,500 cost × 60% business use). But see Limit on total section 179 and depreciation deductions, discussed next.

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