As an owner-operator, it’s essential to consider all the tax implications of your truck, including heavy vehicle tax deductions. Understanding the ins and outs of tax deductions, benefits, and credits for your heavy vehicle can save you and your business considerable money.
From Section 179 Deductions and Bonus Depreciation to writing off maintenance and repair deductions, here’s everything you need to know about heavy vehicle tax deductions.
Tax Credits and Benefits for Heavy Vehicles and Equipment: Section 179
The Tax Cuts and Jobs Act (TCJA) of 2017 changed how depreciation can be deducted. With the new tax law, truck drivers now have two options for heavy vehicle tax deductions: Section 179 or Bonus Depreciation.
What’s the difference between Section 179 and Bonus Depreciation? Let’s explore the differences:
How does Section 179 work?
The Section 179 deduction is a small business tax deduction used for capital assets — typically vehicles and equipment. It lets you write off the entire cost of your item immediately instead of depreciating it over time.
For example, if you spent $50,000 on a piece of heavy equipment, you can write off the entire purchase price for the current tax year instead of deducting it for five years at $10,000 a year, for example.
The whole point of Section 179 is to encourage small business owners to make more expensive purchases and, in turn, help stimulate the economy.
Qualifying for Section 179
To qualify for Section 179, you must purchase your heavy vehicle or equipment and put it into service on the year you are filing for. This means if you bought your truck in late 2023 but didn’t start using it for your business until 2024, you’ll have to wait to claim the Section 179 deduction for your 2024 tax returns.
Other stipulations include the following:
- The heavy vehicle must be purchased (not leased).
- The vehicle can’t be bought from someone related to you.
- If using the vehicle for both personal and business use, you must use the vehicle for more than 50% of your business.
While Section 179 has a complicated set of exceptions for vehicles, non-personal heavy-weight vehicles intended for business are eligible for a full deduction. These vehicles include:
- Semi-trucks, tractor-trailers, and dump trucks
- Heavy construction equipment like forklifts
- Vehicles with a fully enclosed compartment and no seating behind the driver’s seat (like a cargo van)
- Vans that seat nine or more passengers (i.e., an airport shuttle)
To claim the Section 179 deduction on your tax returns, you must include a description of your heavy vehicle, its cost for business use, and the amount of Section 179 you’re claiming. This deduction is made on Part 1 of Form 4562.
Limits to Section 179
Section 179 has important limits, such as a cap to the total amount that can be written off. For example, in the 2022 tax year, you can expense up to $1,080,000 of eligible property. For 2023, this deduction limit will increase to $1,160,000.
There’s also a cap on the total amount of equipment that can be purchased. For 2022, this limit is $2,700,000. And for 2023, the cap is $2,890,000. This means the deduction begins to be reduced on a dollar-for-dollar basis after the total amount is spent.
You also can’t deduct more money than you make in a year. So, if you have a net income of $100,000 (before taking the Section 179 deduction into consideration) and you purchased $110,000 worth of deductible property, your deduction will be limited to $100,000.
At this point, you can take regular depreciation on the remainder of your assets.
Tax Credits and Benefits for Heavy Vehicles and Equipment: Bonus Depreciation
Bonus Depreciation is usually taken after the cap for the Section 179 deduction is met. Available for new and used vehicles and equipment, bonus depreciation lets you write off an additional first-year depreciation on eligible property.
After the TCJA was passed, the potential value of Bonus Depreciation increased significantly — but only for a limited time. The Bonus Depreciation rate was expanded to 100% for qualified property in service through 2022. After that, the amount dropped by 20% for 2023 and will continue to drop at 20% until 2027, when the program will close.
That means the Bonus Depreciation rate is 80% for 2023, 60% for 2024, and so on, until 2027, unless Congress extends it.
What’s the Difference Between Section 179 and Bonus Depreciation?
While both Section 179 and Bonus Depreciation allow for serious deductions for a heavy vehicle in service, they also differ in the following ways:
- The Section 179 deduction is capped by the IRS ($1,160,000 in 2023) and is reduced by the dollar amount if it exceeds the IRS threshold ($2,890,000 in 2023). However, there is no annual deduction limit for Bonus Depreciation.
- Section 179 is typically more flexible than Bonus Depreciation. With Section 179 depreciation, you can deduct any amount you want as long as it’s within the IRS threshold set that year. You can also allocate which assets/vehicles get the deduction. Bonus Depreciation, however, requires that you write off all vehicles and take the entire tax break at once. You don’t get to pick and choose which assets/vehicles you want to deduct.
- Section 179 is limited to the amount of taxable income, but Bonus Depreciation can exceed taxable income and create a net loss to be carried forward.
- While qualifications, deduction limits, and investment limits change yearly, Section 179 is an indefinite part of the IRS tax code. Bonus Depreciation, on the other hand, is set to end on Dec. 31, 2026.
Keeping records for Section 179 deductions and Bonus Depreciation
You must keep detailed records of your vehicle usage — like mileage logs, receipts, invoices, etc. — to qualify for the Section 179 deduction or Bonus Depreciation.
These records will back up your business use claims of your vehicles in the event you’re ever audited by the IRS.
Claiming Heavy Vehicle Tax Deduction: Maintenance and Repair Expenses
Since your truck is not a personal-use vehicle, you can deduct all the expenses you’ve made to maintain or repair it throughout the tax year. For example, you can make deductions for the following costs:
- Oil changes
- Regular checkups
- New tires
- Routine and emergency maintenance
- Truck parts
- Cleaning supplies
- Loan interest (if you financed the purchase of your truck and trailer)
The deductions for the maintenance and repair of your vehicle will be made on your Schedule C, which you will file along with Form 1040 in April every year.
Other vehicle maintenance deductions for Schedule C
In addition to the costs it takes to maintain and repair your truck, you’ll also come across other vehicle-related expenses that you can deduct from your Schedule C, including the following:
- Load-related tools – Deduct any equipment needed for your trucking business, like bungee cords, chains, ratchet straps, duct tape, tarps, and locks.
- GPS systems – Write off any navigation system you use while driving your truck for work.
- Association dues – If you’re part of a union or other trucking association, you can deduct any required fees you’ve made to belong to that group.
- Liability insurance – While your health insurance will be deducted on a separate form (Form 1040), Schedule C is where you’ll count your premiums for auto/cargo liability and property damage insurance you’re required to have on your truck.
- Parking and toll fees – If you encounter any parking or toll fees while driving your truck for work, you can also count these as a deduction on Schedule C.
Claiming the IRS Commercial Clean Vehicle Credit
Beginning in 2023, the Commercial Clean Vehicle Credit will be available for qualified heavy-duty electric vehicles. According to the IRS, this credit will equal the lesser of:
- 15% of your basis in the vehicle (30% if the vehicle is not powered by gas or diesel)
- The incremental cost of the vehicle
The maximum credit is $7,500 for qualified vehicles with gross vehicle weight ratings (GVWRs) under 14,000 pounds and $40,000 for all other vehicles.
While the IRS has not yet released information on how to claim the Commercial Clean Vehicle Credit (as of Tax Day 2023), it will apply to vehicles purchased on or after Jan. 1, 2023. Keep checking the IRS website for the latest details.
Claiming Additional Heavy Vehicle Tax Deductions
There are also additional heavy vehicle tax deductions, credits, and benefits you can take following IRS guidelines for other tax forms.
Heavy vehicle tax deductions: Form 1040
If you’re an independent contractor or owner-operator and pay for your own health, dental, and vision insurance, you can count this as a deductible — just not as a business expense. Instead, you’ll deduct your health insurance separately (for you and your dependents) on Schedule 1 Form 1040.
Heavy vehicle tax deductions: IFTA
If you have a qualified motor vehicle and travel between two or more of the member jurisdictions (48 of the United States and 10 Canadian provinces), you must have an International Fuel Tax Agreement (IFTA) license and decals. IFTA reports are filed quarterly and are separate from your annual taxes.
You can count the fuel taxes and costs you pay on the road toward IFTA as part of your tax deductions.
Heavy vehicle tax credits: Form 2290
In certain circumstances, you can also claim a tax credit for heavy vehicles on your Form 2290.
For example, if your truck is registered as a Heavy Highway Motor Vehicle and it was stolen, destroyed, sold, or did not exceed mileage credit, you can count it as a tax credit.
Similarly, if your truck is registered as a heavy vehicle and you use it for 5,000 miles or less (7,500 miles or less for agricultural purposes), it will also qualify as a tax credit.
Form 8849 Schedule 6 is the IRS form used to claim a refund of excise taxes. There is no deadline to file this return. You can also claim credits using this return if you’ve overpaid in taxes.
Filing Form 8849 Schedule 6 with ExpressTruckTax
E-filing Form 8849 is easy with ExpressTruckTax. Here’s how you can easily claim your excise taxes with our help:
- Create or sign in to the ExpressTruckTax account
- Choose Form 8849 and fill in the necessary information
- Pay for our services and transmit your return to the IRS
The IRS will issue a refund via check and send it to the address mentioned on the return. It can take up to six weeks to receive a refund.
When using ExpressTruckTax to file your 2290 forms, we automatically generate your Form 8849 when the credits on your Form 2290 exceed the tax you owe. We also offer bundle pricing so that you can E-File both Form 2290 and Form 8849 for one low price.
Why wait? Start e-filing with ExpressTruckTax today!