Section 179 Forklift Tax Deductions

November 10, 2022 - Last modified: November 9, 2022 @ 5:15 pm

Most business owners don't know all the ins and outs of the federal tax system. If you use forklifts or other heavy equipment or work vehicles at your company, though, you should get familiar with Section 179 forklift tax deductions. This special rule could save you a lot of money on that new lift truck or material-handling machine.

Straight-Line Depreciation vs. Section 179 Forklift Tax Deductions

To really understand the benefits of forklift section 179 deductions, it helps to know how depreciation traditionally works. Depreciation is the decrease in the value of something over time. In the case of a forklift, the equipment loses value as wear and tear take a toll and affect its ability to function.

Straight-Line Depreciation

The point of depreciation is to help businesses recover some of the money invested in a company for items that have a service life of more than a year. The government allows businesses to write off a portion of an initial investment on business equipment each year that the item will be in use.

With straight-line depreciation, the deduction amount is the same each year.

Depreciation Example

Let's say you bought a truck. When you buy a vehicle for your business, your accountant calculates the service life of the truck. You also need to know its value at the end of its service life, when you will no longer be able to use it for work. This amount is called its salvage value.

Assume that the truck has a service life of eight years and that you paid $40,000 for it new. We'll assume that its salvage value will be $8,000 eight years from now.

Unlike Section 179 forklift tax deductions, standard depreciation only allows you to deduct the value that the truck loses in each of those eight years. This amount is called your annual depreciation. The calculations are pretty straightforward: $40,000 less the salvage value of $8,000 leaves $32,000. This difference is the total value that the vehicle will lose over eight years of service life.

For each year, you are allowed to write off one-eighth of this amount, or one year's worth of depreciation: $4,000. Depreciation does take into account that you invested in equipment for your business, but it is a slow method of recovering your investment.

Forklift Section 179 Deductions

Now imagine that you could deduct the entire cost of that truck in the same tax year that you purchased it and placed it into service. Thanks to Section 179 forklift tax deductions, you can.

You are allowed to write off the full purchase price directly from the company's income. This doesn't save you the entire cost of the forklift, but it does save you a significant amount of money on your taxes. Your tax savings offset the cost of the equipment.

Section 179 Forklift Tax Deductions Math and Limits

This section of the tax code allows you to write off 100% of the cost of your new or used equipment purchase up to $1,080,000. How does this deduction affect the actual expense of a new forklift? The answer depends on your business tax bracket.

If you purchase $1,000,000 in new forklift equipment and your business is taxed at a rate of 35%, for example, you will save $350,000 on your taxes. This reduces the real cost of the equipment to $650,000. The higher your tax rate, the more you will save by deducting the purchase price from your taxable income.

Try this handy calculator for Section 179 forklift tax deductions to see how much you can save on the forklift equipment you want at your actual tax rate.

Qualifying Equipment

Not all vehicles or equipment qualify for Section 179 deductions. Your purchase must be for business use and must be placed in service during the current tax year.

New Or Used Vehicles Can Take Forklift Section 179 Deductions

Section 179 deductions may be used on forklifts or other equipment that you have purchased, even if you will be making payments on the purchase. You may choose new or used forklift equipment for your business and still take advantage of these deductions, and you are not required to fully pay off the machinery prior to using the deduction.

Business Use

Your forklift or other qualifying equipment must be used for your business. If a vehicle is for personal use, it does not qualify for these Section 179 forklift tax deductions.

When the vehicle is both for business and personal use, you are allowed to deduct only the percentage of work use, which must be over 50%. If your forklift is 80% for business use, you can deduct 80% of the purchase price. Any vehicle used less than 50% for business may not be deducted using Section 179.

Placed in Service

The equipment must also be placed in service during the tax year, which means that it must be in the possession of the business and ready for use by December 31 of the given year. This does not necessarily mean that you've started using the forklift. It only means that it was yours and ready to be used in the year for which you will be taking the deduction.

Annual Changes to Tax Laws

Bear in mind that each year, tax laws are updated. Forklift section 179 deductions are no exception. The limits and rules are adjusted and rewritten regularly.

When the government offers a tax program that benefits your business, take advantage of it while it's available if you can. There are no guarantees that any particular program will be renewed in the future.

Section 179 Forklift Tax Deductions and Your Forklift Purchase

When you're ready to purchase a new or used forklift, shop for vehicles in your area to save on shipping costs and reduce transit time. A local purchase ensures that your new machine can be placed in service when you need it. Consult with your accountant or tax advisor to determine the most advantageous strategy for using Section 179 forklift tax deductions for your business, and visit Forklift Inventory to compare the equipment you want at competitive prices. You'll find an expansive range of vehicles available near you, and you'll be able to take advantage of this great tax deduction, too.

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*Savings claims are based on used forklift prices when compared to new inventory prices. Savings is not guaranteed and is subject to change.