The PRO’s Guide to the Section 179 Tax Deduction

When you’re crunching numbers to see if your portable restroom business can afford to expand into luxury trailers or add toilets, keep the Section 179 tax deduction in mind. This federal expensing tool lets you write off 100% of your purchase during the first year of use. If you buy and place into service a work vehicle, portable restroom unit, or office computer by December 31st, it’s an immediate expense deduction.

By planning your equipment purchases, you can reduce the costs of taxes owed or eliminate them altogether. An investment that aligns with your company’s goals for increasing efficiency or market size while providing a sizable tax break is a win-win. This guide breaks down Section 179 requirements, including eligible property and dollar caps, and explains how to claim the deduction.

Fast Facts for PROs

• Section 179 is a permanent part of the tax code that allows immediate expense deductions and lowers taxable income dollar-for-dollar.
• It applies to individual and corporate taxpayers with taxable business income, meaning you can’t deduct expenses if you don’t have net income.
• The tax deduction covers new and used (new to you) assets, including portable toilets, trailers, business trucks, and accessories.
• Whether you purchase, lease, or finance the property, you may be able to claim the full amount in the year it is put into service.
• Companies that hit the $1,220,000 limit for the 100% deduction may use the bonus first-year depreciation allowance, which is 60% for 2024.

Section 179 Tax Deduction: An Overview

The Internal Revenue Code (IRC) Section 179 defines what business purchases you can claim on your taxes as an expense instead of depreciating them over several years. It allows companies with net income to deduct the entire cost of eligible items and services during the first year of use. For PROs, the dollar-for-dollar tax deduction for qualifying purchases can have substantial benefits.

If you report $150,000 as your net income, you can claim $150,000 for Section 179. Suppose you buy 10 new portable restroom units and one used work trailer for the shop. With proper documentation, both purchases count toward Section 179, regardless of whether you paid cash, leased, or financed them. This tax deduction is a permanent part of our tax code and has been since the passing of the Protecting Americans from Tax Hikes Act of 2015 (PATH Act).

The Evolution of Section 179

Keeping up with new legislation and evolving tax codes isn’t easy, which is where having a tax advisor or accountant can save the day. In 1958, when Section 179 was enacted, companies could write off up to $10,000 annually. It rose to $20,000 by 2001 and $125,000 in 2007. To widen the net, Congress doubled the expense limit in 2008 to $250,000, in 2010 to $500,000, and then again with the Tax Cuts and Jobs Act (TCJA) to $1 million in 2017.

Like many tax regulations, the government adjusted them after loopholes were exploited. Notably, Section 179 was frequently referred to as the “Hummer deduction” or “SUV tax loophole.” In 2020, Congress tightened vehicle specifications to reduce fraud.

What Type of Equipment is Eligible Under Section 179?

The IRS Publication 946 outlines the rules for property purchases under Section 179. Qualifying items must be for business use, on the eligible property list, and purchased, not inherited or bought from a spouse or sibling. Aside from some real estate and vehicle restrictions, nearly all portable restroom equipment is covered. You can even upgrade your security systems, office chairs, or software to reduce your taxable income. Let’s run through the details.

Qualified Tangible Property

Tangible personal property is a tax term that basically means something you can physically touch or move, like a portable toilet or vacuum pump. While you can buy a spare lot to increase your property size and can certainly feel the ground, you can’t actually move the property, so it falls under real estate, not tangible property.

However, Section 179 covers everything you buy for your portable restroom business, including storage tanks, toilets and accessories, restroom trailers, shop equipment, and most trucks. You can also upgrade your computers and office furniture. If you need a new refrigerator, portable air conditioner, or heating unit, Section 179 covers that, too. And if it’s time to upgrade cell phones or add tracking units to expensive assets, these fall under Section 179.

In addition to tangible property, Section 179 covers the following purchases:

• Off-the-shelf computer software: Programs expected to last over a year for business use qualify for Section 179. However, expert opinions differ on coverage of cloud-based or software as a service (SaaS), so get specific advice from your tax professional.
• Qualified section 179 real property: Qualified improvements to your business buildings and property include fire protection and alarm systems, HVAC, roofs, and security systems.
• Qualified improvement property: Eligible deductions generally include interior enhancements that don’t involve the internal structural framework, an addition, or an elevator.

Business Use Requirements

You must buy the property for business use and put it into service during the first year you purchase it. The IRS also allows you to claim assets for shared purposes, such as a vehicle or cell phone used at work and home. At a minimum, your company must employ the asset 50% of the time for business use.

Let’s say you purchase a new cell phone for $1,000 and put it into service this year. You use it 80% of the time for work and 20% for personal purposes. Calculate your Section 179 deduction by multiplying the property cost ($1,000) by the business use percentage (80%). For this example, the formula is (80% x 1,000) = $800. So, you could deduct $800.

Property Acquired by Purchase

IRS guidelines require companies to buy items from qualifying parties by exchanging money through financing, leasing, or direct purchase. Under this rule, you can’t deduct property received as a gift or inheritance. While you can purchase assets from any company or individual, they can’t be related to you. This factor is important if you buy equipment from family members or other family-owned businesses.

Consider these ineligible situations:

• Buying from a spouse, child, parent, grandparent, sibling, half-sibling, or grandchild
• Purchasing from a corporation where a family member owns more than 50% of the value of the outstanding stock
• Buying from a company where a family member is a partner who owns more than 50% of the profits or capital interests

Which Vehicles Qualify for a Section 179 Deduction?

The IRS sets limits for heavy sport utility vehicles (SUVs) and certain other four-wheeled automobiles for carrying passengers. In 2024, you can claim up to $30,500 for a business vehicle weighing 6,001 to 14,000 pounds, including vans, SUVs, and pickup trucks. The gross vehicle weight rating (GVWR) is on the manufacturer’s label or inside the driver’s door. The business-use requirement applies, so if you use the vehicle less than 100% of the time for work, you should calculate your Section 179 deduction based on business versus personal usage.

However, these limits don’t apply to designated work vehicles, including pumper trucks and heavy-duty models with large cargo areas. You can deduct the total cost of these purchases in the year you placed them into service. Since this part of the code is more complex, we recommend working with your tax advisor to ensure your purchase qualifies.

What Property Isn’t Eligible for Section 179?

For the most part, you can’t buy land or buildings and take a deduction for it under Section 179. It also doesn’t cover paving your parking lot or adding fencing. Vehicles weighing 6,000 pounds or less don’t qualify, and anything you don’t use at least 50% of the time for your business is ineligible. Under software, the current regulations don’t cover websites, highly customized platforms, or custom code.

Section 179 Spending Cap and Limits

The IRS imposes dollar and business income ceilings. A dollar limit is the maximum allowable deduction, whereas the business income limit means you can’t deduct more than you earned. Before budgeting for a new trailer or comparing truck options, learn how these limitations impact your total deduction.

IRS Dollar Limitations

In 2024, the maximum dollar expense deduction is $1,220,000. Each year, the government adjusts this amount for inflation. However, this limit decreases on a dollar-for-dollar basis if the property you claim under Section 179 costs over $3,050,000. The only spending cap for individual assets relates to four-wheeled passenger trucks or SUVs weighing between 6,000 and 14,000 pounds, which is $30,500 (as part of the $1,220,000 total).

Here’s how this annual phaseout limit works. If you spent $3,250,000 on eligible business purchases, your Section 179 deduction is reduced to $2,850,000. Likewise, even if you bought an SUV for $45,000, you can only deduct $30,500. Dollar limitations may impact married taxpayers whose spouses own businesses and purchase equipment.

Business Income Caps

Now, on the business income side, the total amount of your Section 179 deduction can’t exceed your net taxable income. So, if you spend $250,000 on new toilets, trailers, and accessories but your income is only $100,000, you can only deduct $100,000 this year under Section 179. It’s not a total loss. You have other options, such as regular depreciation or carrying over 179 to next year.

As a refresher, net income remains after subtracting your business expenses and taxes from total revenues. Net income should include any wages or salary and interest from working capital. However, the IRS says your calculations should not consider the self-employment tax deduction, unreimbursed employee business expenses, or net operating loss carryback or carryforward costs.

Section 179 and Portable Restroom Business Structures

Understanding how your business structure affects taxes can help plan capital purchases. The rules can differ depending on whether you’re a sole proprietor, in a partnership, or a corporation. PROs with multiple companies or married individuals with separate businesses will also have more complex tax situations.

Here’s a brief breakdown of topics to discuss with a tax professional:

• Sole proprietorships and single-member LLCs: Known as disregarded or pass-through entities, income for these business structures goes on your personal tax return. Calculate your Section 179 limit by pulling total taxable income from Schedule C and all wages, salaries, tips, or other compensation earned from Form 1040.
• Pass-through entities and married couples: Section 179 considers the total taxable incomes for you and your partner when filing jointly. However, if you file separately, only your income counts. If you both own businesses and buy equipment, you must share the Section 179 deduction, even when filing separately.   
• Partnerships and multi-member LLCs: Income passes to each partner or member’s individual return based on the pre-defined allocation on Schedule K-1. Therefore, each person takes their percentage of expenses and then calculates the Section 179 deduction according to their taxable income.
• C corporations: Since taxation at the corporate level is independent of the owner’s income, the Section 179 deduction applies only to taxable income reported for the business.

How to Claim Section 179 Deductions

Once you determine your taxable income, claiming Section 179 is pretty straightforward. Elect the Section 179 deduction using IRS Form 4562 Depreciation and Amortization. Use Part One to list descriptions of the properties, costs, and the amount of the Section 179 deduction. You can attach another sheet if you need to add more equipment.

This form also includes sections for the previous year’s Section 179 deductions that you’re carrying forward, bonus depreciation, and modified accelerated cost recovery system (MACRS) depreciation. You send it with your tax return, including extensions, up to the due date.

In addition, you may be able to revise previous tax statements and elect Section 179 through an amended tax form. Although the IRS hasn’t released 2024’s forms and instructions yet, you can stay informed of recent developments and see the 2023 version on the IRS page for Publication 946.

Remember to follow standard best practices for recordkeeping. Keep the receipt, proof of delivery, and details about how you use the property in your portable restroom business. Document the date and verify that you put the asset into service in the same year you claimed the deduction.

Section 179 vs. Bonus Depreciation

Bonus depreciation and Section 179 allow PROs to write off an asset in the year they placed it into service. However, there are distinct differences. While Section 179 deducts a dollar amount, bonus depreciation takes off a percentage, which is 60% in 2024. Another substantial distinction is that Section 179 has dollar and business income limitations, which affect how much you can deduct. Meanwhile, bonus depreciation doesn’t have an annual limit, meaning you can claim any purchase amount and can do so, even if it creates a net loss.

When bonus depreciation results in a net operating loss, your company can carry it forward to offset future income. But, typically, you must take the Section 179 deduction before claiming bonus depreciation, and the percentage for bonus depreciation goes down by 20 points until it expires on December 31st, 2026, unless Congress revises the law.

Buying 100% Tax-Deductible Portable Restroom Equipment

Since the deduction applies to used and new equipment, you have several options when deciding what and where to purchase. In addition, you’re not limited to paying in full. Section 179 allows PROs to lease or finance equipment and claim the total amount immediately, even though you’ll pay for it over time. Many equipment lenders are experienced with this deduction and will work with you to ensure you qualify for the entire tax break.

However, financing and leasing options impact your cash flow for years. And you won’t receive tax breaks on that equipment again. Moreover, if you expect your taxable income to increase or decrease significantly, a different route could be more beneficial. While many PROs can navigate Section 179 to update their portable toilet inventory, a tax professional can answer questions about long-term financial impacts.

Business Investments and Tax Benefits for PROs

Investing in new equipment is a solid operational strategy for growing your portable restroom business. Rotating older units into construction rentals and replacing them with new models for events can boost your brand. Likewise, adding a luxury or emergency trailer gives your company a competitive edge.

Strategic purchases also affect financial planning, and a practical approach allows you to achieve business goals while reducing your taxable income. So, if you have new toilets and accessories on your wish list but still have to save money for Uncle Sam, consider leveraging Section 179 to accomplish both objectives.

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