With stimulus-created tax breaks for commercial vehicles set to expire Dec. 31, the final month of 2013 should be an interesting one for the dealer market.
The current stimulus program is the function of Section 179 of the IRS tax code, and allows businesses write-off a portion of qualified capital expenditures “subject to a dollar-for-dollar phase-out once these expenditures exceed $2,000,000 in the 2013 tax year,” according to tax website Section179.org.
This is done by front-loading depreciation schedules for commercial vehicles weighing more than 6,000 lbs.
The idea behind the law is to stimulate businesses to purchase and take delivery of new trucks in the 2013 year by offering significant deduction and first-year depreciation savings Section 179 says. The tax breaks also offer bonus depreciation for businesses spending more than $2,000,000 on new equipment in 2013.
The IRS has yet to indicate if these tax breaks will be extended for 2014, and that uncertainty could be a factor in the recent sales uptick seen in the commercial vehicle market.
According to Kenny Vieth, president at ACT Research, October’s Class 5 sales were the best in five years and Class 6-7 sales also posted some of their highest numbers of 2013. Class 8 sales also remained above 20,000 units in November after a strong October, FTR says.
But Dick Witcher, president at Minuteman Trucks, notes taking advantage of the tax breaks could be difficult for customers at this point in the year.
Section179.org says business can only use the tax breaks if a purchased vehicle is “placed in service” during that tax year – meaning it must be on the road by Dec. 31 to qualify. The site also notes that vehicles must be used at least 50 percent for business to qualify, and trucks originally bought for personal use and later become business trucks do not qualify.
“From the tax side there is a definite advantage to purchasing now,” says Greg Althardt, CPA, and CFO at Peach State Freightliner, “but you have to take delivery before the end of the year.”
“At this point you can’t really order things and get them before the end of the year, so you really just have to sell your stock on the lot,” he says. “That’s still not bad, it’s better than letting it sit there.”
For more information on the tax deductions, check out www.section179.org.