Section 179 Deduction

Section 179 is a popular deduction for businesses that allows them to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. Here is how ChatGPT can help determine transactions related to Section 179 depreciation in the first year. I am impressed by what I see. Let me know what you think.

I asked ChatGPT the following question:

I am a CPA. One of my clients purchased a new SUV for personal and business use. What limits apply for section 179?

ChatGPT Responded:

For 2025, the Section 179 deduction limits for SUVs and other vehicles used for both personal and business purposes are subject to specific caps and rules. Here’s how it works:
🚗 Section 179 Limits for SUVs (Sport Utility Vehicles)

Maximum deduction for SUVs classified as heavy vehicles (gross vehicle weight rating or GVWR between 6,001 and 14,000 pounds): ✅ $30,500 in 2025 (adjusted annually for inflation; it was $28,900 in 2024).

This limit applies regardless of whether the vehicle is 100% business use or mixed-use.

If the business use percentage is less than 100%, you can only claim the portion of the deduction that corresponds to the business use.

Example: If the SUV costs $60,000 and is used 75% for business, the eligible Section 179 deduction is: [ 60,000 × 75% = 45,000 ] Since the limit is $30,500, you can only deduct $30,500.

🚙 Bonus Depreciation

After applying the Section 179 deduction, you can also take bonus depreciation for the remaining business-use basis.

For 2025, the bonus depreciation rate is 20% (it is phasing down from 100% in 2022).

The combined deduction (Section 179 + bonus depreciation) cannot exceed the business-use percentage of the vehicle's cost.

✅ Luxury Auto Limits (If GVWR ≤ 6,000 lbs)
If the SUV has a GVWR of 6,000 lbs or less, it is classified under the luxury auto limits, which are much lower:

First-year depreciation limit: ✅ $20,400 if claiming bonus depreciation. ✅ $12,400 if not claiming bonus depreciation.

These limits include both Section 179 and regular depreciation.

💡 Key Takeaway

Heavy SUVs (GVWR > 6,000 lbs):

Section 179 cap = $30,500 (2025 limit).

Bonus depreciation applies to the remaining business-use cost.

Luxury autos (GVWR ≤ 6,000 lbs):

Strict luxury auto caps apply with lower deductions.

Always apply the business-use percentage to the total deduction calculation.

Let me know if you need help calculating the exact deduction for your client or reviewing the vehicle’s specs! 🚗

I followed up:

Yes, what questions can I answer so that you can calculate the exact deductions?

ChatGPT responded with the following:

Great! Here’s what I need to calculate the exact Section 179 and bonus depreciation deductions for your client:
🚗 1. Vehicle Details

Make, model, and year (to confirm the GVWR classification).

Purchase price.

Date placed in service (Section 179 only applies to vehicles placed in service during the tax year).

💼 2. Business Use Percentage

What percentage of the vehicle’s use is for business purposes?

This is essential because Section 179 and depreciation deductions are limited to the business-use portion.

💰 3. Financing or Cash Purchase

Was the vehicle purchased outright or financed?

Section 179 applies regardless of financing, but it helps to know the context for potential interest expense deductions.

🔧 4. SUV or Luxury Auto Classification

If you know the GVWR, that will confirm whether it qualifies for the higher SUV limit (over 6,000 lbs) or falls under the luxury auto limits (6,000 lbs or less).

Once you provide these details, I can run the calculations for Section 179, bonus depreciation, and regular depreciation. 🚙💻

I answered:

Make, Model and year: Mercedes GLS 2025. Purchased for $98,000 and placed in service on Jan16th 2025. It will be used for business purposed 80% of the time. It is financed at 6.25 % interest. The GVWR is 7,200 lbs.

And ChatGPT responded with the following calculations:

✅ Thanks for the details! Here’s the calculation of the Section 179, bonus depreciation, and regular depreciation deductions for your client's 2025 Mercedes GLS.
🔍 Vehicle Details Recap

Make/Model: 2025 Mercedes GLS

Purchase Price: $98,000

GVWR: 7,200 lbs → Qualifies as a heavy SUV (eligible for the $30,500 Section 179 limit in 2025).

Placed in Service: January 16, 2025

Business Use: 80%

Financed: Yes, at 6.25% interest (interest expense can be separately deductible as a business expense).

💰 Section 179 Deduction

The maximum Section 179 deduction for SUVs in 2025 is $30,500.

Since the vehicle is used 80% for business, the eligible deduction is: [ 30,500 X 80% = 24,400 ] ✅ Section 179 Deduction: $24,400

🚗 Bonus Depreciation
After applying Section 179, the remaining business-use basis is: [ 98,000 X 80% = 78,400 (business-use portion) ] [ 78,400 - 24,400 = 54,000 (remaining basis) ]
For 2025, the bonus depreciation rate is 20%: [ 54,000 X 20% = 10,800 ] ✅ Bonus Depreciation: $10,800
🔧 Regular Depreciation
After applying Section 179 and bonus depreciation, the remaining basis is: [ 54,000 - 10,800 = 43,200 ]
For regular depreciation, you use MACRS 5-year property with the 200% declining balance method, applying the half-year convention in most cases. [ 43,200 X 20% = 8,640 ] ✅ Regular Depreciation (Year 1): $8,640
💵 Total First-Year Deduction
[ 24,400 (Section 179) + 10,800 (Bonus Depreciation) + 8,640 (Regular Depreciation) = 43,840 ] ✅ Total First-Year Deduction: $43,840
💡 Interest Expense Deduction
Since the vehicle is financed at 6.25%, your client can also deduct the business-use portion of the interest.

Loan amount: $98,000

Interest rate: 6.25%

Annual interest: [ 98,000 X 6.25% = 6,125 ]

Business-use portion: [ 6,125 X 80% = 4,900 ] ✅ Interest Deduction: $4,900

✅ Key Takeaway: First-Year Deductions

Section 179: $24,400

Bonus Depreciation: $10,800

Regular Depreciation: $8,640

Interest Expense Deduction: $4,900 💥 Total first-year deduction: $48,740

🚦 Tax Planning Tips

Since Section 179 and bonus depreciation create large upfront deductions, ensure your client has enough taxable income to fully utilize the deductions in 2025.

The interest expense is deductible as a separate business expense, which can reduce taxable income further.

If the business-use percentage drops below 50% in future years, you may need to recapture some of the Section 179 deduction.

Let me know if you want a detailed depreciation schedule or help with the loan amortization table! 🚗💻

That was impressive! Now, I want to make these journal entries in my accounting system. So, I asked:

Can you give me Journal Entries for all this for 2025?

And ChatGPT responded with the following journal entries:

✅ Absolutely! Here are the journal entries for your client’s 2025 Mercedes GLS purchase, including Section 179, bonus depreciation, regular depreciation, and interest expense.
🧾 1. Vehicle Purchase (Financed)
On January 16, 2025, your client places the vehicle in service. Since it is financed, the entry records the vehicle as an asset along with the loan payable.
Journal Entry – Vehicle Purchase:
Date: 01/16/2025
  Debit:  Vehicle (Fixed Asset)         $98,000
  Credit: Loan Payable                  $98,000
✅ This records the full vehicle cost as an asset and the financing liability.
💰 2. Section 179 Deduction
The Section 179 deduction reduces the vehicle’s book value for tax purposes.
Journal Entry – Section 179 Deduction:
Date: 12/31/2025
  Debit: Section 179 Expense             $24,400
  Credit: Accumulated Depreciation       $24,400
✅ This records the immediate expense deduction under Section 179.
🚗 3. Bonus Depreciation
After applying the Section 179 deduction, the remaining basis is eligible for bonus depreciation.
Journal Entry – Bonus Depreciation:
Date: 12/31/2025
  Debit: Depreciation Expense             $10,800
  Credit: Accumulated Depreciation        $10,800
✅ This records the 20% bonus depreciation on the remaining business-use basis.
🔧 4. Regular Depreciation
The remaining basis is depreciated using MACRS 5-year property with the half-year convention.
Journal Entry – Regular Depreciation:
Date: 12/31/2025
  Debit: Depreciation Expense             $8,640
  Credit: Accumulated Depreciation        $8,640
✅ This records the regular MACRS depreciation for the first year.
💵 5. Interest Expense on Loan
Throughout 2025, your client makes monthly payments, which include principal and interest. You’ll record the business-use portion of the interest as an expense.

Annual interest: $6,125

Business-use portion (80%): [ 6,125 X 80% = 4,900 ]

Journal Entry – Interest Expense:
Date: 12/31/2025
  Debit: Interest Expense                $4,900
  Credit: Loan Payable                   $4,900
✅ This records the business-use portion of the interest as a deductible expense.
📊 Summary of Journal Entries
| Date | Account | Debit | Credit | |----------------|------------------------------|-----------------|---------------------| | 01/16/2025 | Vehicle (Fixed Asset) | $98,000 | | | | Loan Payable | | $98,000 | | 12/31/2025 | Section 179 Expense | $24,400 | | | | Accumulated Depreciation | | $24,400 | | 12/31/2025 | Depreciation Expense (Bonus) | $10,800 | | | | Accumulated Depreciation | | $10,800 | | 12/31/2025 | Depreciation Expense (Regular)| $8,640 | | | | Accumulated Depreciation | | $8,640 | | 12/31/2025 | Interest Expense | $4,900 | | | | Loan Payable | | $4,900 |
🚦 Key Takeaways

The Section 179, bonus, and regular depreciation reduce the vehicle's book value while creating significant tax deductions.

The interest expense on the loan is separately deductible based on the business-use percentage.

As loan payments are made, you’ll reduce the loan payable and record the interest expense monthly or annually.

💡 Let me know if you need amortization schedules, further journal entries, or help with tax reporting! 🚗💻

That is very cool! Let me see if I can get an excel spreadsheet with all these journal entries. :

Can you put these journal entries into an excel spreadsheet for me?

And ChatGPT responded with the following:

✅ I've created the Excel spreadsheet with the journal entries for your client's 2025 Mercedes GLS purchase. You can download it using the link below:
Download 2025_Mercedes_GLS_Journal_Entries.xlsx

Once again, I am impressed at how smart ChatGPT is! Without any "grounding" or "priming" it is able to grasp the essence of my question. It is able to apply the tax laws and regulations to the situation and provide a reasonable response. It is able to provide journal entries. I am impressed. What do you think? Did ChatGPT do a good job? Is it aware of the latest regulations and tax laws? Let me know in the comments below.

🚗 Section 179 Limits for SUVs (Sport Utility Vehicles)

🚙 Bonus Depreciation

✅ Luxury Auto Limits (If GVWR ≤ 6,000 lbs)

💡 Key Takeaway

🚗 1. Vehicle Details

💼 2. Business Use Percentage

💰 3. Financing or Cash Purchase

🔧 4. SUV or Luxury Auto Classification

🔍 Vehicle Details Recap

💰 Section 179 Deduction

🚗 Bonus Depreciation

🔧 Regular Depreciation

💵 Total First-Year Deduction

💡 Interest Expense Deduction

✅ Key Takeaway: First-Year Deductions

🚦 Tax Planning Tips

🧾 1. Vehicle Purchase (Financed)

💰 2. Section 179 Deduction

🚗 3. Bonus Depreciation

🔧 4. Regular Depreciation

💵 5. Interest Expense on Loan

📊 Summary of Journal Entries

🚦 Key Takeaways