Can You Write Off a Cargo Trailer? Section 179 for Small Businesses

We are trailer people, not tax people, so treat this post as a map of the conversation rather than advice. Your CPA makes the call for your situation. That said, one of the most common questions we get from contractors and business owners in the fall is whether a trailer bought for the business can be written off, and the general answer is that it usually can, often faster than people expect.

A trailer is equipment

For tax purposes, an enclosed cargo trailer used in a business is a piece of equipment, like a mower or a compressor. Equipment is normally depreciated, meaning its cost is deducted over a set number of years. Section 179 of the tax code lets a business elect to deduct the full cost of qualifying equipment in the year it is placed in service instead of spreading it out. Bonus depreciation is a related rule that can do something similar. Both are meant to encourage small businesses to buy the tools they need.

What generally qualifies

• The trailer is used for business more than half the time. If it is partly personal, only the business share counts.
• It is purchased and placed in service in the tax year you are claiming it. Placed in service means ready and available for use, not necessarily used yet.
• It is bought, not rented. Financed purchases generally qualify because you own the trailer; the loan does not change that.
• New or used both generally qualify, subject to the rules in effect that year.

Why timing matters

Because the deduction attaches to the year the trailer is placed in service, a trailer that leaves our lot in December can be a deduction on that year's return, while the same trailer picked up in January lands on the next. That is why late-year trailer purchases are a real pattern among business buyers. Our post on seasonal timing of a trailer purchase covers the other reasons the calendar matters.

Financing and the deduction

A financed trailer can generally be deducted in full even though you have paid only a portion of it, because the deduction follows ownership, not cash paid. That combination, financing the purchase and expensing it the same year, is one of the reasons business buyers finance trailers they could pay cash for. Interest on the business loan is typically deductible as well. Ask your CPA how it applies to you before you count on it; our financing page covers the loan side.

Buying in the business name

The cleanest version of all of this is a trailer titled to the business, financed by the business and insured by the business. That keeps the records simple and the business-use question easy to answer. Our post on buying through a business vs personally walks through how that works and when a sole proprietor should still buy personally.

Questions to bring your accountant

1. 1Does my business qualify to elect Section 179 this year, and is there a limit that applies to me?
2. 2Should I take Section 179, bonus depreciation, regular depreciation or some mix?
3. 3What business-use percentage can I support, and what records do I need to keep?
4. 4Does it matter whether I buy before or after year end?
5. 5If I finance, is the interest deductible?

Bring the trailer quote with you. If you want a written quote on a specific unit to take to that meeting, get in touch and we will put it together.