Does the Tesla Model Y Qualify for Section 179?
Understand the tax deduction possibilities for a business-owned Tesla Model Y. This guide details the specific vehicle criteria that impact your potential write-off.
The Section 179 deduction allows businesses to expense the cost of qualifying equipment in the year of purchase, and this tax incentive can extend to vehicles. Specific rules govern a vehicle’s eligibility, primarily centered on its weight and business use. The application of these rules determines whether a vehicle like the Tesla Model Y can be fully expensed or is subject to more restrictive depreciation limits.
Section 179 Vehicle Qualification Rules
Section 179 of the Internal Revenue Code allows businesses to deduct the purchase price of qualifying new or used equipment rather than depreciating it over several years. For vehicles, the tax code creates a distinction based on weight that dictates the available deduction amount.
Vehicles are split into two categories for tax purposes. The first includes passenger automobiles with a manufacturer’s Gross Vehicle Weight Rating (GVWR) under 6,000 pounds. These vehicles are subject to strict annual depreciation limits, known as “luxury auto” limitations, which cap the deductible amount each year.
The second category is for “heavy” vehicles, which offer a more substantial tax benefit and must have a GVWR of more than 6,000 pounds. GVWR is the maximum allowable total weight of a vehicle, including the vehicle, passengers, fuel, and cargo. This rating is set by the manufacturer and is found on the safety compliance certification label on the driver’s side doorjamb.
Tesla Model Y Gross Vehicle Weight Rating
No version of the Tesla Model Y has a Gross Vehicle Weight Rating (GVWR) that exceeds the 6,000-pound threshold established by the IRS. For example, the Long Range and Performance all-wheel-drive models have a listed GVWR of approximately 5,302 lbs and 5,582 lbs, respectively.
Because its GVWR is under 6,000 pounds, the Tesla Model Y is not considered a “heavy vehicle” for tax purposes. It is classified as a passenger automobile and is subject to the luxury auto depreciation limits, regardless of the specific trim.
Calculating the Deduction for a Tesla Model Y
To qualify for any deduction, the vehicle must be used more than 50% for qualified business purposes. The deductible amount is then determined by multiplying the vehicle’s cost by the business-use percentage and applying the annual limit for passenger automobiles.
For a passenger automobile placed in service in 2025, the maximum first-year depreciation deduction is capped at $12,200. If the business also claims bonus depreciation, this limit increases by an additional $8,000, for a total possible first-year deduction of $20,200. Subsequent years are also subject to strict annual limits.
These limitations are indexed for inflation and can change annually. A business owner with a Model Y must follow a depreciation schedule, recovering the vehicle’s cost over several years according to the prescribed IRS limits.
Claiming the Deduction and Recordkeeping
To claim depreciation deductions for a Tesla Model Y, a business owner must complete and file IRS Form 4562, “Depreciation and Amortization,” with their annual tax return.
Meticulous recordkeeping is necessary to substantiate the claim in case of an IRS audit. This includes a contemporaneous mileage log distinguishing between business and personal miles to prove the vehicle was used more than 50% for business. Other required documents include proof of purchase and documentation showing the date the vehicle was placed in service.
On Form 4562, information about the vehicle, including its cost and the percentage of business use, is detailed in Part V, which covers listed property.