Construction Equipment Tax Deductions: Save Money with Section 179 & Bonus Depreciation

When investing in construction equipment, it’s essential to consider the tax implications that could significantly reduce your costs. The Section 179 tax deduction and bonus depreciation are two powerful tools that can provide substantial savings on your heavy equipment purchases.This guide will walk you through how these tax incentives work and how to maximize your savings.

Section 179 Tax Deductions for Heavy Equipment

The Section 179 tax deduction allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. This provision encourages companies to invest in themselves by purchasing new or used equipment, which can be a significant financial advantage.

Section 179 Tax Deductions for Heavy Equipment

2024 Deduction Limit = $1,220,000 – This Section 179 Tax Deduction is good on heavy equipment. To take the deduction for tax year 2024, the equipment must be financed or purchased and put into service between January 1, 2024 and the end of the day on December 31, 2024

2024 Spending Cap on equipment purchases = $3,050,000 – This is the maximum amount that can be spent on heavy equipment before the Section 179 Deduction available to your company begins to be reduced on a dollar for dollar basis. This spending cap makes Section 179 a true “small business tax incentive” (because larger businesses that spend more than $4,270,000 on machinery won’t get the deduction).

2024 Bonus Depreciation = 60% – is generally taken after the Section 179 Spending Cap is reached. The Bonus Depreciation is available for both new and used heavy equipment.

Year Max Deduction Spending Cap Bonus Depreciation
2021 $1,050,000 $2,620,000 100%
2022 $1,080,000 $2,700,000 100%
2023 $1,160,000 $2,890,000 80%
2024 $1,220,000 $3,050,000 60%

The passage of the Tax Cuts & Jobs Act (TCJA) in 2017 significantly changed the rules for bonus depreciation by allowing small businesses to immediately write off 100% of the cost of heavy equipment acquired and placed in service after September 27, 2017

What Kind of Equipment Qualifies for Section 179?

Qualifying equipment includes tangible property such as heavy equipment & machinery, vehicles, computers, and office furniture.

What Kind of Equipment Qualifies for Section 179?

Specifically, for the construction industry, this encompasses a wide range of heavy machinery, including:

  • Excavators: Used for digging and earthmoving tasks.
  • Loaders: Essential for transporting materials around the site.
  • Cranes: Vital for lifting heavy loads.
  • Backhoes: Multipurpose machines used for digging and material handling.
  • Bulldozers: Used for clearing and grading land.
  • Motor Scrapers / Grader, Tracked Carriers, Trencher, etc.

It’s important to note that the equipment must be used more than 50% of the time for business purposes to qualify for Section 179.

Section 179 Works for Used Equipment?

Yes, Section 179 can be applied to both new and used equipment, provided the used equipment is “new to you.” This means that your business can benefit from the tax deduction even when purchasing pre-owned machinery, as long as it hasn’t been previously owned by your company.

Section 179 Works for Used Equipment?

This provision allows for more flexibility and affordability in acquiring necessary equipment, making it easier to manage budgets while still gaining the benefits of tax deductions.

What Is Bonus Depreciation for Heavy Equipment?

Bonus depreciation allows businesses to depreciate a significant portion of the purchase cost of qualifying assets in the first year they are placed in service. Unlike Section 179, which has a limit on the amount that can be deducted, bonus depreciation currently allows for a 60% (for 2024) deduction on qualifying new and used property, without any spending cap.

Heavy Duty Reach Stacker Container Handler

This can provide substantial tax relief, especially for large purchases. By carefully planning your equipment purchases, you can ensure that your business maximizes its tax benefits and improves overall financial health.

How Does Bonus Depreciation Work with Section 179

How Is Bonus Depreciation Calculated? (Example)

Example of $1,500,000 Equipment Purchase with Section 179 and Bonus Depreciation: to calculate the bonus depreciation for a $1,500,000 heavy equipment purchase in 2024, considering the Section 179 tax deduction, follow these steps:

  1. Apply the Section 179 deduction first:
    • Section 179 deduction limit for 2024: $1,220,000
    • Equipment purchase cost: $1,500,000
    • Section 179 deduction amount: $1,220,000
  2. Calculate the remaining unadjusted depreciable basis after the Section 179 deduction:
    • Remaining unadjusted depreciable basis = $1,500,000 – $1,220,000 = $280,000
  3. Apply the 60% bonus depreciation to the remaining unadjusted depreciable basis:
    • Bonus depreciation amount = $280,000 × 0.60 = $168,000
  4. The remaining adjusted depreciable basis after the bonus depreciation is:
    • Remaining adjusted depreciable basis = $280,000 – $168,000 = $112,000
  5. This $112,000 will be depreciated using the normal MACRS (Modified Accelerated Cost Recovery System) depreciation schedule over the asset’s useful life.

In summary, for a $1,500,000 heavy equipment purchase in 2024, the tax deductions would be:

  • Section 179 deduction: $1,220,000
  • Bonus depreciation: $168,000 (60% of the remaining $280,000 basis)
  • Normal MACRS depreciation: Applied to the remaining $112,000 basis

Section 179 & Bonus Depreciation Infographic

It’s important to consult with a tax professional to ensure compliance with the latest tax regulations and to determine the specific impact on your business.

Section 179 Tax Deduction for Heavy Equipment Infographic

By understanding and utilizing Section 179 and bonus depreciation, your business can make substantial tax savings on new and used construction equipment. These incentives are powerful tools to help you invest in the necessary machinery to grow and improve your operations while managing your tax liability effectively.

Comments: 2
  1. Alex Howard

    Can my company apply the Section 179 deduction and/or bonus depreciation to financed construction equipment?

    1. Nolan Connor (author)

      Yes, small business can save money by financing heavy equipment purchases, especially when the financing agreement allows them to benefit from Section 179 deductions. Consult with your tax advisor to find the financing option that best fits your company’s specific tax requirements.

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