How Construction Companies Can Write Off Heavy Equipment

Construction is the industry Section 179 and bonus depreciation were built for. The assets are unambiguously tangible personal property, they are used essentially 100% for business, they have clear in-service dates, and they are expensive enough that the deduction moves the needle on a tax return.

What separates contractors who capture the full benefit from those who capture part of it is not the equipment. It is the structure, the timing, and the documentation.

What Qualifies

Essentially every piece of yellow iron on a jobsite: excavators, wheel loaders, skid steers, dozers, backhoes, cranes, telehandlers, compactors, concrete pumps and mixers, and paving equipment. Attachments are separately depreciable assets—buckets, breakers, augers, grapples, and mulching heads each qualify on their own.

Support assets qualify too: service trucks, welders, generators, air compressors, laser levels and survey equipment, jobsite trailers, and the estimating and project management software that runs the office.

Most construction equipment falls into the 5-year or 7-year MACRS classes under Rev. Proc. 87-56. General construction assets are 5-year property; heavy contracting equipment used in construction of roads and similar work sits at 5 years as well, while some shop and support assets land at 7. With 100% bonus depreciation permanent under the OBBBA, the recovery period matters less than it used to for the first year, but it still governs what happens if you elect out. The tables are in MACRS recovery periods by asset type.

The Pickup Truck Question

Contractors buy a lot of trucks, and trucks are where the rules get specific. A three-quarter-ton or one-ton pickup with a bed of at least six feet exceeds 6,000 pounds GVWR and is not treated as an SUV, which means it avoids both the IRC Sec. 280F luxury auto caps and the Section 179 SUV sub-cap. A crew-cab F-250 with an eight-foot bed used on jobs is about as clean a full deduction as exists in the vehicle world.

A half-ton crew cab with a five-and-a-half-foot bed is a different analysis. If it is under 6,000 pounds GVWR, the 280F caps apply and the first-year deduction is a fraction of the purchase price. Check the door jamb sticker before you sign, not after.

Business use above 50% is required and has to be substantiated. A truck that goes home with a foreman every night is a mixed-use asset, and the IRS treats commuting as personal. A mileage app costs nothing and is the difference between a defended deduction and a disallowed one.

Section 179 or Bonus Depreciation?

For most contractors buying one or two machines a year, either works. Above the $1,250,000 Section 179 cap for 2026, or when the purchase would exceed the company's taxable income, bonus depreciation is the answer because it has no dollar limit and can create a loss.

Where Section 179 still earns its place is state conformity. A number of states decouple from federal bonus depreciation while conforming to Section 179, so an all-bonus election that looks optimal federally can produce a large state addback. We model the federal and state result together rather than sequentially.

The S-Corp Basis Trap

Most contractors operate as S-Corps, and this is where a well-planned purchase quietly fails. When the corporation finances a $750,000 excavator, the corporation holds the debt. Corporate-level debt does not create shareholder stock basis the way partnership debt does. If the resulting deduction exceeds your stock and debt basis, IRC Sec. 1366(d) suspends the excess until you restore basis.

The fixes are all available and all have to be done in advance: a capital contribution before year-end, a direct shareholder loan to the corporation rather than a corporate loan, or holding the equipment in a separate entity that leases it to the operating company. None of them work retroactively.

Percentage of Completion and the Timing Interaction

Contractors above the gross receipts threshold report long-term contracts on the percentage-of-completion method under IRC Sec. 460, which means taxable income is a function of contract progress rather than cash. That makes income projection harder and makes the Section 179 taxable income cap easier to hit unexpectedly.

It also means a December equipment purchase does not affect contract revenue recognition. The deduction is a straight reduction of taxable income, which for a contractor finishing a strong year is exactly the point.

The In-Service Date on a Jobsite

Placed in service means ready and available for its intended use. For construction equipment, that is usually the delivery and inspection date, not the date the machine first turns dirt. But if the machine arrives December 28 and sits on a lowboy in the yard awaiting a hydraulic repair, a required inspection, or dealer commissioning, the in-service date slides into January and the deduction with it.

Document it: delivery receipt, dealer PDI sign-off, insurance binder effective date, and the first jobsite it was assigned to. A photo with a timestamp costs nothing.

Putting It Together

A contractor buying a $750,000 excavator package with 10% down and 3% closing is $97,500 out of pocket. The first-year deduction is $750,000. At a 35% blended rate that is $262,000 of tax savings—more than 2.5 times the cash outlay, in the same year, with the machine already billing. The full model is on the equipment leasing page, and the year-end mechanics are in timing equipment purchases.

Frequently Asked Questions

Can I write off an excavator in one year?

Yes. Construction equipment is tangible personal property used in an active trade or business, so it qualifies for Section 179 up to the annual cap or for 100% bonus depreciation with no cap, provided it is placed in service during the tax year and used more than 50% for business.

Does used construction equipment qualify?

Yes. Both Section 179 and bonus depreciation apply to used equipment that is new to your business. The exclusions are property acquired from a related party, by gift, or by inheritance. For contractors buying auction and dealer-used iron, this is a significant point.

Can I deduct a pickup truck used for my construction business?

If the GVWR exceeds 6,000 pounds and the bed is at least six feet, the vehicle avoids both the luxury auto limits under IRC Sec. 280F and the Section 179 SUV sub-cap, and can generally be fully expensed subject to the business use percentage. Lighter trucks are subject to the 280F caps, which sharply limit the first-year amount.

What happens if I trade in a machine?

Like-kind exchange treatment under IRC Sec. 1031 no longer applies to personal property after the 2017 Tax Cuts and Jobs Act. A trade-in is a taxable disposition: you recognize gain measured against your adjusted basis, and because the old machine was likely fully expensed, most or all of the trade value is ordinary income under IRC Sec. 1245. The new machine then generates its own full deduction.

My S-Corp financed the equipment. Why is my deduction limited?

Because corporate-level debt does not give shareholders basis. Under IRC Sec. 1366(d) your deduction is capped at your stock and debt basis, and the excess is suspended until basis is restored. A capital contribution, a direct shareholder loan, or a separate leasing entity can solve it, but all three have to be in place before year-end.

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This article is for informational purposes only and does not constitute legal or tax advice. Consult a qualified tax professional regarding your specific circumstances. AE Tax Advisors, 935 Lake Elmo Dr, Suite B, Billings, MT 59105. Phone: (631) 614-5762.