Construction Equipment Depreciation: Section 179 vs Bonus Depreciation vs MACRS

Yes, in nearly every case the whole cost comes off in the year the machine goes to work. Two provisions get you there. Section 179 lets you expense up to $2,500,000 of equipment placed in service in 2025 or 2026, as long as you have the business income to absorb it. Bonus depreciation under IRC 168(k) is 100% again, permanently, for property acquired after January 19, 2025, with no dollar cap and no income limit. Most contractors should default to bonus and reach for Section 179 only for a state that doesn’t follow bonus, an S-corp basis question, or a year when they want to hold one class of assets back.

How much can I expense under Section 179 in 2025 and 2026?

Up to $2,500,000 for tax years beginning in 2025 or 2026 (indexing begins in 2027), before two limits bite. The deduction shrinks dollar for dollar once total Section 179 property placed in service in the year passes $4,000,000 (2025 and 2026), and it can never exceed your taxable income from active businesses for the year. Anything cut off by the income limit carries forward. The statute sets the 2025 and 2026 figures; indexing under Rev. Proc. 2025-32 begins in 2027.

• The income cap is the one contractors hit. IRC 179(b)(3) says the deduction “shall not exceed the aggregate amount of taxable income of the taxpayer for such taxable year which is derived from the active conduct by the taxpayer of any trade or business.” A contractor with $300,000 of business income who buys $500,000 of gear expenses $300,000 under 179 and carries $200,000 forward, or lets bonus take it now (bonus has no such cap).
• Qualifying property is tangible Section 1245 property “acquired by purchase for use in the active conduct of a trade or business” under 179(d)(1): excavators, loaders, dozers, skid steers, compactors, trucks, trailers, generators, scaffolding, tools. Land improvements don’t qualify. Publication 946 puts it plainly: “Land and land improvements do not qualify as section 179 property.”
• Heavy SUVs between 6,000 and 14,000 pounds are capped at $31,300 of Section 179 for 2025 and $32,000 for 2026. A pickup with a cargo bed of at least six feet that isn’t reachable from the cab is outside that cap, per Publication 946, and bonus depreciation has no vehicle cap at all for anything over 6,000 pounds.
• You make the election asset by asset on Form 4562, and you can change your mind: the election “can be revoked without obtaining IRS approval by filing an amended return,” though the revocation itself is then final under 179(c)(2).
• In a partnership or S-corp the dollar and income limits apply twice, at the entity and again at each partner or shareholder, under 179(d)(8).

How does 100% bonus depreciation work after the One Big Beautiful Bill Act?

For property acquired after January 19, 2025, the first-year allowance is 100% of the adjusted basis, with no dollar cap and no taxable income limit, and it’s permanent. The OBBBA amendment to IRC 168(k) applies “to property acquired after January 19, 2025,” and the phase-down that would have left 2025 at 40% is gone for those assets. Bonus applies automatically to everything that qualifies unless you elect out, class by class.

• Property acquired on or before January 19, 2025 and placed in service during 2025 still gets the old 40% rate. Publication 946: “The special depreciation allowance is limited to 40% for certain qualified property acquired after September 27, 2017, and placed in service after December 31, 2024, and before January 1, 2026.” A contractor can also elect 40% instead of 100% for the first tax year ending after January 19, 2025, under 168(k)(10), which occasionally helps a taxpayer who wants to preserve income for a credit or a QBI limit.
• Qualified property is anything with a MACRS recovery period of 20 years or less, so every piece of contractor equipment, every vehicle, and the 15-year paving at the yard all qualify. Used equipment qualifies too, provided “such property was not used by the taxpayer at any time prior to such acquisition” (168(k)(2)(E)(ii)). Buy a used machine at auction and it’s covered. Sell one to your own equipment LLC and buy it back, and it isn’t.
• Because there’s no income limit, bonus can create a net operating loss that carries forward. Section 179 can’t.
• The election out is by class of property, made on a statement attached to a timely filed return, and it “may be revoked only with the consent of the Secretary” under 168(k)(7). If you elect out of 5-year property you’ve elected out for every 5-year asset placed in service that year; the only way to expense a specific machine while spreading the rest is to put Section 179 on that machine first.

Section 179 or bonus depreciation: which should a contractor use?

Bonus, for most of the fleet, most years. It covers the whole cost with no cap or income limit, and there’s nothing to elect. Section 179 goes first in the ordering, then bonus takes the remaining basis, then regular MACRS handles anything left, so the question is only which assets, if any, deserve the 179 election on top. The table sets out where the two differ in ways that change a contractor’s return.

Feature	Section 179	100% bonus depreciation	Regular MACRS only
Dollar cap	$2,500,000 (2025 and 2026; indexed from 2027), phased out above $4,000,000 (2025 and 2026)	None	n/a
Taxable income limit	Yes, carryforward of the excess	None; can create an NOL	n/a
Used equipment	Qualifies	Qualifies if new to you	Qualifies
Land improvements (paving, fencing)	Excluded	Included (15-year property)	15-year, 150% declining balance
How you choose	Asset by asset on Form 4562	Automatic; elect out by whole class	Elect out of bonus for the class
Changing your mind	Revoke on an amended return without IRS consent	Election out is locked without IRS consent	n/a
Trade-in basis	Only the cash paid counts (Publication 946)	Full basis of the new asset	Full basis
California return	Up to $25,000, phased out above $200,000	Not allowed	Required for the rest
Partnership or S-corp	Limits apply at entity and owner level; separately stated item	Part of ordinary income or loss	Part of ordinary income or loss

Three situations put Section 179 back on the table. The first is a state that decouples. California’s own instructions say the state “does not conform to the federal limitation amounts under IRC Section 179(b)(1) and (2)” and allows $25,000, reduced once 179 property passes $200,000, and list IRC 168(k) among the provisions California doesn’t follow (FTB Form 3885 instructions). A California contractor who expenses a $200,000 machine entirely under bonus gets only regular state depreciation on the California return in year one; California’s own $25,000 Section 179 allowance is claimed on the state return on top of that. The second is an S-corp shareholder whose stock basis is thin, because 179 passes through as a separately stated item and is tested at the shareholder level, while bonus rides inside ordinary income. The third is a year when you want to spread most of a class over its MACRS life but still write off one big machine: elect 179 on that machine, then elect out of bonus for the class.

What MACRS recovery period applies to construction equipment?

Five years for most of it. The IRS table of class lives in Publication 946 has an asset class 15.0, “Construction,” covering “assets used in construction by general building, special trade, heavy, and marine construction contractors,” with a 6-year class life and a 5-year recovery period under the general depreciation system. Excavators, loaders, dozers and compactors used by a contractor sit there. The 7-year class is the catch-all for property without a class life; office furniture is 7-year too, under its own asset class 00.11.

• 5-year property also includes “automobiles, taxis, buses, helicopters, and trucks” and computers under the Publication 946 lists, so the pickups and the dump trucks are 5-year with or without class 15.0.
• 7-year property: “office furniture and fixtures (such as desks, files, and safes)” and “any property that does not have a class life and has not been designated by law as being in any other class.”
• 15-year property: “certain improvements made directly to land or added to it (such as shrubbery, fences, roads, sidewalks, and bridges),” which is the yard paving, the fence and the drainage.
• 39 years: the shop or office building itself, as nonresidential real property under 168(c). A cost segregation study is how you pull the 5-, 7- and 15-year pieces out of a building you own.

When the deduction is spread rather than expensed, 5-, 7- and 10-year property uses the 200% declining balance method switching to straight line under 168(b)(1), 15-year property uses 150% under 168(b)(2), both on a half-year convention: Publication 946’s Table A-1 gives 20% of cost in year one for 5-year property and 5% for 15-year property. Place more than 40% of the year’s assets in service in the last three months and 168(d)(3) forces the mid-quarter convention on all of them, which cuts the first-year percentage for a December purchase sharply. The asset is “placed in service” when it’s “ready and available for a specific use,” in Publication 946’s words. That turns on delivery and readiness; the order date and the payment date don’t matter.

Do pickups over 6,000 pounds really get a full write-off?

Yes, subject to business use. IRC 280F caps depreciation on a “passenger automobile,” defined as a 4-wheeled vehicle “rated at 6,000 pounds unloaded gross vehicle weight or less,” with trucks and vans measured by gross vehicle weight rating instead. A pickup rated above 6,000 pounds GVWR isn’t a passenger automobile, so the caps don’t apply and the business-use share of its cost comes off under bonus in year one; Section 179 alone still caps a short-bed pickup or SUV at $31,300 (2025) or $32,000 (2026). Half-tons sit on both sides of the line, so read the door-jamb sticker.

• The caps for a vehicle under the line: $20,200 in year one for 2025 (Rev. Proc. 2025-16) and $20,300 for 2026 (Rev. Proc. 2026-15), both assuming bonus applies; $12,200 and $12,300 without it. A $55,000 half-ton bought in 2026 yields $20,300, with the rest spread over later years at the capped amounts.
• Only the business-use percentage is deductible, and listed property has to be used more than 50% for business to take Section 179 or bonus at all. Publication 946: “If the property is not used predominantly (more than 50%) for qualified business use, you cannot claim the section 179 deduction or a special depreciation allowance.”
• If business use later drops to 50% or below, 280F(b)(2) recaptures the excess of what you deducted over what straight-line would have allowed. Keep a mileage log for anything that goes home at night.
• The GVWR is on the door-jamb sticker. It’s the manufacturer’s maximum loaded weight; curb weight is a different and lower number.

What happens when I trade in or sell a machine?

A trade-in is a taxable sale now. Since the Tax Cuts and Jobs Act, IRC 1031 defers gain only on exchanges of real property, so equipment swapped at the dealer is treated as sold for the trade-in credit and the new machine is bought at its full price. The old machine was usually expensed to zero, so the whole credit is gain, and IRC 1245 makes it ordinary income up to the depreciation you took.

A plain sale works the same way. Sell a fully expensed $180,000 dozer for $70,000 and the $70,000 is ordinary income, because 1245 recaptures depreciation before any capital gain is possible; the recapture is figured in Part III of Form 4797. Contractors who cycle machines every few years should time disposals against purchases in the same year where the cash flow allows, so the recapture and the new deduction land on the same return.

What should I do next?

Check the placed-in-service date on anything arriving near year end, because “ready and available” is the test and a machine sitting at the dealer on December 31 is next year’s deduction. Decide the Section 179 election machine by machine before the return is filed, and remember the amended-return route if you get it wrong. If you file in California or another decoupled state, run the state depreciation schedule as its own workpaper rather than an afterthought, since the federal and state basis of every asset will differ for years.

• Keep a fixed asset register with make, model, serial number, cost including delivery and setup, date placed in service, method, class, business-use percentage for vehicles, and the disposal date and proceeds. Form 4797 and the QBI unadjusted-basis figure both come off it.
• The same equipment cost feeds the QBI wage-and-property limit and the surety’s balance sheet: entity structure and the QBI deduction for contractors.
• Depreciation sits on top of the accounting method and the WIP schedule: contractor deductions and WIP accounting, and the retainage that decides whether the cash for the next machine is there.
• The same analysis for over-the-road trucks and for dental equipment, and the building-side version in cost segregation after 100% bonus.
• If you over-accelerated in a prior year and now owe: which IRS installment agreement fits.

Related guides:

• Section 179 and Bonus Depreciation: The Complete Guide for Small Business Owners

• Depreciation Methods Compared: MACRS, Straight-Line, ADS, Section 179, and Bonus Depreciation

• MACRS Depreciation: Recovery Periods, Conventions, and Methods for Business Assets

• MACRS Depreciation Methods: Recovery Periods, Conventions, and Listed Property Rules

• Cost Segregation for Rental Properties: Accelerating Depreciation to Reduce Taxes

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.