Heavy Equipment Tax Deduction: Section 179 and Bonus Depreciation

A business can write off most or all of the cost of qualifying heavy equipment in the year it’s placed in service. For 2026, the heavy equipment tax deduction runs on two stacked tools: Section 179 expensing, capped at roughly $2,560,000, and 100% bonus depreciation, which the One Big Beautiful Bill Act permanently restored for property acquired and placed in service after January 19, 2025.1Internal Revenue Service. Instructions for Form 45622Internal Revenue Service. Additional First Year Depreciation Deduction (Bonus) – FAQ Together they let excavators, loaders, dump trucks, cranes, and similar machinery come off your taxable income far faster than a standard depreciation schedule.

What Counts as Qualifying Equipment

To be depreciable at all, the asset has to pass three tests: you own it, you use it in a business or income-producing activity, and it has a useful life longer than one year.3Internal Revenue Service. Topic No. 704, Depreciation Excavators, motor graders, loaders, cranes, compactors, cement mixers, dump trucks, and similar machinery all clear that bar as long as the business actually uses them to generate revenue.

Both new and used equipment qualify. For used property, it just has to be new to you — meaning you can’t buy a machine from a related party or re-buy something you previously owned and claim the deduction again. The equipment also has to be “placed in service” during the tax year you claim the write-off. That means physically ready and available for its assigned function, whether or not you’ve started running it.4Internal Revenue Service. Publication 946 – How To Depreciate Property

For Section 179 and bonus depreciation on listed property (a category that includes certain vehicles and dual-use equipment), business use must exceed 50%.5eCFR. 26 CFR 1.280F-6 – Special Rules and Definitions Drop below that threshold in any year and you’re forced onto a slower straight-line schedule, and prior deductions may be recaptured. For a dedicated excavator that never leaves the job site, the 50% test is a formality. For pickups and SUVs that see personal use, tracking business use matters.

Section 179 Expensing in 2026

Section 179 lets you deduct the entire purchase price of qualifying equipment in the year it goes into service. The One Big Beautiful Bill Act doubled the base limit to $2,500,000 for 2025 and indexed it for inflation, bringing the 2026 maximum to approximately $2,560,000.

The deduction begins phasing out dollar-for-dollar once total equipment purchases for the year exceed approximately $4,090,000. A business spending $5,090,000 would lose $1,000,000 of its Section 179 allowance, leaving $1,560,000 available. Once purchases reach roughly $6,650,000, Section 179 disappears entirely for that year. The phase-out targets the benefit toward small and mid-sized operations.

Two more limits apply. First, your Section 179 deduction can’t exceed your taxable business income for the year. Expense $500,000 in equipment when your business earned $300,000, and the remaining $200,000 carries forward. Second, heavy SUVs rated between 6,000 and 14,000 pounds gross vehicle weight face a separate Section 179 cap of $31,300.6Internal Revenue Service. Instructions for Form 4562 – Depreciation and Amortization Vehicles over 14,000 pounds, and those built primarily for work (like dump trucks with no rear passenger seating), aren’t subject to the SUV cap.

100% Bonus Depreciation

Bonus depreciation under Section 168(k) had been phasing down since 2023, from 100% to 80%, then 60%, then 40%. The One Big Beautiful Bill Act reversed that, permanently restoring 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025. It applies to new and used equipment alike, provided the standard acquisition rules are met.

Bonus depreciation has no dollar cap, which is what makes it powerful when Section 179 runs out. Buy $3,000,000 of equipment, take the $2,560,000 Section 179 deduction, and 100% bonus depreciation covers the remaining $440,000. A company that spends $10,000,000 on qualifying machinery and gets no Section 179 benefit at all (because of the phase-out) can still deduct the full $10,000,000 through bonus depreciation.

The law allows a transition election to a 40% bonus rate instead of 100% if a taxpayer would rather spread deductions into future higher-income years.

Heavy Vehicles and the SUV Cap

Vehicles sit on the boundary between heavy equipment and personal transportation, and the code treats them accordingly. Passenger cars at 6,000 pounds gross vehicle weight or less face annual depreciation caps that sharply limit first-year deductions. Above 6,000 pounds, treatment gets more generous, but with a catch.

SUVs and crossovers rated between 6,000 and 14,000 pounds qualify for Section 179 only up to $31,300, not the full purchase price. Anything above that runs through bonus depreciation and 5-year MACRS. Vehicles over 14,000 pounds escape the SUV cap entirely, as do vehicles with specific work configurations: a cargo bed at least six feet long that isn’t accessible from the passenger area, or a fully enclosed driver compartment with no rear seating. A Ford F-250 with a long bed qualifies for the full Section 179 deduction. A luxury SUV that happens to weigh 6,500 pounds does not.

MACRS for What’s Left Over

When first-year deductions don’t cover everything, the remainder is recovered through the Modified Accelerated Cost Recovery System. Two categories cover most heavy equipment:

  • 5-year property: automobiles, light trucks, and farm machinery or equipment (other than grain bins, fences, and land improvements) placed in service after 2017 where you are the original user.7Office of the Law Revision Counsel. 26 U.S. Code 168 – Accelerated Cost Recovery System
  • 7-year property: used agricultural equipment placed in service after 2017, grain bins, cotton ginning assets, and any property without a specifically assigned class life. Most construction equipment lands here by default.4Internal Revenue Service. Publication 946 – How To Depreciate Property

With 100% bonus depreciation permanent again, MACRS matters less than it did during the phase-down years. It still governs deductions when you elect out of bonus depreciation or acquire property that doesn’t qualify.

Leasing Instead of Buying

Lease treatment depends on structure. An operating lease, where you rent the equipment for less than 75% of its useful life and return it at the end, lets you deduct the full lease payment each year as a business expense. You don’t own the asset, so you can’t depreciate it.

A capital lease (now called a finance lease) transfers enough ownership characteristics that the IRS treats it like a purchase. If the present value of lease payments equals 90% or more of the equipment’s fair market value, or the lease includes a bargain purchase option, it’s generally a finance lease. You depreciate the asset and deduct only the interest portion of payments.

With Section 179 and 100% bonus depreciation both available, buying is far more tax-efficient in 2026 than during the phase-down. Leasing still fits when cash flow outweighs the deduction, or when the equipment will be obsolete before its depreciation period ends.

Interest on Financed Equipment

Interest on equipment loans is separately deductible as a business expense. Section 163(j) caps the total business interest deduction at 30% of adjusted taxable income plus any business interest income.8Internal Revenue Service. Questions and Answers About the Limitation on the Deduction for Business Interest Expense Starting in 2026, the One Big Beautiful Bill Act restores the EBITDA-based calculation, which adds back depreciation and amortization before applying the 30% cap. That change meaningfully increases the allowable interest deduction for equipment-heavy businesses.

Small businesses that meet the gross receipts test under Section 448(c) are exempt from Section 163(j) entirely, so all their equipment loan interest is fully deductible.

Selling or Trading the Equipment Later

Every dollar you deduct comes back into play at sale. Under Section 1245, gain on the sale of depreciable personal property is taxed as ordinary income to the extent of prior depreciation.9Office of the Law Revision Counsel. 26 USC 1245 – Gain From Dispositions of Certain Depreciable Property Take a $200,000 Section 179 deduction on a bulldozer, sell it later for $120,000, and the entire $120,000 is ordinary income. Recapture applies to the greater of what you actually took or what you were entitled to take, so skipping depreciation doesn’t help you dodge the tax later.

Trading equipment used to defer gain through Section 1031 like-kind exchanges. That option ended for personal property in 2018. The Tax Cuts and Jobs Act limited Section 1031 to real property, so an equipment trade is now a taxable sale of the old machine plus a separate purchase of the new one.10Internal Revenue Service. Like-Kind Exchanges – Real Estate Tax Tips The replacement equipment qualifies for Section 179 and bonus depreciation, which often offsets the recapture tax.

Records You Need to Keep

The IRS won’t take your word for any of this. At minimum, keep the purchase contract, invoice, and proof of payment. Cost basis includes more than the sticker price: sales tax, delivery charges, and installation fees all count toward the depreciable amount.

For equipment used partly for personal purposes, keep a contemporaneous business-use log covering the full tax year. Hour meters, GPS tracking, and mileage logs work. Auditors know the difference between a log kept as you go and one built the week before filing.

Retain records for at least three years after filing the return that claims the deduction.11Internal Revenue Service. How Long Should I Keep Records For depreciation, hold the records until the statute of limitations expires for the year you dispose of the asset. In practice, that means keeping records for the life of the equipment plus three years after you sell or scrap it. Inadequate records can lead to the IRS disallowing the deduction entirely on audit.

How to File the Deduction

Everything runs through IRS Form 4562, Depreciation and Amortization. Part I handles Section 179 elections; Part II covers bonus depreciation and other special allowances. For each asset you enter a description, cost, date placed in service, and deduction amount.

Where the total lands depends on your entity type:

Most tax software walks through depreciation entries and produces Form 4562 automatically.

Fixing Missed Deductions From Earlier Years

If you bought equipment in a prior year and either forgot to depreciate it or used the wrong method, you generally can’t fix it with an amended return. The correct route is Form 3115, Application for Change in Accounting Method, filed with the current year’s return. The catch-up is reported as a Section 481(a) adjustment in the year of the change. A negative adjustment (deductions owed to you) is claimed in a single year; a positive adjustment (overclaimed deductions) is spread over four.

The Form 3115 path works even when the original error is many years old, which is why it beats an amended return limited by the statute of limitations. Purely mathematical errors may still call for an amended return, but most depreciation mistakes are treated as accounting method changes.

State Tax Treatment

Federal deductions don’t automatically flow through to state returns. A significant number of states decouple from federal bonus depreciation, reducing or disallowing the 100% first-year deduction at the state level. Some also cap Section 179 well below the federal limit. The result is a state add-back that raises your state taxable income even though your federal return shows the full deduction.

Decoupled states typically require you to add federal bonus depreciation back to state income and then claim depreciation on a slower schedule over the asset’s MACRS recovery period. That’s a timing difference rather than a permanent tax increase, but it means a larger state bill in the year of purchase. Many states also exempt certain equipment from sales tax, particularly machinery used directly in manufacturing or agricultural production. Check your state’s conformity rules before assuming the federal deduction passes through unchanged.