100% Bonus Depreciation for Construction Equipment: What to Know Before You Buy
Every fall, contractors start asking the same question: should we buy that excavator, loader, or truck before year end? The 2025 federal tax law, commonly called the One Big Beautiful Bill Act, made the question more interesting. It restored 100% bonus depreciation for construction equipment and other qualifying property, and made it permanent for property acquired after January 19, 2025. That means a contractor can often deduct the full cost of qualifying equipment in the year it is placed in service.
A full write-off sounds like an easy win. For a bonded contractor, it deserves a closer look. The tax deduction is only one part of the decision. Cash, debt, working capital, and how your surety views the purchase all matter too.
How 100% Bonus Depreciation Works Under the 2025 Tax Law
Bonus depreciation lets a business deduct a percentage of the cost of qualifying property in the first year instead of spreading it over several years. Before the 2025 law, the percentage was phasing down each year. The new law restored the full 100% for qualifying property acquired after January 19, 2025, and removed the scheduled phase-down.
For most contractors, qualifying property includes the equipment you actually use on jobs:
Excavators, loaders, skid steers, and other heavy equipment
Cranes, lifts, and scaffolding systems
Work trucks and trailers (vehicle rules can be more complex, especially for lighter vehicles)
Tools, shop equipment, and computer hardware
Certain used equipment, as long as you did not previously use it
Buildings and most structural improvements to real property follow different rules. If you are considering a yard, shop, or office building, talk with your tax advisor about how the cost would be treated.
Timing Rules: Acquired and Placed in Service
Two dates matter, and contractors often confuse them.
When the equipment is acquired
The acquisition date generally depends on when you entered into a binding written contract to buy the property, not when you paid for it or took delivery. Property acquired under a binding contract signed before January 20, 2025 may fall under the older, lower percentage even if it was placed in service later. If you have older purchase agreements, have your tax advisor review them.
When the equipment is placed in service
To claim the deduction for 2026, the equipment generally needs to be placed in service by the end of your tax year. Placed in service means it is ready and available for its intended use. A machine sitting at the dealer, or one that has been ordered but not delivered, usually does not qualify. Supply chain delays in December are a real risk, so plan purchases with enough lead time.
When Expensing Equipment Hurts Your Balance Sheet
This is where tax planning and bonding planning can pull in different directions. A large deduction lowers taxable income. But the purchase itself changes your balance sheet, and that is what your surety reads.
The cash and working capital effect
If you pay cash, current assets go down and the equipment moves to fixed assets. Your working capital drops by the amount spent. If you finance, the current portion of the loan becomes a current liability, which also reduces working capital. Working capital is one of the main figures underwriters use to size your program, so a big purchase late in the year can show up as a lower number at the exact moment you are submitting year-end statements.
Tax depreciation versus book depreciation
Many CPA-prepared statements for bonded contractors use GAAP book depreciation, which spreads the cost over the useful life of the equipment. In that case, the tax write-off does not directly reduce reported equity. However, if your statements are prepared on a tax basis, the full deduction can sharply reduce reported net income and equity. Know which basis your CPA uses before assuming the deduction has no effect on how you look to a surety.
The deduction does not create cash
A deduction saves tax at your marginal rate. It does not return the full purchase price. Buying equipment you do not need just to reduce taxes means spending a dollar to save a fraction of it. We cover this tension in our article on tax moves that shrink bonding capacity.
A Practical Decision Checklist
Before you sign a purchase order this year, work through these questions with your CFO and tax advisor:
Do we need this equipment for backlog we already have, or for work we are confident we will win?
Have we compared buying with renting or leasing, including utilization rates on our current fleet?
What will working capital and debt to equity look like at year end after the purchase?
Is our year-end financial statement prepared on a GAAP basis or a tax basis?
Does our state follow the federal bonus depreciation rules, or will we need a separate state calculation?
Would electing out of bonus depreciation for some classes of property produce a better result over several years?
Can the equipment realistically be delivered and placed in service before year end?
State conformity deserves special attention. Several states do not follow federal bonus depreciation, which means you may get a large federal deduction and a much smaller state deduction. Your tax advisor can confirm the rules in each state where you file.
Frequently Asked Questions
Is 100% bonus depreciation permanent now?
Under the 2025 federal tax law, 100% bonus depreciation was made permanent for qualifying property acquired after January 19, 2025. Future legislation could change that, so confirm current rules with a tax professional before a major purchase.
Does used construction equipment qualify for bonus depreciation?
Used equipment can qualify if your business did not previously use it and you did not acquire it from a related party. Other conditions apply, so review the specific purchase with your tax advisor.
Should I buy equipment at year end to lower my taxes?
Only if the equipment makes business sense on its own. A deduction reduces tax, but the purchase also reduces cash or adds debt, which can lower working capital on the statements your surety reviews.
Plan Equipment Purchases With Bonding in Mind
SuretyCFO provides CFO services and tax planning for bonded commercial contractors. We model how an equipment purchase affects your taxes, cash, and year-end balance sheet before you commit, so you can make the decision with the full picture. For a broader view of the season, see our guide to contractor year-end tax planning decisions.
This article is for general information only and is not tax or legal advice. Talk with a qualified tax professional about your specific situation.
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