Section 179 vs Bonus Depreciation for Heavy Equipment: How Contractors Should Choose
When a contractor buys a dozer, a crane, or a fleet of trucks, there are usually two ways to write it off quickly: Section 179 expensing and bonus depreciation. Choosing between Section 179 vs bonus depreciation used to be simpler, because bonus depreciation was phasing down. The 2025 federal tax law changed that by restoring 100% bonus depreciation for qualifying property acquired after January 19, 2025, and it also raised the Section 179 limits. Now both tools can often expense the full cost of equipment in year one, and the choice depends on details.
This article focuses on how the two compare for heavy equipment. If you want the basics of full expensing and timing rules first, read our article on bonus depreciation for construction equipment.
How Section 179 Works
Section 179 lets a business elect to expense the cost of qualifying property instead of depreciating it. Under the 2025 law, the maximum deduction was raised to $2.5 million, and that limit begins to phase out dollar for dollar once total qualifying purchases for the year exceed $4 million. Both figures are indexed for inflation in later years, so confirm the current numbers with your tax advisor.
Key features of Section 179:
It is elective, asset by asset. You choose which purchases to expense and how much.
It is limited by business taxable income. Section 179 generally cannot create or increase a loss. Any amount you cannot use carries forward.
It phases out for heavy buyers. Contractors with very large equipment purchases in one year can lose some or all of the deduction.
Pass-through entities face two levels of limits. For S corporations and partnerships, the limits apply at the entity level and again at the owner level.
How Bonus Depreciation Works
Bonus depreciation is automatic unless you elect out. It applies to qualifying property by class, and under current law the rate is 100% for property acquired after January 19, 2025.
No dollar cap and no phase-out. Large purchases do not reduce the deduction.
No taxable income limit. Bonus depreciation can create a net operating loss, subject to the loss rules that apply to your business.
Less flexible. If you elect out, you elect out for an entire class of property for that year, not one asset at a time.
When Each One Makes Sense for Contractors
Situations that may favor Section 179
You want to expense some equipment and depreciate other equipment in the same class.
Your state conforms to Section 179 but does not follow federal bonus depreciation.
You want to manage taxable income to a specific target rather than taking every available deduction.
Situations that may favor bonus depreciation
Your purchases for the year are large enough to trigger the Section 179 phase-out.
Your business income is low this year and you want a deduction even if it creates a loss.
You want to avoid the separate owner-level limits that apply to pass-through entities.
Many contractors use both: Section 179 on selected assets and bonus depreciation on the rest. The right mix depends on income, entity type, state, and the owner's broader tax picture.
State Conformity, QBI, and Bonding Equity
State conformity
States do not all follow the federal rules. Some decouple from bonus depreciation entirely, some cap Section 179 at lower amounts, and some require add-backs that reverse over several years. If you work in multiple states, the same purchase can produce very different state results. This is one of the most common reasons contractors get surprised by a state tax bill.
Interaction with the QBI deduction
Owners of pass-through businesses may be eligible for the qualified business income deduction, which the 2025 law made permanent. Large depreciation deductions reduce qualified business income, which can reduce the QBI deduction in the same year. Accelerating depreciation into one year may therefore save less tax than the headline deduction suggests. Your tax advisor should model both together.
Bonding equity
If your CPA prepares your financial statements on a tax basis, a large expensing election reduces reported net income and equity, which a surety will see. If your statements use GAAP book depreciation, the tax choice has less effect on reported equity, but the cash or debt used to buy the equipment still affects working capital. Our article on tax moves that shrink bonding capacity covers this tradeoff.
Frequently Asked Questions
Is Section 179 or bonus depreciation better for heavy equipment?
Neither is always better. Section 179 offers asset-by-asset control and sometimes better state treatment, while bonus depreciation has no dollar cap or income limit. Many contractors combine them.
Can I use Section 179 and bonus depreciation in the same year?
Yes. A business can generally apply Section 179 to selected assets and bonus depreciation to remaining qualifying property in the same year. Your tax preparer will apply them in the required order.
Does my state allow bonus depreciation?
It depends on the state. Some follow federal bonus depreciation and others do not. Check each state where you file before you count on the deduction.
Coordinate Equipment Deductions With Your Bonding Plan
SuretyCFO provides tax planning and CFO services for bonded commercial contractors. We help you decide how to treat equipment purchases with your taxes, cash flow, and bonding capacity all in view, and we work alongside your CPA at year end.
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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