Section 179 vs. bonus depreciation for contractors

Every fall, contractors around Midland and Odessa start asking the same question: if I buy the truck, the skid steer, or the service van before December 31, how much of it can I write off this year? After the tax law signed in July 2025, the answer is usually "all of it." The better question is which provision to use, Section 179 or bonus depreciation, because they reach the same first-year number by different routes, and the differences decide whether the deduction actually lowers this year's tax bill. Here's how they compare.

Two ways to deduct equipment in year one

Section 179 is an election. Asset by asset, you choose how much of the cost to expense in the year the property is placed in service, up to an annual dollar limit. It applies to tangible personal property used more than 50 percent in the business, to off-the-shelf software, and to certain improvements to nonresidential buildings. IRC §179 sets the rules.

Bonus depreciation under IRC §168(k) is automatic. Qualified property (most tangible property with a recovery period of 20 years or less, new or used) is deducted at the bonus percentage in its first year unless you elect out, and the election out applies to an entire class of property (all 5-year property, all 7-year property), not to individual assets.

Both cover the assets a trade business buys, trucks and trailers to skid steers and shop tools, new or used. Both require the asset to be placed in service, meaning ready and available for use, by year-end; a truck ordered in December and delivered in January is a next-year deduction, however you financed it.

What the 2025 law changed

Public Law 119-21 settled two numbers that had been moving targets. The IRS's summary of the business provisions lays them out:

• Bonus depreciation is 100 percent again, permanently, for qualified property acquired after January 19, 2025. It had been phasing down (60 percent in 2024, 40 percent scheduled for 2025), and the phase-down is gone. For the first tax year ending after January 19, 2025, a business can elect 40 percent instead of 100 percent if it prefers to spread deductions. Note the trigger is the acquisition date (generally the date of a binding written contract), so a truck ordered in 2024 and delivered in 2025 may be under the old 40 percent rule.
• The Section 179 limit rises to $2,500,000, phasing out dollar-for-dollar once total Section 179 property placed in service in the year exceeds $4,000,000, for tax years beginning after December 31, 2024. Both figures are indexed for inflation after 2025. Before the law, the 2025 figures were $1,250,000 and $3,130,000. For tax years beginning in 2026 the indexed limits are $2,560,000 and $4,090,000.

For a contractor spending a few hundred thousand dollars a year on equipment, both limits are now far above the spend. The decision between the two provisions no longer turns on dollar caps. It turns on vehicles, taxable income, and flexibility.

Trucks, vans, and the 6,000-pound line

Vehicles carry their own rules, and the dividing line is gross vehicle weight rating (GVWR), the manufacturer's rating on the door-jamb sticker, not the vehicle's actual weight.

At or under 6,000 pounds GVWR, a vehicle is a "passenger automobile" under IRC §280F, and annual depreciation is capped regardless of which provision you use. For vehicles placed in service in 2025, the first-year cap is $12,200, or $20,200 when bonus depreciation is claimed, with the rest spread over later years. The IRS indexes these caps each year; we use the current-year figures when we run your numbers. Most sedans and small SUVs live here.

Over 6,000 pounds GVWR, the §280F caps don't apply. This covers most three-quarter-ton and one-ton pickups, full-size cargo vans, and the large SUVs (Tahoe, Suburban, Expedition, Sequoia, and similar). But Congress added one more rule for the SUVs in this group. Under §179(b)(5), the Section 179 deduction for an SUV between 6,000 and 14,000 pounds GVWR is capped at an inflation-adjusted amount, $31,300 for tax years beginning in 2025. Vehicles that aren't SUVs for this purpose escape the cap: a pickup with a cargo bed at least six feet long that isn't readily accessible from the cab, a van with no seating behind the driver and a fully enclosed cargo area, or a vehicle seating more than nine behind the driver.

Here's where bonus depreciation matters. The §179(b)(5) cap applies only to Section 179, not to bonus. A $78,000 Suburban used 100 percent for business can take $31,300 under Section 179 and the rest under 100 percent bonus, or skip Section 179 and take the whole amount as bonus; either way the first-year deduction is the full $78,000. A $72,000 crew-cab three-quarter-ton with a long bed isn't an SUV under the rule and can be fully expensed under either provision.

One caution for any vehicle: business use must exceed 50 percent, and if it later drops to 50 percent or below, the excess depreciation is recaptured as income. Keep a mileage log.

The taxable-income limit: where Section 179 stops working

This is the most important difference, and the one that trips up growing businesses.

Under §179(b)(3), your Section 179 deduction for the year can't exceed your aggregate taxable income from the active conduct of all your trades and businesses. For an individual, that figure includes W-2 wages (yours and your spouse's on a joint return), so it's broader than the business's own profit. Any amount disallowed carries forward to later years, but it does nothing for you now. For an S corporation or partnership, the limit applies twice: once at the entity level and again at the owner's level.

Bonus depreciation has no taxable-income limit. It can reduce business income to zero and keep going, creating a net operating loss that carries forward to offset future income (subject to the 80 percent limit on using NOLs).

Consider an HVAC contractor operating as an S corporation. The business earns $260,000 before equipment purchases and buys $400,000 of trucks and equipment in the year. Section 179 can deduct at most $260,000 (plus whatever the owner's other business income supports); $140,000 waits for next year. Bonus depreciation deducts all $400,000, pushing the company to a $140,000 loss that flows through to the owner. If the owner materially participates, that loss offsets a spouse's salary, investment income, or other business income on the joint return, and anything left becomes an NOL.

If the write-off would exceed this year's business income, bonus depreciation is almost always the better tool, because it delivers the whole deduction now instead of parking part of it.

When Section 179 is still the better choice

Bonus depreciation isn't automatically right, and there are years when Section 179's selectivity is worth more than bonus's reach.

• You want to deduct some assets and not others. Bonus is all-or-nothing by asset class. Section 179 lets you expense the new truck in full, take regular depreciation on the shop equipment, and land exactly on the taxable income you want. That precision matters when you're trying to stay inside a bracket, preserve the Section 199A deduction (which shrinks as business income shrinks), or avoid wasting deductions against income that would have been taxed at 12 percent when next year's will be taxed at 32.
• You're improving a building you own. Section 179 covers roofs, HVAC, fire protection, and security systems on nonresidential property, and qualified improvement property generally. Bonus depreciation reaches qualified improvement property but not a new roof or rooftop units on an existing building. For a contractor who owns the shop, that's a Section 179-only deduction.
• You'd rather not create a loss. A large NOL is valuable but slow to use. Sometimes the better plan is to deduct up to income this year with Section 179 and let bonus take whatever is left, or to elect out and keep depreciation for the higher-income years ahead.

How we decide

For trades and contractors, the equipment decision is a year-end planning conversation, not a line on the tax return:

1. Project the year's taxable income across the business and the owner's return, before any new purchases.
2. List what you plan to buy, with GVWR and expected business use for each vehicle.
3. Compare the first-year deduction under each route, including the SUV cap, the taxable-income limit, the effect on the 199A deduction, and the value of a loss against other income.
4. Pick the mix: Section 179 on chosen assets, bonus on the rest, or an election out for a class if next year's bracket is higher.
5. Get it placed in service by December 31, with the paperwork to prove it.

A contractor can now expense nearly any purchase this year. Whether that's the right move, and which provision to use, depends on the numbers, which is exactly what business tax planning is for.

This article is general information, not tax advice for your situation. Talk with a CPA before a major equipment or vehicle purchase so the deduction lands where you expect.