100% Bonus Depreciation for Contractors Is Permanent: Next Steps
Bonus depreciation for contractors is back at 100%, and this time it is permanent. The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, restored full first-year expensing for qualified property acquired after January 19, 2025. For a commercial contractor that buys excavators, lifts, trucks, and trailers every year, that is one of the most useful rules in the tax code.
Permanent does not mean automatic, though. Timing, documentation, and state rules still decide whether the deduction lands in the year you want and helps the way you expect.
What Changed for Bonus Depreciation for Contractors
Before OBBBA, bonus depreciation was phasing down each year. Contractors had to rush purchases or accept smaller first-year deductions. Now, qualified property acquired after January 19, 2025 can be fully deducted in the year it is placed in service.
That steadiness matters for planning. You no longer need to buy a loader in December just to beat a phase-down. You can buy equipment when your jobs need it and still get the full deduction, as long as you meet the rules below.
The Placed-in-Service Rule
The deduction is tied to the date the asset is placed in service, not the date you order it or pay for it. Placed in service means the equipment is delivered, set up, and ready for its intended use.
Here is how that plays out on a real job:
You sign for a new telehandler on December 10, but the dealer cannot deliver until January 8. It is a next-year deduction.
You take delivery of a used excavator on December 28 and it sits in your yard ready to go to the next job. It is placed in service this year, even if it does not dig until February.
You order a custom service body for a truck, and the upfitter keeps the truck until mid-January. The truck is generally not ready for use until the body is installed.
Keep delivery tickets, bills of lading, and photos with dates. If the IRS ever asks, those records answer the question quickly.
Acquisition date also matters
The 100% rate applies to property acquired after January 19, 2025. If you signed a binding contract for equipment before that date, even if it arrived later, the acquisition date rules may treat it differently. Flag any older purchase orders for your tax advisor.
Used Equipment Qualifies, With Conditions
Bonus depreciation applies to used equipment, which is good news for contractors who buy at auction or from other contractors. The used property must meet the acquisition rules. In general, you cannot have used the asset before, and you cannot buy it from a related party, such as a company you or your family control.
That second point trips up contractors with separate equipment companies. Moving a machine from your equipment LLC to your operating company is usually not a qualifying purchase for bonus purposes.
Heavy Trucks and Building Improvements
Two categories deserve special attention:
Heavy vehicles. Trucks and SUVs with a gross vehicle weight rating over 6,000 lbs are not subject to the luxury auto depreciation caps and can be eligible for 100% bonus. Business use must exceed 50%, and you need a log or similar records to prove it.
Qualified improvement property (QIP). Interior, non-structural improvements to a nonresidential building, such as build-out work in your own office or shop, are 15-year property and eligible for bonus.
If you own your shop or yard, a cost segregation study can also move parts of the building into 5, 7, and 15-year categories that qualify for bonus. Land is never depreciable.
Example: A Year of Equipment Purchases
Say a site work subcontractor projects $1,400,000 of taxable profit before depreciation. During the year it places these assets in service:
New wheel loader: $250,000
Used excavator bought at auction from an unrelated seller: $100,000
Dump truck over 6,000 lbs GVWR, 100% business use: $100,000
Two equipment trailers: $50,000
Total qualified purchases: $500,000. With 100% bonus, taxable profit drops to $900,000 ($1,400,000 minus $500,000). If the owner instead delayed the loader until January, this year's deduction would be $250,000 and taxable profit would be $1,150,000.
The deduction is not free money. You spent $500,000 of cash or took on debt to get a deduction that saves only a portion of that in tax. Buy equipment because your jobs need it, then time it well.
Bonus Can Create a Loss
Unlike Section 179, bonus depreciation can push your business into a tax loss. That can be helpful in a big equipment year, but there are limits. The excess business loss limitation, now permanent, caps how much business loss an individual owner can use against other income in one year. The excess carries forward as a net operating loss.
You also have choices. Bonus applies automatically, but you can elect out by class of property. Some contractors elect out for certain classes to spread deductions over future years, especially when they expect higher income later.
The State Conformity Caution
Federal law is only half the picture. Many states do not follow federal bonus depreciation, or they follow it only partly. In those states, you may take the full deduction on your federal return but add some or all of it back on the state return and depreciate it more slowly there.
For contractors working in several states, this gets complicated quickly, since each state can have its own rule. Rules vary by state, so model state tax separately before assuming the federal benefit carries through.
How This Connects to Your Bonding
Tax depreciation and book depreciation are separate. Your reviewed or audited financial statements depreciate equipment over its useful life, so a 100% bonus deduction on your return does not wipe out the asset on the balance sheet your surety reviews.
The cash side is different. Paying cash for equipment lowers working capital, and sureties watch working capital closely. Financing equipment can preserve working capital while still giving you the tax deduction. Talk with your surety and your tax advisor before a large year-end purchase.
Frequently Asked Questions
Is 100% bonus depreciation really permanent?
Yes. OBBBA made 100% bonus depreciation permanent for qualified property acquired after January 19, 2025. Congress can always change the law again, but there is no scheduled phase-down.
Can I take bonus depreciation on financed equipment?
Generally yes. The deduction depends on ownership and the placed-in-service date, not on whether you paid cash. Leases are different, so review lease terms with your advisor.
Does bonus depreciation apply to used equipment from another contractor?
It can, as long as the seller is not a related party and you have not used the equipment before. Keep the purchase documents showing an arm's length sale.
Talk to a Contractor Tax Specialist
Payless Taxes works with bonded commercial contractors from $5M to $50M in revenue nationwide. We plan equipment timing with your tax return and your surety financials in mind. Book a 30-minute call to review your purchases before year end.
This article is general information, not tax or legal advice. Tax rules change and depend on your specific facts. Talk with a qualified tax professional before acting.
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