Section 179 for Contractors vs Bonus Depreciation in 2026
Section 179 for contractors and 100% bonus depreciation can both let you write off a new excavator in the year you put it to work. So why does the choice matter? Because the two rules have different limits, different effects on losses, and sometimes very different state results. Picking the wrong one can leave deductions stuck or create a state tax bill you did not expect.
This guide walks through the 2026 numbers and gives a simple way to decide.
Section 179 for Contractors: The 2026 Numbers
For tax years beginning in 2026, the Section 179 rules are:
Maximum deduction: $2,560,000.
Phase-out: once Section 179 property placed in service during the year exceeds $4,090,000, the maximum drops dollar for dollar. At $6,650,000 of purchases ($4,090,000 plus $2,560,000), the deduction is fully phased out.
Business income limitation: the Section 179 deduction cannot exceed your taxable business income. It cannot create a loss. Any amount disallowed by this limit carries forward.
SUV cap: SUVs over 6,000 lbs GVWR are capped at $32,000 of Section 179 for 2026.
Most contractors between $5M and $50M in revenue will not hit the phase-out. A large equipment year, though, can get close, especially for site work and heavy civil firms.
How Bonus Depreciation Compares
Bonus depreciation is now 100% and permanent for qualified property acquired after January 19, 2025, new or used. Compared with Section 179:
No dollar cap. Bonus has no annual maximum and no phase-out.
Can create a loss. Bonus can push taxable income below zero. Individual owners are still subject to the excess business loss limitation, and the excess carries forward as a net operating loss.
All or nothing by class. Bonus applies to all qualified property in a class unless you elect out for that class. Section 179 can be chosen asset by asset, and even for part of an asset's cost.
Separate from the SUV cap. The $32,000 SUV limit applies to Section 179 only. Bonus is separate.
Example: Hitting the Phase-Out
A heavy civil contractor places $4,500,000 of qualifying equipment in service in 2026.
Amount over the phase-out threshold: $4,500,000 minus $4,090,000 = $410,000.
Reduced Section 179 maximum: $2,560,000 minus $410,000 = $2,150,000.
The contractor can still deduct the rest through bonus depreciation. In this case, bonus alone could expense the full $4,500,000, so the phase-out matters mainly if the state follows Section 179 but not bonus.
Example: The Income Limitation
A mechanical subcontractor expects $300,000 of business income before equipment deductions and buys $500,000 of service vans and fabrication equipment.
Using Section 179 (after electing out of bonus): if Section 179 is elected on the full $500,000, the deduction is limited to $300,000, bringing income to zero. The other $200,000 carries forward to future years.
Using bonus depreciation: the full $500,000 can be deducted, creating a $200,000 business loss, subject to the excess business loss rules for the owners.
Which is better? If the owners have other income to offset, or the company expects a loss carryforward to be useful soon, bonus may fit. If they would rather keep income at zero and hold deductions for a stronger year, Section 179 does that cleanly.
When to Pick Which
There is no single right answer, but these patterns come up often on commercial contractor returns.
Section 179 tends to fit when
Your state follows Section 179 but limits or disallows bonus depreciation.
You want to expense some assets and depreciate others in the same class.
You want to deduct only enough to bring income to a target level, such as the top of a lower bracket.
Bonus depreciation tends to fit when
Your purchases are large enough to bump into the Section 179 cap or phase-out.
Business income is low this year and you are comfortable creating a loss.
Your state follows federal bonus, so there is no add-back to manage.
Using both together
Many contractors use both. A common order is to take Section 179 on selected assets first, then let bonus depreciation cover the rest. Your tax advisor can model the combination that best fits your federal and state picture.
Watch the Details
A few rules apply no matter which method you choose:
Placed in service by December 31. Ordering or paying for equipment is not enough. It must be delivered and ready for use.
Business use over 50%. For vehicles and other listed property, business use must exceed 50% and must be documented.
Related parties. Buying equipment from a company you control usually does not qualify.
Qualified improvement property. Interior, non-structural improvements to your own nonresidential office or shop are 15-year property and bonus eligible, which can be useful if you are building out a new space.
A year-end scenario
Picture a concrete subcontractor in early December. The owner wants a new boom pump, but the dealer quotes a January delivery. A comparable used unit from an unrelated contractor is available now. If the used pump is delivered and ready to work by December 31, it can qualify for this year under either Section 179 or bonus. The new pump, arriving in January, would be a next-year deduction no matter which method is chosen. Delivery dates often matter more than the method itself.
How This Connects to Your Bonding
Neither Section 179 nor bonus depreciation changes the depreciation on your reviewed or audited financial statements. Your surety will still see the equipment on the balance sheet, depreciated over its useful life.
What sureties do notice is how you paid for it. A $500,000 cash purchase reduces working capital dollar for dollar. Financing can keep working capital steady while you still take the tax deduction. Plan large purchases with both your tax and bonding goals on the table.
Frequently Asked Questions
What is the Section 179 limit for 2026?
For tax years beginning in 2026, the maximum Section 179 deduction is $2,560,000. It phases out dollar for dollar once qualifying purchases exceed $4,090,000.
Can Section 179 create a loss for my construction company?
No. Section 179 is limited to your taxable business income. Any disallowed amount carries forward. Bonus depreciation, by contrast, can create a loss.
Is it better to use Section 179 or bonus depreciation on a work truck?
For a truck over 6,000 lbs GVWR used more than 50% for business, both can work. Bonus has no dollar cap. Section 179 may be better in a state that does not follow bonus. Note the $32,000 Section 179 cap applies to SUVs.
Talk to a Contractor Tax Specialist
Payless Taxes works with bonded commercial contractors from $5M to $50M in revenue nationwide. We model Section 179, bonus depreciation, and state rules together before you buy. Book a 30-minute call to map out your 2026 equipment plan.
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.
Comments