Tax Benefits of Buying Construction Equipment
There are several tax and business benefits to buying construction equipment.
Section 179 Tax Deduction
Section 179 is a tax deduction that allows businesses to deduct property, like construction equipment, as one sum in a tax year, rather than depreciating the cost of the asset over several years. That can mean hefty tax savings for the year!
In order to qualify for the Section 179 tax deduction, the piece of equipment must be used for more than 50% of business purposes. That means you can’t try to claim a deduction on a piece of personal property that you occasionally use in the business. You must also place the equipment into service during the year in which the deduction is claimed.
The 2025 deduction limit is $2.5 million, with phase-out starting at $4 million.
Bonus Depreciation
For equipment purchased and placed in service that same year, you may also qualify for bonus depreciation. For tax year 2025, you can write off up to 100% of the purchase price of the asset if acquired and placed in service after January 19, 2025.
In some instances, you may be able to combine bonus depreciation and section 179 deductions in the same year. Work with a Landmark CPA to determine the right tax strategy for your construction business.
Modified Accelerated Cost Recovery System (MACRS) Depreciation
If you don’t use Section 179 or bonus depreciation, you can instead depreciate equipment over its usable lifetime. This is an accelerated depreciation method, so you’ll see larger deductions in the first few years of an asset’s lifespan, with a gradual fade out. Several factors go into calculating MACRs depreciation. We recommend working with your CPA to accurately calculate this.
Asset Ownership
If you go the purchase route, that construction equipment becomes a business asset, potentially increasing the value of your business. This can be helpful if you are considering selling your business one day.
Interest Deduction on Financing
Purchasing construction equipment requires either a large up-front cash investment or financing. If financed, you will be paying interest. The good news is that interest on loan repayment can often be deducted as a business expense. However, prior to taking out a business loan, it’s important to discuss with your CPA the tax implications of financing.
Tax Benefits of Leasing Construction Equipment vs. Buying
While purchasing construction equipment outright can have tax benefits, leasing equipment vs. buying also provides some tax and cashflow benefits.
Deductible Lease Payments
Monthly or annual lease payments are typically 100% deductible as an operating expense if the lease is considered an “operating lease.” CAUTION – special leasing arrangements known as “capital leases” are treated as if you purchased the asset, so be sure you know which type of lease you have. We recommend working with your CPA to review your lease documents so they are properly categorized.
No Depreciation Complexity
Because you don’t own the asset, your accounting will be a bit more straightforward as you won’t need to deal with the complexities of depreciation.
Manageable Cashflow
Because you won’t be dropping a large sum of money or taking out a loan to purchase, leasing can be a more cashflow-friendly option.
Work with a CPA firm that specializes in the construction industry
We serve more than 150 construction clients each year, meaning we know the unique tax situations contractors and construction companies face, including leasing equipment vs. buying. Get in touch with us here.
