Maximize Your Tax Savings in 2025 with Section 179 and Bonus Depreciation
If you’re in the construction industry, you already know the value of investing in top-quality equipment. But here’s something you might not know: buying new machinery could come with substantial tax savings. Enter the Section 179 deduction for 2025 … it’s a powerful tax incentive designed to improve cash flow and fuel business growth.
In this blog, we’ll unpack everything you need to know about Section 179, bonus depreciation, and how these tax benefits can work to your advantage.
What is the Section 179 Tax Deduction?
Section 179 of the Internal Revenue Code allows businesses to deduct the full purchase price of qualifying equipment or software in the year it’s put into service. Instead of spreading out deductions over several years through traditional depreciation, you can claim the entire expense upfront. For businesses, this means that investments in machinery like crushers, screeners, or shredders can help you save a lot on your tax bill.
2025 Section 179 Deduction Limits
Key limits for the 2025 tax year under Section 179 are designed to encourage businesses to invest in equipment by offering significant tax benefits. Here’s a detailed breakdown of the key limits:
- Maximum Deduction: Businesses can deduct up to $1,250,000 on qualifying equipment purchases in the 2025 tax year. This limit allows companies to write off a substantial portion of their equipment expenses instead of depreciating the cost over several years. It’s a powerful incentive for businesses looking to upgrade or expand their operations.
- Phase-Out Threshold: The deduction begins to phase out once total equipment purchases exceed $3,130,000. For every dollar spent over this limit, the available deduction is reduced dollar-for-dollar. Once total equipment purchases reach $4,380,000, the deduction phases out entirely. This threshold is designed to benefit small to mid-sized businesses over larger companies with higher equipment budgets.
- Eligible Equipment: Both new and used equipment are eligible for the deduction as long as the items are new to the business. This includes a wide range of equipment, such as heavy machinery, office furniture, computers, and even some software. Vehicles used for business purposes may also qualify, provided they meet specific IRS requirements.
- Business Use Requirement: To qualify for the deduction, equipment must be used more than 50% of the time for business purposes. Personal use of the equipment may disqualify it or reduce the deduction amount, so it’s essential to maintain clear records demonstrating business usage.
Consulting a tax professional is essential to ensure your equipment purchases comply with eligibility requirements and to gain clarity on how phase-out thresholds may impact your situation. Their expertise can help you navigate these complexities with confidence.
What is Bonus Depreciation?
Bonus depreciation is a U.S. tax incentive that allows businesses to write off a percentage of qualifying asset costs in the year they are purchased. It differs from the Section 179 deduction because it has no spending cap or income limits, making it particularly beneficial for larger businesses.
Bonus Depreciation in 2025
For 2025, the bonus depreciation rate is 40%. Unlike Section 179, bonus depreciation has no spending limit, making it advantageous for businesses with substantial equipment expenditures. However, it's important to note that bonus depreciation is scheduled to phase out in the coming years, decreasing to 20% in 2026 and 0% in 2027. Data from thetaxadviser.com
Comparing Section 179 and Bonus Depreciation
Strategically combining Section 179 and bonus depreciation can maximize deductions, especially when planned in accordance with the business's financial situation.
Section 179 example
Let’s take a look at the tax savings on a $250,000 rock crusher when you apply the 2024 Section 179 deduction. Assuming you are in a tax bracket near the national average of 21%, the example Section 179 tax calculations are as follows:
As you can see, after-tax savings can be very powerful! If the $250,000 rock crusher was financed for approximately $4,200/month, the same tax scenario above would apply. You are allowed to deduct the full purchase price of the crusher, as long as it is placed in service in that tax year.
The example above is only an example. Section 179 deductions have the power to increase cash flow for your business but it is important to note that every business and tax scenario is different and depends on a range of factors. You should always consult a tax professional who is qualified to give you financial advice before filing a Section 179.
Example: Maximizing Tax Deductions in 2025 with Section 179 and Bonus Depreciation
Consider a construction company that purchases $3,000,000 worth of new machinery in 2025:
- Section 179 Deduction: Deduct the maximum $1,250,000.
- Bonus Depreciation: Apply 40% bonus depreciation to the remaining $1,750,000, resulting in an additional deduction of $700,000.
Total First-Year Deduction: $1,950,000
Assuming a 35% tax bracket, this equates to $682,500 in tax savings, significantly reducing the net cost of the equipment.
5 Benefits of Section 179 for Construction Companies
- Immediate Cash Flow Improvement: Section 179 tax deductions let businesses reduce taxable income upfront, freeing up capital for reinvestment in areas like marketing, hiring, or expansion. Instead of waiting for depreciation, financial benefits are realized in the same year.
- Increased Operational Capacity: Upgrading to high-performing equipment boosts efficiency, reduces downtime, and improves productivity. This helps businesses scale, handle larger projects, and stay competitive with top-tier tools.
- Regulatory Compliance: Newer equipment meets modern safety and environmental standards, reducing compliance risks, improving workplace safety, and enhancing reputation with eco-conscious clients.
- Flexibility in Equipment Choices: Section 179 allows deductions on both new and used equipment, giving businesses the freedom to choose tools that match their needs and budget.
- Financing Advantages: Businesses can claim the full tax deduction for financed equipment even if payments are spread over time. This improves cash flow while supporting growth and operational needs.
Investing in heavy machinery isn’t just about upgrading your fleet … it’s also an opportunity to make your business more competitive, efficient, and profitable.
Steps to Claim the Section 179 Deduction
If you want to take advantage of the Section 179 tax deduction, there are a few steps you’ll need to follow. Here’s what you need to do to ensure you qualify:
- Speak to a Tax Professional: Before making any equipment purchase, it’s crucial to consult a registered tax professional, especially if you’re considering utilizing the Section 179 tax deduction. While Section 179 can offer significant benefits, it’s not suitable for every business. A tax professional can help you determine if it aligns with your specific needs and circumstances, ensuring you make an informed decision.
- Purchase and Place Equipment into Service: Ensure the equipment is operational by December 31, 2025.
- Confirm Eligibility: Verify that the equipment qualifies under IRS guidelines and is used predominantly for business.
- Maintain Detailed Records: Keep documentation such as invoices, proof of payment, and usage logs.
- File IRS Form 4562: Include Form 4562 with your tax return to claim the deduction.
7 Common Mistakes to Avoid with Section 179
When it comes to taking advantage of Section 179 tax deductions, small missteps can lead to missed savings or even compliance issues. Here are some common mistakes to avoid:
1.Exceeding the Spending Limit
Section 179 has a limit on the total amount you can deduct. For 2025, the phaseout threshold begins at $3,130,000. Purchases exceeding this threshold will reduce your deduction, so keep track of your investments.
2. Ignoring Eligibility Requirements
Not all equipment qualifies for Section 179. Ensure the assets you’re deducting meet the criteria, such as being used for business purposes more than 50% of the time and being placed into service during the same tax year.
3. Forgetting About Depreciation
While Section 179 allows you to deduct the full cost of equipment upfront, some businesses may benefit more from spreading out deductions using regular depreciation. Always evaluate which approach makes the most sense financially.
4. Overlooking Used Equipment
Many businesses think Section 179 only applies to new equipment, but used equipment also qualifies as long as it’s “new to you.” Don’t miss out on this opportunity.
5. Neglecting State and Local Rules
Not all states follow federal Section 179 guidelines. Make sure to research state-specific rules to avoid surprises.
6. Failing to Plan for Cash Flow
Even with tax savings, you need to ensure your business can afford the up-front costs of purchasing equipment. Poor cash flow planning can lead to financial strain.
7. Misclassifying Expenses
Section 179 only applies to tangible business property, such as machinery, vehicles, or software. Don’t mistakenly include items which are not eligible.
By understanding and avoiding these common pitfalls, you can maximize the benefits of Section 179 and ensure compliance with tax laws. Always consult a tax professional to make the most informed decisions for your business.
Frequently Asked Questions on Section 179 Tax Deduction
What equipment qualifies for Section 179?
Qualifying equipment includes machinery like crushers, excavators, screeners, skid steers, bulldozers, office equipment, software, and certain vehicles over 6,000 lbs GVWR (gross vehicle weight rating).
What if my income is insufficient to utilize the full deduction?
If the deduction exceeds your taxable income, the unused portion can be carried forward to future tax years.
How does Section 179 impact small and mid-sized businesses?
Designed to benefit small and mid-sized businesses, the deduction phases out after $3,130,000 in equipment purchases, targeting companies with moderate investment levels.
Can I use Section 179 for used equipment?
Yes, Section 179 allows for the deduction of both new and used equipment, as long as the equipment is purchased and put into service during the tax year and meets the other eligibility requirements.
Are there any items that do not qualify for the Section 179 deduction?
Certain items like land, land improvements, and inventory do not qualify for Section 179. Additionally, property used outside the U.S. or for personal purposes is also excluded.
Can leased equipment qualify for Section 179?
It depends. If the lease agreement involves a capital lease where ownership transfers to you at the end, the equipment may qualify. However, operating leases generally do not qualify.
Do I need to take Section 179 all at once?
No, Section 179 can be applied to part of the cost of the equipment. This flexibility allows businesses to tailor the deduction to their current taxable income and financial strategy.
What happens if I exceed the annual limit?
If your equipment purchases exceed the annual limit, you won’t lose the benefit entirely. Instead, the excess may be eligible for regular depreciation and spread out over several years.
How can I use Section 179 with Machinery Partner?
Section 179 and bonus depreciation in 2025 offer a valuable opportunity for construction companies and heavy machinery owners to reduce their tax burden, improve cash flow, and upgrade their equipment. With a maximum deduction of $1,250,000 and the ability to combine with 40% bonus depreciation for 2025, these tools are essential for any business investing in capital equipment this tax year.
Start exploring your options now to make sure your purchases qualify. Need help navigating your equipment needs? At Machinery Partner, we excel at helping construction professionals source the best machines for their jobs while maximizing the tax benefits they can gain. Reach out today 888-297-0623 and take the next step toward growing your business.
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