Section 179 is a part of the US Internal Revenue Code that allows you to write off the entire purchase of new-to-you (new or used) equipment the year it was purchased. No need to depreciate it over multiple years.
Section 179 is limited to a maximum deduction of $1,050,000 and a value of property purchased to $2,620,000 for the year 2021.
Imagine that you purchased a used loader for $100,000. The typical depreciation schedule for a machine like this is 7 years or $14,285 per year. Section 179 would instead allow you to write off the entire $100,000 purchase in the current year.
Almost all heavy construction equipment is eligible. Other purchases must follow these guidelines:
You can purchase a new or used heavy construction vehicle, but the business must buy the machinery at an arm’s length transaction. This type of transaction means the buyer and seller are acting independently. This independence ensures both parties are working out of their self-interest. The vehicle can be purchased in cash or financed and should be under the company’s name and not the company owner’s name. The vehicle should also be used for business purposes at least 50 percent of the time.
Finally, remember you can only claim your tax deduction under Section 179 in the tax year where the vehicle is ready and available for service. This clause holds even if your company is not using the vehicle.
Section 179 is an excellent way to save on vehicle purchases for your construction business, so make sure to use it when you can.