Heavy Equipment Tax Benefits: What to Know About Section 179

Heavy Equipment Tax Benefits: What to Know About Section 179
Heavy Equipment Tax Benefits: What to Know About Section 179
Author: Small Business Expert | March 23, 2023 | Topic: Used Equipment

Heavy Equipment Tax Benefits: What to Know About Section 179

If you've recently purchased heavy equipment or want to expand your construction business, you should know about the Section 179 Deduction. This deduction can save you hundreds of thousands of dollars on the equipment and software your business needs to grow in the coming year.

If the IRS tax code seems complicated and mysterious, this article will help. With this Section 179 information, you can determine whether your business qualifies and even estimate how much you can take off in a Section 179 tax deduction. Check out the guide below for the Section 179 tax benefits to know before buying heavy equipment.

What Is the Section 179 Tax Deduction?

Section 179 of the IRS tax code is a tax deduction that allows small and medium-sized businesses to deduct the purchase price of qualifying equipment or software from their taxes for the same tax year. This deduction enables companies to invest more in their growth upfront, leading to more business growth long term.

Here are a few of the top things you should know about the Section 179 Deduction:


1. Section 179 Is Flexible

The Section 179 Deduction is a flexible tax write-off that provides all kinds of benefits. For instance, you can deduct the purchase price for equipment or software whether you bought it outright or are leasing it. The deduction is also available for new and used equipment, which broadens your choices even more.


2. Section 179 Is Time-Based

To elect the Section 179 Deduction for the 2023 tax year, you must purchase or finance the equipment between January 1, 2023, and December 31, 2023. You must also put the equipment into service during the same year. Just buying a couple of bulldozers and keeping them in your warehouse won't get you the deduction.

Although businesses must use Section 179 for equipment or software purchased during the same tax year, you can also use the deduction every year.


3. Section 179 Promotes Small Business Growth

The United States government wrote this deduction into the tax law to incentivize growth among small businesses. Since the Section 179 Deduction came into effect, many small businesses have benefited from the freedom to invest in themselves. When even the smallest construction company takes advantage of the deduction, they get assistance to purchase more equipment and help themselves take on more business.

How the Section 179 Tax Deduction Works

Before the government included Section 179 into the tax code in 1958, it took longer to write off business assets because it was through depreciation. For example, if you purchased a piece of equipment for $80,000, you could only write off perhaps $10,000 a year until you reached the entire cost of the equipment. Many businesses would prefer to write off the whole cost in the first year to maximize their immediate savings. With Section 179, a company can do just that.

So how does the Section 179 tax deduction work? Follow these steps to take advantage of the deduction:


1. Purchase Equipment or Software

It's a good idea to calculate what a piece of equipment would cost you beforehand. You can use the Section 179 Deduction calculator to determine your tax savings. Then purchase the equipment or software your business needs, like heavy equipment, company vehicles and software.


2. Deduct the Cost

After you've purchased your equipment, use the Section 179 Deduction when you're completing your taxes for the year. To elect the Section 179 Deduction, fill out the IRS form 4562 and include it in your tax return. Your company's tax preparer can also assist you.


3. Save and Grow

With your deduction taken from your business's taxes, you can save money right away. A hefty deduction makes it easier for your company to do everything from paying for everyday expenses to taking out a loan. You also get to take advantage of new heavy equipment, giving you more business opportunities.

What Are the Limits of Section 179?

While the Section 179 Deduction is pretty flexible, there are also a few limitations to be aware of before you purchase any heavy equipment:


1. Deduction Limit

While you can elect Section 179 Deductions every year, there is a limit to how much you can deduct per tax year. The deduction limit for 2023 is $1,160,000.


2. Spending Cap

There is also a limitation on the amount your company can spend on equipment before the deduction is reduced. For 2023, this spending cap is $2,890,000. After a business spends this amount on qualifying equipment, the Section 179 Deduction phases out dollar by dollar. Once a business spends $4,050,000, the deduction runs out.


3. Qualifying Equipment

The types of qualifying equipment have been limited in recent years. However, businesses still have a wide range of choices for the types of equipment they can claim. For cars that are used for the company at least 50% of the time, the deduction limit is $11,160. Other qualifying equipment includes:

  • Heavy construction equipment.
  • Tractor-trailers.
  • Machines with an enclosed driver and cargo area and no seating behind the driver's seat.

You can also deduct software for your business, which must be:

  • Off-the-shelf, meaning it was not custom-designed.
  • Used for income-producing activities.
  • Expected to last longer than one year.

Heavy equipment and software are just some of the items you can deduct. Take a look at these examples of other goods that meet Section 179 Deduction requirements:

  • Computers
  • Improvements like HVAC systems, fire suppression and roofing
  • Manufacturing tools and equipment

Who Qualifies for Section 179?

Many businesses can benefit from Section 179 tax savings. You qualify for Section 179 if your company will purchase or lease new or used business equipment during the tax year. As long as you spend less than the limit of $4,050,000, you qualify for Section 179 tax savings.

Who Qualifies for Section 179?


People in the construction industry can significantly benefit from this deduction. You can write off anything that makes sense for your business, including:

  • Heavy equipment: Are you looking to broaden your company's capabilities? You can use Section 179 to save on heavy equipment or equipment attachments that give the machines you already have greater versatility.
  • Construction software: Technology is changing the construction industry, and products like fleet management technology or project management programs can keep your fleet organized and efficient.
  • Other business enhancements: You might purchase other qualifying equipment like company trucks, trailers for transporting equipment and office furnishings.

What's the Difference Between Section 179 and Bonus Depreciation?

Ordinarily, businesses can take a depreciation write-off over the useful life of their equipment. However, Bonus Depreciation allows companies to write off some or all of an equipment purchase during the same year they bought it. In 2023, Bonus Depreciation will enable businesses to deduct 80% of a purchase. Companies can also use Bonus Depreciation to purchase or lease new or used equipment.

If this sounds similar to the Section 179 Deduction, you're right — but there are a few key differences between the two write-offs:

  • Bonus depreciation is more beneficial for large businesses: Businesses can use Bonus Depreciation after exceeding the Section 179 Depreciation spending cap. This makes it possible for larger companies to continue saving on equipment.
  • Bonus depreciation can carry forward: Whereas Section 179 ends each tax year, Bonus Depreciation can be rolled over to a future year if a business has a net loss.

Find the Used Heavy Equipment You Need at Cat Used

Are you thinking of adding to your heavy equipment fleet? New machines aren't your only option. Your budget and hours of use might make used equipment the better decision. Buying used heavy equipment might also provide even more benefits from the Section 179 Deduction.

With used equipment from Cat Used dealers, you get construction equipment that delivers excellent performance and value you can trust. Our dealers inspect and appraise equipment before it goes up for sale to ensure you can focus on running your business. You also get exceptional dealer support from skilled teams who are there when you need answers, parts or other after-sales support.

Shop our used equipment online today or find a Cat® dealer near you!

Find the Used Heavy Equipment You Need at Cat Used

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Find the Used Heavy Equipment You Need at Cat Used
Find the Used Heavy Equipment You Need at Cat Used