QUICK ANSWER
For tax year 2026 a business can expense up to $2,560,000 of qualifying equipment under Section 179, with that limit reduced dollar for dollar once more than $4,090,000 of qualifying property is placed in service, and 100 percent bonus depreciation is now permanent for qualified property acquired after 19 January 2025. For a contractor doing between $1M and $20M in revenue, neither of those ceilings is the binding constraint. Three things decide the deduction: whether the equipment is placed in service and ready for use by 31 December, whether the business has enough taxable income to absorb a Section 179 election, and whether the purchase made operational sense before the tax question came up.
The limit everyone quotes is not the one that applies to you
Every December a contractor forwards us an email from an equipment dealer with the Section 179 limit in the subject line. For 2026 that figure is $2,560,000, and the limit begins to phase out once a business places more than $4,090,000 of qualifying property in service during the year. Both numbers come from the IRS revenue procedure that set the 2026 inflation adjustments, so they are correct.
They are also, for most of the contractors we work with, beside the point. A firm running eight to forty crews is not buying $2.5M of equipment in a year. Quoting a ceiling nobody is near makes the deduction sound bigger than it is and moves the conversation away from the three constraints that actually bite. We would rather tell you the number does not apply to your business than let you plan around it.
Placed in service, not paid for
The constraint that catches people is timing, and it is not the timing they assume. A deduction does not follow the invoice date or the date the deposit cleared. The asset has to be placed in service, meaning ready and available for its intended use, by 31 December. A skid steer that is paid for on 22 December and sits on a dealer lot until the second week of January is a 2027 deduction, whatever the receipt says.
This matters more in construction than in most industries because of lead times. Ordering specialist equipment in late November and expecting it to land before year-end is a bet on a supply chain you do not control. If the deduction is part of why you are buying, the delivery date needs to be in writing, and the equipment needs to be on your yard and operable, not in transit. Financing does not change this. Equipment bought on a loan is still placed in service when it arrives and works, and the deduction is not reduced because you have only made one payment.
Taxable income is the real ceiling
Section 179 cannot create or increase a loss. The deduction is limited to the taxable income from the active conduct of your trade or business, and anything above that is carried forward rather than lost. For a contractor who had a hard year, which in construction often means a year with revenue but thin margin, this is the constraint that decides the answer. You can buy the excavator and still find that the deduction you were promised sits on a carryforward schedule instead of on this year’s return.
Bonus depreciation behaves differently, which is why the two get used together rather than interchangeably. It is not limited by taxable income in the same way, so it can push a business into a loss. Whether that is useful depends on what else is on the return and what you expect next year to look like, and that is a conversation about your numbers rather than a rule we can write down here.
The December rush lost its reason
For most of the last decade, bonus depreciation was scheduled to step down, and the urgency in every year-end equipment pitch was real: buy before the percentage drops. That pressure is gone. One hundred percent bonus depreciation is now permanent for qualified property acquired after 19 January 2025, confirmed in IRS guidance on the additional first year depreciation deduction. The rate is not falling next year.
That changes the December conversation. If the only argument for buying a $180,000 piece of equipment in the last two weeks of the year is a deduction that will be available on identical terms in March, the deduction is not an argument. It is a reason to buy equipment you were going to buy anyway slightly earlier, which is a cash flow decision, not a tax one. We say this knowing it costs us the easiest year-end phone call in the business. A contractor who buys the wrong machine for a real tax saving has still bought the wrong machine.
The sequence worth following
When an owner asks us whether to buy before year-end, we work through the same five questions in the same order. The order is the point, because starting at the deduction produces a different answer than starting at the work.
- Does the work require it? If the equipment is not tied to a job you have won or a bottleneck you can name, stop here. Everything below assumes a yes.
- Can it be delivered and operable before 31 December? Get the date in writing from the dealer. If it cannot, you are planning a 2027 deduction, and that is fine as long as you know it.
- What is the projected taxable income for the year? This sets the ceiling on what a Section 179 election can actually absorb. Your bookkeeper can produce this figure in an afternoon if the books are current, and cannot produce it at all if they are not.
- What does the purchase do to cash in Q1? Construction cash is tightest in the first quarter. A deduction that lands in April does not pay a payroll run in February.
- What does next year look like? If you expect a materially better year in 2027, taking the deduction against a weaker 2026 may be the wrong trade even when it is available.
Three 2026 changes that are easy to miss
Equipment gets the attention, but three other changes land on a construction business this year and next, and two of them touch paperwork rather than purchases.
→ The reporting threshold for payments made in the course of a trade or business rose from $600 to a base of $2,000 for payments made after 31 December 2025. For a contractor paying a long list of small subs, this meaningfully reduces the 1099 pile for the forms you will issue in early 2027. The base amount is subject to inflation adjustment for returns filed in calendar year 2027, so confirm the final figure before your bookkeeper sets a threshold in QuickBooks.
→ W-2s, 1099-NECs, Form 940 and the Q4 941 are all due 31 January 2027, which falls on a Sunday. The next business day rule applies, so the working deadline is Monday 1 February 2027. Build the file to the Friday before, not to the Monday.
→ The energy efficient commercial buildings deduction under Section 179D was terminated for property the construction of which begins after 30 June 2026. If you have an energy retrofit in planning, the start date of construction is what governs, not when the property is placed in service. This is a detail that gets reported incorrectly often enough to be worth checking against the statute.
What to do in the next three weeks
The useful work in late October is not the purchase decision. It is getting into a position where the purchase decision can be made on evidence in early December rather than guessed at on 23 December. That means three things: books closed through September, a job-level view of which work actually made money this year, and a projected taxable income figure you believe. None of that is a tax exercise. It is the same reporting that tells you how to bid the next job.
Contractors who get this wrong rarely get it wrong because they misread a rule. They get it wrong because nobody could tell them what their taxable income was going to be until the return was being prepared, by which point every decision that depended on the answer had already been made or missed.
Frequently asked questions
What is the Section 179 limit for 2026?
For tax year 2026 the maximum amount a business can elect to expense under Section 179 is $2,560,000. That limit is reduced, but not below zero, by the amount by which the cost of qualifying property placed in service during the year exceeds $4,090,000. The cost of a sport utility vehicle taken into account under Section 179 is capped separately at $32,000 for 2026.
Can I still deduct equipment I buy in December?
Only if it is placed in service by 31 December, meaning delivered, set up and ready for its intended use. The payment date and the invoice date do not control. Equipment ordered in December and delivered in January is a next-year deduction. Get the delivery date in writing before the tax outcome becomes part of your reason for buying.
Do I still have to send a 1099 for payments under $600?
For payments made after 31 December 2025 the base reporting threshold under Section 6041 rose from $600 to $2,000, so the forms you issue in early 2027 follow the higher figure. The base amount is subject to inflation adjustment for returns required to be filed in calendar year 2027, so confirm the exact number before year-end rather than assuming $2,000 flat.
NEXT STEP
Highpoint Advisory Services is a Schaumburg-based CPA and advisory firm working with owner-led construction businesses across Chicagoland. If you are weighing an equipment purchase before year-end and do not have a taxable income figure you trust, that is the thing to fix first, and it is usually a bookkeeping problem rather than a tax one. Bring it to a call and we will tell you what we see in your numbers. You can expect an answer to your questions within 24 to 48 hours.
Schedule a free 30-minute consultation at highpointadvisoryservices.com/contact, or ask about the Highpoint Financial Blueprint.