Heavy Equipment Tax Depreciation: Section 179, Bonus & Recapture

Most heavy construction equipment is 5-year MACRS property, but few owners wait five years to write it off. Section 179 and 100% bonus depreciation let you deduct the full price of a new or used machine in the year you put it in service. The catch comes at the other end: when you sell, the depreciation you took is recaptured and taxed as ordinary income.

This post covers the tax side only: the methods, the 2026 limits, and recapture on sale. For how fast machines lose market value by type, age and hours, see the equipment depreciation guide. Tax rules change and depend on your situation, so confirm the numbers with your CPA.

Tax Depreciation Methods for Heavy Equipment

Tax depreciation is separate from market depreciation. It determines how fast you can write off the cost of equipment on your tax returns — and the right method can put tens of thousands of dollars back in your pocket in year one. Here are the four main approaches, per IRS Publication 946:

MACRS percentages use GDS 200% declining balance, half-year convention. Sources: IRS Pub. 946, Section179.org, CPCON Group.

MACRS Depreciation Schedule for Construction Equipment

The Modified Accelerated Cost Recovery System (MACRS) is the default IRS depreciation method for business property. Most heavy construction equipment falls under 5-year property (Asset Class 15.0, Construction), which means the cost is spread over six tax years using the 200% declining balance method with a half-year convention. Per CPCON Group's MACRS guide, here's the schedule:

Half-year convention: Year 1 gets a partial year (half). The remaining 5.76% deducts in Year 6. Source: IRS Publication 946.

MACRS is the baseline — what applies if you don't elect Section 179 or bonus depreciation. Most equipment buyers choose one of the accelerated methods below instead, because deducting the full cost in year one is almost always more advantageous than spreading it across six years.

Section 179 Deduction for Heavy Equipment in 2026

Section 179 lets you deduct the full purchase price of qualifying equipment in the year it's placed in service. For contractors and fleet operators, this is the most commonly used accelerated depreciation method. Here are the 2026 numbers, per Section179.org:

• 2026 deduction limit: $2,560,000. This is the maximum you can expense across all qualifying equipment in a single tax year.
• Phase-out threshold: $4,090,000. The deduction reduces dollar-for-dollar once total qualifying purchases exceed this amount. Full phase-out at $6,650,000.
• Eligible equipment: Both new and used. Excavators, bulldozers, wheel loaders, skid steers, compact track loaders, backhoes, dump trucks, and trailers all qualify.
• Financing eligible: Equipment purchased with loans or $1 buyout leases qualifies. FMV operating leases do not — instead, lease payments are deducted as a business expense. See our financing guide for a full breakdown of lease structures.

Section 179 Example: $200,000 Excavator

A grading contractor purchases a used Cat 320 excavator for $200,000, financing it with a $1 buyout lease at 7% over 5 years. The monthly payment is roughly $3,960. Under Section 179, they deduct the full $200,000 in year one. At a 30% effective tax rate, that's a $60,000 tax reduction — while their total out-of-pocket in year one is approximately $47,500 in lease payments. The tax savings exceed the first year's payments.

One constraint: Section 179 cannot create or increase a net operating loss (NOL). If your taxable income before the deduction is $150,000, you can only expense $150,000 under Section 179 that year. The remaining $50,000 carries forward. This is where bonus depreciation picks up the slack.

100% Bonus Depreciation: Permanently Restored for 2026

The One Big Beautiful Bill Act, signed in 2025, permanently restored 100% first-year bonus depreciation for qualifying tangible property with a MACRS class life of 20 years or less, acquired and placed in service after January 19, 2025. The IRS confirmed this in Notice 2026-11.

Without this legislation, bonus depreciation would have dropped to 20% in 2026 and 0% in 2027 under the original TCJA phase-down schedule. Per BDO's analysis, the permanent restoration means equipment buyers can plan with certainty — 100% first-year bonus depreciation is no longer subject to annual legislative renewals.

Key differences from Section 179:

• No dollar cap. Bonus depreciation has no annual limit. A contractor buying $5 million in equipment can deduct the full amount.
• Can create a net operating loss. Unlike Section 179, bonus depreciation can push you into a loss — and that loss carries forward to offset future income.
• Automatic. Bonus depreciation applies by default to all eligible property unless you elect out. Section 179 requires an election on your return.
• Both new and used. Per the TCJA changes retained in the OBBBA, used equipment purchased after September 27, 2017 qualifies for bonus depreciation — a change from pre-TCJA rules that limited bonus depreciation to new property.

What Is Depreciation Recapture When You Sell Equipment?

When you sell a machine you depreciated, the gain is taxed as ordinary income up to the amount of depreciation you took. Equipment is Section 1245 property, and IRS Publication 544 sets the ordinary-income portion as the lesser of (1) the depreciation allowed or allowable and (2) the gain on the sale. The depreciation that counts includes regular MACRS deductions, bonus (special) depreciation and the Section 179 deduction. The sale is reported on Form 4797.

If you expensed the whole machine in year one, its adjusted basis is zero, so nearly every dollar you sell it for is recaptured. That doesn't make Section 179 a bad deal. You still got the deduction years earlier, and a dollar of tax deferred is worth more than a dollar paid now. It does mean the sale price is not all yours to keep, and you should set money aside for the tax.

Trading a machine in doesn't avoid this. Since 2018, like-kind exchange treatment is limited to real property, so a trade-in is treated as a sale of the old machine. Plan big sales for a year when you also have a large purchase to deduct, and talk to your CPA before you sell. For market-side selling advice (hours, records, timing and where to sell), see the equipment depreciation guide and where to sell heavy equipment.

How Depreciation Should Inform Your Buying Decisions

Understanding depreciation changes how you think about equipment purchases. A piece of equipment isn't just a tool — it's a depreciating asset with a predictable cost curve. Factoring in depreciation at purchase time leads to smarter decisions:

• Buying used at 3-5 years saves the steepest depreciation. A 3-year-old excavator has already absorbed 35-40% depreciation. Buying at that point means your annual depreciation cost from years 3-7 is roughly 5-8% per year — far less than the 20-25% hit in year one. Run the inspection checklist before purchasing.
• New equipment makes sense when tax benefits close the gap. Expensing a $300,000 new machine in year one is worth about $90,000 in tax at a 30% rate, though part of it comes back as recapture when you sell. That can make the real cost of new equipment comparable to buying 2-3 years used once you factor in the full warranty, lower maintenance costs, and stronger financing terms.
• Total cost of ownership beats sticker price. Factor in purchase price, financing costs, maintenance, fuel consumption, insurance, and projected resale value. A machine that costs $20,000 more upfront but retains $30,000 more at sale is the better buy.
• Fleet rotation strategy. Some contractors buy new, take the Section 179 deduction, run the machine 3-5 years, and sell while resale value is still strong. Replacing a machine in the same year you sell one lets the new deduction offset the recapture on the old one.

Worked Example: Fleet Rotation

Consider a site-work contractor running five skid steers. In this hypothetical, they buy a new Cat 272D3 for $72,000, claim the full Section 179 deduction ($21,600 tax savings at a 30% rate), run it 4 years at 1,000 hours per year, and sell it for $38,000. The whole $38,000 is recaptured, about $11,400 of tax at the same rate. Net cost: $72,000 - $21,600 - $38,000 + $11,400 = $23,800 for four years of use, roughly $500 a month. The deduction doesn't make the machine free; it moves the tax to the year of sale.

Frequently Asked Questions About Equipment Depreciation