Construction Company Deducts $890K in Equipment via Section 179 + Bonus Depreciation

The Problem

This client operated a heavy construction and excavation company generating $3.8M in revenue with $620,000 in net S-Corp income. The company had purchased $890,000 in heavy equipment during the tax year: two excavators ($280,000 combined), a bulldozer ($185,000), three dump trucks ($240,000 combined), a skid steer ($65,000), and various specialized attachments and tools ($120,000). The prior CPA was depreciating all equipment over 5-7 year MACRS schedules, producing only $178,000 in first-year depreciation.

The CPA was unaware that the Section 179 deduction limit for 2026 was $1,250,000 (adjusted for inflation) and that 100% bonus depreciation was available under the One, Big, Beautiful Bill Act for property placed in service through 2029. By electing Section 179 and/or bonus depreciation, the entire $890,000 could be deducted in Year 1 rather than spread over 5-7 years. This would effectively eliminate the company's $620,000 net income and create a $270,000 net operating loss that could be carried forward under IRC §172.

AE Tax Strategy

1. Section 179 Election Under IRC §179

We elected Section 179 expensing on $620,000 of the equipment purchases — the amount needed to offset the company's net income to zero. The Section 179 deduction is limited to the taxpayer's taxable income from active trades or businesses, so we elected exactly the amount needed to reach zero. The remaining $270,000 in equipment was deducted using 100% bonus depreciation under IRC §168(k), which has no taxable income limitation and can create a net operating loss.

2. Bonus Depreciation on Remaining Equipment Under IRC §168(k)

The $270,000 deducted under bonus depreciation created a net operating loss of $270,000. Under IRC §172 (as modified by the TCJA), NOLs generated in tax years beginning after December 31, 2017 can be carried forward indefinitely but are limited to 80% of taxable income in the carryforward year. We projected the NOL would offset approximately $216,000 in taxable income in the following year (80% of the projected $270,000 in net income), producing approximately $75,600 in additional tax savings at the 28% effective rate.

3. Listed Property Documentation and Compliance Under IRC §280F

Because some equipment could potentially be classified as listed property under IRC §280F (vehicles and equipment susceptible to personal use), we implemented a contemporaneous mileage and usage logging system. Each dump truck and vehicle was tracked with GPS-based usage logs documenting business versus personal use. The logging system substantiated 95%+ business use on all vehicles, ensuring the Section 179 and bonus depreciation deductions would withstand audit. We also prepared a fixed asset schedule with detailed descriptions, serial numbers, dates placed in service, and cost documentation for each piece of equipment.

Before & After Comparison

Tax Category	Before	After	Savings
Standard MACRS Depreciation	$178,000	$0	$178,000
Section 179 Deduction	$0	$620,000	$620,000
Bonus Depreciation	$0	$270,000	$270,000
Total Year 1 Deduction	$178,000	$890,000	$712,000
Total	$178,000	$890,000	$890,000 (Year 1 deduction)

Key Takeaways

• Section 179 allows full first-year expensing of qualifying equipment up to the annual limit ($1,250,000 for 2026), subject to a taxable income limitation that can be managed by splitting deductions between Section 179 and bonus depreciation.
• Bonus depreciation under IRC §168(k) has no taxable income limitation and can create net operating losses, making it the preferred method for deductions exceeding active business income.
• Construction equipment including excavators, bulldozers, dump trucks, and specialized tools all qualify for both Section 179 and bonus depreciation.
• Listed property rules under IRC §280F require contemporaneous usage logs for vehicles and equipment susceptible to personal use — GPS-based tracking systems provide the strongest documentation.