The $2.5M Equipment Write-Off: How Contractors Can Use Section 179 and Bonus Depreciation to Keep More Cash in 2026

Let's get straight to it: if you're running a profitable construction business: general contracting, HVAC, roofing, concrete, whatever: and you're not maximizing equipment write-offs in 2026, you're leaving serious money on the table.

Thanks to the One Big Beautiful Bill Act (OBBBA), Section 179 just got a massive upgrade. We're talking about the ability to write off up to $2.56 million in equipment purchases in a single year. Combine that with the permanent 100% bonus depreciation that kicked in for purchases after January 19, 2025, and you've got a cash flow machine that most contractors are completely underutilizing.

This isn't about buying stuff just to get a deduction. This is about strategic tax planning that aligns your equipment needs with your wealth-building goals: something we bake into every Smith Wealth Accelerator strategy.

What Changed Under OBBBA? The New Section 179 Limits

Before OBBBA, Section 179 limits were decent but capped. Now, the baseline jumped to $2.5 million, with annual inflation adjustments bringing the 2026 limit to approximately $2.56 million. The phase-out threshold also increased to around $4.09 million in total equipment purchases.

Here's what that means in plain English: if your business buys up to $4.09 million in qualifying equipment in 2026, you can write off up to $2.56 million of it immediately. Beyond that threshold, the deduction starts phasing out dollar-for-dollar.

For most contractors in the $500K–$3M revenue range, this is a game-changer. You're likely not hitting that phase-out ceiling, which means you've got access to the full write-off: assuming you know how to structure it correctly.

How Section 179 and Bonus Depreciation Work Together

Here's where it gets tactical. Section 179 and bonus depreciation aren't mutually exclusive: they're complementary tools that, when used together, can maximize your tax return while keeping more cash in your business.

Section 179 is a line-item election. You pick specific assets: maybe that new excavator, fleet of work trucks, or specialized roofing equipment: and write them off immediately. The key limitation? Section 179 cannot create a net operating loss (NOL). It can only reduce your taxable income to zero.

100% bonus depreciation, on the other hand, applies broadly to all qualifying property placed in service after January 19, 2025. Unlike Section 179, it can create an NOL, which you can carry forward to future years. This makes it incredibly powerful for contractors who have lower-profit years or want to bank deductions for the future.

The IRS requires a specific order: Section 179 first, then bonus depreciation, then MACRS (traditional depreciation). This ordering matters for income-level planning, especially if you're trying to keep your taxable income within a specific bracket or avoid triggering alternative minimum tax (AMT) issues.

Real-World Application: Buying Equipment the Smart Way

Let's say you run an HVAC company that did $2M in revenue last year and netted $400K in profit. You've been eyeing a fleet upgrade: three new service vans and a couple of specialty diagnostic tools: totaling $180K.

Without proper accounting services and tax planning, you'd depreciate those vehicles over five years, taking around $36K per year in deductions. With Section 179 and bonus depreciation? You write off the entire $180K in 2026, dropping your taxable income to $220K. That's an immediate tax savings of roughly $60K–$70K, depending on your bracket and state tax situation.

Now multiply that across multiple equipment purchases: dump trucks, loaders, welding equipment, boom lifts: and you start to see how contractors can save hundreds of thousands in taxes by simply timing their purchases strategically.

Vehicles: The Heavy SUV and Truck Opportunity

One of the most overlooked opportunities? Heavy vehicles. Trucks, vans, and SUVs over 6,000 pounds gross vehicle weight qualify for significant Section 179 deductions: but only if business use exceeds 50% and you maintain proper mileage logs.

This is where a lot of contractors trip up. You can't just slap a company logo on your F-250 and call it a day. The IRS wants documentation: mileage logs, business-use percentages, and a clear paper trail showing the vehicle is primarily used for business operations.

If you're buying a heavy-duty truck in 2026, do it right. Keep a digital log, track every job site trip, and separate personal use. That discipline is what separates a legitimate write-off from an audit red flag.

Strategic Tax Planning vs. Just Buying Stuff for a Deduction

Here's the truth most contractors don't hear: buying equipment just for the tax deduction is a losing strategy. You're spending a dollar to save thirty cents. That's not wealth-building: that's cash burning.

The smarter approach? Align your equipment purchases with your business consulting strategy and operational growth plan. Ask yourself:

• Do I actually need this equipment to scale?

• Will it generate revenue or reduce labor costs?

• Does it improve efficiency or allow me to take on bigger projects?

• How does this purchase fit into my 3–5 year business plan?

Inside the Smith Wealth Accelerator framework, we don't just look at deductions: we look at how every dollar spent or saved aligns with your long-term wealth goals. That means coordinating equipment purchases with cash flow projections, profit margins, and even eventual exit planning if you're thinking about selling your business down the line.

Documentation and Timing: Don't Leave Money on the Table

The IRS doesn't mess around with equipment deductions. If you can't prove when you bought it, when it was placed in service, and how it's used, you're at risk of losing the write-off in an audit.

Create a simple tracking system for every purchase:

• Purchase order date

• Delivery date

• In-service date

• Business-use percentage (for vehicles)

Before year-end, conduct an equipment assessment. Identify what you're planning to buy, review whether any 2025 purchases can be retroactively claimed, and coordinate with your CPA to ensure your Section 179 and bonus depreciation elections align with your overall tax position.

Timing matters, too. If you're planning a big equipment purchase, don't wait until December 31st. Getting equipment delivered and placed in service before year-end is what qualifies it for the deduction. A purchase order isn't enough: the asset needs to be operational.

Why State Conformity Matters

Here's a curveball most contractors miss: not all states follow federal Section 179 rules. Some states cap deductions at lower amounts or require add-backs on your state return.

If you operate in multiple states or live in a state with high income taxes, you need to verify state-specific requirements. This is where professional tax planning becomes essential. A DIY approach might save you money on federal taxes but cost you thousands on the state level.

Virtual Tax Services for Busy Contractors

Let's be real: you don't have time to become a tax expert. You're running jobs, managing crews, bidding projects, and putting out fires. That's why we built our virtual tax services specifically for contractors who need high-level strategy without the hassle of in-person meetings.

We handle everything remotely: equipment purchase planning, depreciation elections, quarterly projections, and year-end optimization. You get proactive business consulting without disrupting your schedule.

The Bottom Line: Stop Overpaying and Start Building Wealth

Section 179 and bonus depreciation aren't just tax loopholes: they're wealth-building tools designed to reward businesses that invest in growth. But they only work if you use them strategically.

If you're a contractor earning $500K–$3M+ and you haven't reviewed your equipment purchasing strategy for 2026, you're likely overpaying by tens of thousands: possibly more.

The question isn't whether you can take advantage of these deductions. The question is whether you have a custom strategy that maximizes every dollar while keeping you compliant and audit-proof.

That's where we come in. At Smith Tax & Wealth Group, we don't just file your taxes: we build comprehensive tax strategies that align with your business goals, cash flow needs, and long-term wealth plan.

Ready to stop overpaying the IRS and start keeping more of what you earn? Let's build a custom tax strategy that turns your equipment purchases into cash flow advantages. Contact us today and let's get to work.