Buy a $50,000 piece of equipment, and the IRS lets you deduct it over five to seven years — or with the right election, deduct most of it in year one. Two accelerated methods exist. They overlap, they differ, and the choice affects your tax bill substantially.
Buy a $40,000 utility trailer. Without acceleration, you’d depreciate over 5 years — $8,000/year. With acceleration, you can deduct most or all of $40,000 in year one. For a contractor in a 30% combined bracket, that’s $12,000 in immediate tax savings instead of $2,400.
An election that says “treat this equipment purchase as immediate expense, not multi-year depreciation.” For 2024, up to ~$1.16 million in Section 179 deductions.
What qualifies: tangible personal property used more than 50% in business (trucks, trailers, tools, computers, office furniture), off-the-shelf software, certain qualified improvements to non-residential real property, SUVs and trucks with GVWR over 6,000 lbs (capped at $30,500 in 2024).
Critical limit: Section 179 cannot create or increase a business loss. If you have $80k net income and try to take $120k in Section 179, you can only take $80k — the rest carries forward.
You can deduct a percentage of qualifying property in year one. Bonus depreciation can create a loss (preserved as NOL). Bonus depreciation is automatic — opt out if you don’t want it.
The IRS lets you stack: Section 179 first (within loss limit) → bonus depreciation on remaining cost → regular MACRS on what’s left.
Example: contractor buys $200,000 equipment. Net business income before depreciation: $250,000. Section 179 election: $200,000 expensed entirely year one. Done. Alternative without Section 179: 60% bonus on $200k = $120k + regular MACRS on $80k ≈ $16k = $136k year one. Section 179 wins here.
But if net income is only $50k: Section 179 maxes at $50k. Bonus depreciation on $200k at 60% = $120k, creating a $70k NOL that offsets other income. Bonus wins.
The “luxury auto” depreciation caps limit deductions on a vehicle to ~$20,400 year one (2024) unless the vehicle has GVWR over 6,000 pounds. Then it escapes the caps.
For a $90,000 work truck used 90% for business: Section 179: $30,500 (SUV cap). Bonus depreciation on remaining $50,500: $30,300 (60% in 2024). MACRS on remaining $20,200: ~$4,040. Year-one deduction: ~$64,840. Compare to non-qualifying passenger vehicle: $20,400.
F-150 SuperCrew (some trims over 6,000 lbs), F-250/F-350, Chevy Silverado 2500/3500, Ram 2500/3500, Ford Transit cargo vans, Mercedes Sprinter, Chevy Express. Check the door-jamb sticker for actual GVWR.
Federal Section 179 and bonus depreciation are not always honored at the state level. California allows Section 179 up to only $25,000 and doesn’t allow bonus depreciation at all. Check your specific state.
For most contractors in profitable years: Section 179 first up to your income, then bonus on the rest. For loss or low-income years: skip Section 179, rely on bonus depreciation (loss has value through NOL carryforwards).
Foad is a federally licensed Enrolled Agent who writes about tax and bookkeeping for small businesses.