Section 179 lets a business deduct the cost of qualifying equipment in the year it's put in service instead of over several years. That's why equipment searches and dealer calls jump in November and December.
In this article
What Section 179 is
A tax rule that lets you deduct the full cost of qualifying equipment, vehicles and some software in the year you start using it, up to a yearly limit. The limit and the rules change, so always check the current numbers.
Placed in service by December 31
Buying isn't enough. The equipment has to be delivered and ready to use on the job by the end of the year. A machine stuck at the dealer doesn't count.
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Buy only what you need
The deduction lowers taxes, but it doesn't make the purchase free. If the equipment won't earn its keep, the tax break doesn't fix that.
Financing
Many contractors finance and still take the deduction in the same year. Compare the payment with the tax savings and the work the machine will bring.
The cash flow trap
Spending cash in December to save on taxes can leave you short in January and February, when work is slower. Keep enough to cover payroll.
Talk to your CPA early
Bring your profit numbers in November, not the last week of December. Your CPA can tell you if the purchase makes sense this year or next.
A quick example
A site work contractor planned to buy a new excavator in December. The CPA showed the deduction was worth less than expected that year, so the company financed it in March instead, when the work started.
Where to start
Ask your accountant for a year-end estimate this month and list the equipment you actually need for next season.
Common mistakes
Buying for the tax break alone, taking delivery in January and draining the cash you need for the slow months.
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Frequently asked questions
Does financed equipment qualify for Section 179?
In general, yes, as long as it is bought and placed in service in the tax year. Limits and rules change, so confirm the details for your situation with your CPA before buying.