Section 179 for Contractors: What Actually Qualifies

Section 179 lets a business deduct the full purchase price of qualifying equipment in the year it's placed in service, instead of depreciating it over several years. For a contractor buying a new service truck, a fleet vehicle, or a season's worth of tools and equipment, that can mean the difference between a deduction spread out over five to seven years and one taken entirely against this year's income.

The deduction has an annual dollar cap and a phase-out threshold that both adjust for inflation — for tax years beginning in 2026, the maximum Section 179 deduction is $2,560,000, with the phase-out beginning once total qualifying purchases exceed $4,090,000. For the overwhelming majority of trades and contracting businesses, those limits aren't the constraint; the constraint is knowing what actually qualifies.

Tangible personal property used in the business generally qualifies — tools, equipment, machinery, and certain vehicles. Vehicles are where the rules get more specific: heavier work trucks and vans used predominantly for business get more favorable treatment than passenger vehicles, which face separate, lower luxury-auto limits regardless of Section 179 eligibility. Land, buildings, and most real property improvements generally do not qualify under Section 179 at all, though some may separately qualify for bonus depreciation.

The other requirement that trips people up: the property has to be used more than 50% for business, and the deduction is limited to your business's net income for the year — you can't use Section 179 to create a net operating loss. Bonus depreciation, which currently allows 100% first-year deduction on qualifying property with fewer restrictions, is often layered in alongside Section 179 once the annual cap or business-income limit is reached.

None of this is a reason to avoid planning around equipment purchases — it's a reason to plan them with actual numbers instead of a rule of thumb. Timing a purchase before or after year-end, choosing Section 179 versus bonus depreciation versus standard depreciation, and confirming a vehicle's business-use percentage are all decisions we walk through with HVAC, plumbing, electrical, and general contracting clients before the purchase, not after the return is filed.