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Buy Construction Equipment Now To Beat The Bonus Depreciation Phase-Out

As someone involved in the equipment buying process, you’re likely aware of how Section 179 and bonus depreciation can significantly lower your taxable income for the year you purchase and deploy your […]

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As someone involved in the equipment buying process, you’re likely aware of how Section 179 and bonus depreciation can significantly lower your taxable income for the year you purchase and deploy your equipment. This can free up capital for other operational needs or reinvestment in your business.

What is Bonus Depreciation?

Bonus depreciation is a tax provision outlined in the U.S. tax code (Section 168(k)). It enables businesses to deduct a significant portion of the cost of eligible assets in the year these assets are placed into service. This is a departure from the traditional depreciation method which spreads the deduction over the useful life of the asset — typically several years. There’s a similar program in Canada called the Accelerated Investment Incentive.

Bonus depreciation was set at 100% for several years, but 2023 started a phase out. Below you can see how the percentages decrease each year from 2024 through 2026 until it reaches 0% by 2027.

PLACED IN SERVICE DATEBONUS DEPRECIATION
January 1 to December 31, 202460%
January 1 to December 31, 202540%
January 1 to December 31, 202620%
January 1, 2027 and thereafter0%

Just remember, a company can take both Section 179 and bonus depreciation allowances, but Section 179 must be applied first. Therefore, any qualified property purchased over the $1,220,000 limit may then be taken in bonus depreciation. So it’s great for businesses that spend more than the Section 179 spending limit.

And with regard to the Canadian Accelerated Investment Incentive, a phase-out period has begun for property that becomes available for use after 2023.

Bonus Depreciation & Excavator Purchases

While bonus depreciation can be used for all kinds of heavy construction equipment purchases, including used equipment, you might want to take a hard look at excavators right now because many of our dealers have machines available today to get to work for you tomorrow. It’s no secret that many OEMs have dealt with supply chain challenges in recent years, so this is a great opportunity to get an excavator quickly and take full advantage of bonus depreciation. Remember, the machines have to be put into service the same year you purchase them to get the tax benefit.

Here are three more good reasons for construction equipment owners and businesses to consider buying excavators right now:

Maximize Your Tax Benefits – The primary advantage of purchasing an excavator now is to maximize your tax benefits while the bonus depreciation rate is still relatively high (60% in 2024). By doing so, you can deduct a substantial portion of your excavator’s cost this year, reducing your taxable income and potentially lowering your tax liability. Waiting until later years with lower bonus depreciation rates means you’ll receive smaller immediate tax deductions.

Immediate ROI and Cost Savings – Buying an excavator now allows you to put the equipment to work immediately. This can lead to increased productivity, reduced rental expenses (if you were previously renting equipment) and potentially quicker project completion times. The earlier you acquire and deploy the excavator, the sooner you can start realizing a return on your investment. Plus, by taking advantage of bonus depreciation, you’re effectively lowering the net cost of the equipment.

Future Proofing Against Tax Changes – Tax laws can change over time, and future legislative changes might not always be favorable to businesses. By purchasing an excavator now and benefiting from bonus depreciation, you’re locking in the current tax benefits and shielding your investment from potential adverse tax reforms in the future. This strategic move can provide stability and predictability in your financial planning, especially if you anticipate needing new equipment in the coming years.

And even better, right now you can combine these tax advantages with financial offers from Volvo, like 0% financing on eligible excavator purchases or bundled offers like extended coverage, advanced telematics, Smart Commercial Account credit up to $2500 and more. Combining tax savings with low financing offers makes buying now a compelling option if you’re looking to enhance your financial position while remaining competitive.

If you want a deeper dive on bonus depreciation and other tax incentives, check out our blog post on year-end heavy construction equipment tax benefits.

Disclaimer: U.S. and Canadian tax incentives are complicated. There are many limits, exclusions and special rules for different types of businesses in each country. The information in this article, and on this site, is not and should not be construed as tax or legal advice. Each business situation is different and tax regulations change frequently. We strongly recommend that you consult with your tax advisor regarding how these tax-saving opportunities apply in your situation.

Categories: Construction Equipment, Finance, Insights