While you can use your Section 179 tax deduction any time during the year, many contractors wait until the end of the year to see how their finances play out. If this is you, now is the time to use your Section 179 tax deduction.
Did you know you can deduct the full purchase price of an asphalt grinder from your taxes if you buy this year? Section 179 encourages businesses to invest in equipment by offering immediate tax benefits instead of depreciating equipment over time.
This is especially helpful to small and mid-sized utility contractors. For 2024, the deduction limit is $1.16 million, with a spending cap of $4.64 million. This benefit applies to both new and used equipment.
However, the total deduction cannot exceed the business’s taxable income. Section 179 can help your business grow by allowing you to buy new equipment now.
How Do Utility Contractors Benefit from Section 179?
If you are a utility contractor, you can buy utility trenching equipment now. You can deduct the full cost of your purchase. Here’s how to take advantage of Section 179:
1. Immediate Deduction of Equipment Costs: Utility contractors typically invest in expensive equipment, such as excavators, backhoes, utility trenchers, asphalt milling machines, and trucks. Under Section 179, they don’t need to depreciate the cost of this equipment over several years. Instead, they can deduct the entire purchase price in the year they buy and use it. This reduces your taxable income, which means you pay fewer taxes and buy new equipment at the same time.
2. Improvement of Cash Flow: By taking the full deduction in the year you buy, you can free up cash. You can then use this extra cash to invest in more equipment. You could also grow other areas of your business.
Did you know that some asphalt grinder attachments also work for surface milling and even road base stabilization? With the right equipment, you can expand the scope of your work.
If you don’t use it you lose it. Use Section 179 in 2024 to deduct the full cost of important tools and equipment. This helps you pay fewer taxes and increases your cash flow. You can then reinvest this money into your business operations and growth.
3. Deduction of Business Vehicles: Utility contractors often use heavy trucks and vans to carry equipment and materials. Section 179 allows them to deduct the cost of vehicles used for business, with some limits for passenger vehicles. One of those work trucks could pull your new asphalt grinding attachment.
4. Qualifying Property Improvements: Contractors with office buildings or warehouses can deduct the cost of improvements. This includes HVAC systems, security systems, and roofing under Section 179.
Most new and used equipment bought or financed for business qualifies under Section 179. This is true if you use it in the same tax year.
Deducting Equipment Purchases using Section 179
To deduct equipment purchases using Section 179, you need to follow several steps during the tax filing process. Here’s a simple guide to help you deduct equipment purchases properly:
1. Ensure the Equipment Qualifies for Section 179
Confirm that the equipment you purchased qualifies for the deduction. Most tangible business equipment qualifies, including:
- Machinery, vehicles, office furniture, computers, and software
- New or used equipment (as long as it is new to you)
- Equipment used for business purposes at least 50% of the time
- Assets put into service (in use) within the same tax year of purchase
2. Keep Records of the Purchase
Make sure you have proper documentation, including receipts or invoices that show:
- Purchase date
- Total cost
- Description of the equipment
You will need this information when preparing your tax return.
3. Calculate the Deduction
You can deduct the full purchase price of qualifying equipment, up to the Section 179 limit for the year. For the 2024 tax year, the limit is $1,220,000, with a spending cap of $4,880,000. If you buy more equipment than the spending cap, the deduction will begin to phase out.
4. Fill Out IRS Form 4562
To claim the Section 179 deduction, you must complete IRS Form 4562, which is used to report depreciation and Section 179 deductions.
- Part I of the form is where you enter the total cost of Section 179 qualifying property.
- Follow the instructions on the form to calculate the total deduction and confirm you are within the annual limit.
5. File with Your Tax Return
Submit Form 4562 with your business tax return (e.g., Form 1040 if you’re a sole proprietor or Form 1120 if you’re a corporation). Make sure to include all necessary documentation and calculations for your Section 179 deduction.
6. Apply Deduction to Taxable Income
The Section 179 deduction reduces your taxable income, potentially lowering your tax liability for that year. Keep in mind that the deduction cannot exceed your total taxable income from the business, meaning if your business isn’t profitable, you may not be able to take the full deduction. However, unused deduction amounts can often be carried forward to future years.
What is the 2024 Spending Cap?
There are limits to what you can spend. In 2024 (for taxes filed in 2025), Section 179 lets businesses deduct up to $1,220,000. This deduction applies to the total cost of qualifying equipment and software purchases from their taxable income.
You don’t have to spend it all in one place though. Businesses can combine several equipment purchases to reach the $1,220,000 deduction limit. All purchases must qualify under Section 179.
You could buy an asphalt grinder attachment, a backhoe, or a loader. You might also get a new work truck to pull the asphalt grinder. Another option is to improve your office buildings or warehouses.
There is also an overall spending cap for equipment purchases under Section 179. In 2024, this cap is $4,880,000. Once a business’s total equipment purchases exceed this amount, the deduction begins to phase out dollar for dollar.
If you buy more than $4,880,000 worth of equipment, you will see a reduction in your Section 179 deduction accordingly. Once purchases reach $6,100,000, the system completely phases out the deduction.
Will There be a Section 179 in 2025?
We are not tax experts, and it’s important to speak to your tax accountant about Section 179. There will likely be a Section 179 deduction available for the 2025 tax year.
They haven’t announced the specific deduction limit for 2025 yet. However, analysts expect it to adjust for inflation, like in past years. There are no guarantees though, so make sure to use your 2024 deduction as soon as possible.