Qualifying new or used (new-to-you) equipment placed in service this year may be eligible for Section 179 and bonus depreciation deductions, allowing you to put real money back into your operations.
If you're considering new equipment purchases before year-end, there are major tax advantages on the table. Recent updates to U.S. tax law have introduced new opportunities for businesses to reduce their taxable income through accelerated depreciation and related heavy equipment tax deductions.
In this article, we'll break down how these 2025 changes impact equipment buyers, what to know before making a purchase, and how to position your business to take full advantage of year-end savings.
What Is the One Big Beautiful Bill Act?
The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025, as Public Law 119-21. Among its many provisions, it restores 100 percent bonus depreciation, raises Section 179 expensing limits and expands interest-deduction eligibility for businesses investing in new or used equipment. This includes construction companies purchasing heavy equipment. These updates make 2025 one of the most favorable years in recent history for equipment purchases. This means that now is the time to invest in equipment to expand or start your business.
Tax Incentives for Equipment Purchases
The OBBBA tax cuts include two incentives for companies to purchase heavy equipment, which can be used together in the same year to maximize deductions. The act increased the amount you can deduct under IRS Code Section 179 in 2025, as well as increased the limit on bonus depreciation in 2025.
For 2025, assets purchased must be put into service before midnight on Dec. 31, 2025, to qualify for these deductions. There's no stipulation on how long they must be in service to qualify, but if you don't make the deadline you'll have to wait until 2026.
We'll take a closer look at each of these deductions and show how they can significantly reduce your tax bill.
Section 179 Deduction Limits, Eligibility
IRS Code Section 179 allows businesses to deduct the cost of qualifying business assets in one year (subject to certain limits) rather than depreciating them over several years. This will enable businesses to recover the cost of assets they purchase sooner, as they can take the deduction in the year each asset is placed in service.
Assets covered under this section include any new or used (new to you) property used for business purposes, including:
• heavy equipment
• office equipment
• software
• other machinery or equipment
Under the OBBBA, the Section 179 expensing limit increased to $2.5 million, with a phase-out threshold beginning at $4 million. These amounts will be indexed for inflation starting in 2026. The same eligibility rules apply: the property must be used for business purposes more than 50 percent of the time and placed in service during 2025 to qualify.
Bonus Depreciation Rules, Updates
IRS Code Section 168(k) allows businesses to take deductions for purchased assets, similar to Section 179. You can take both of these deductions in the same tax year, but you must apply Section 179 first. Any purchases over the $2.5 million limit on 179 can then be deducted using bonus depreciation. There's no limit on the amount of bonus depreciation you can claim, so it can be used to offset purchases that are above the limit for Section 179.
Bonus Depreciation 2025 Percentage
Previously, the bonus appreciation rate was 40 percent, but in 2025, it was raised back to 100 percent and made permanent. It applies to qualified assets purchased and placed in service after Jan. 19, 2025. If you acquired an asset between Jan. 1 and Jan. 19, 2025, the 40 percent bonus depreciation rate applies.
Unlike Section 179, bonus depreciation can be applied even in years when the business incurs a loss, and it can be carried forward to subsequent years.
Here's an example of how both deductions can be used to decrease a company's tax burden:
• New/used equipment purchased after Jan. 19, 2025: $3,000,000
• Section 179 deduction: $2,500,000
• Difference: $500,000
• Bonus depreciation: $500,000
• Total deductions in first year: $3,000,000
• Tax savings (assuming 21 percent tax rate): $630,000
Differences Between Section 179, Bonus Depreciation
While both incentives allow businesses to deduct the cost of end-of-year equipment purchases in the year they're placed in service, the key differences include limits on deductions and whether the deduction can create a net loss.
• Deduction limits — Section 179 has a maximum deduction of $2.5 million and a spending cap of $4 million. Bonus depreciation has no annual limit on the deduction.
• Net loss — Section 179 cannot be used to create or increase a net loss, so the deduction is limited to the amount of taxable income. Bonus depreciation can be used to create or increase a net operating loss and can then be carried forward to offset future taxable income.
Rental-to-Purchase Conversions
Depending on the type of lease or rental agreement you have in place, you may be able to deduct the purchase value of your equipment. There are two types of lease/rental agreements: an operating lease and a capital lease.
With an operating lease, you get to use the asset without owning it. You pay a monthly fee and have the option to buy it at the end of the lease for fair market value or a fixed amount (typically about 10 percent of the equipment's cost). With this type of agreement, you can write off the monthly payments over the lease period, but you cannot claim depreciation.
With a capital lease, on the other hand, you own the piece of equipment from the outset, and that's how it's recorded on your financial statements. This type of agreement may be referred to as an equipment financing agreement or a lease with a $1 buyout option. Capital lease agreements allow you to claim Section 179 and bonus depreciation.
Note that even with a lease agreement, the purchase must occur after Jan. 19, 2025, and the equipment must be placed into service by Dec. 31, 2025, to qualify for the 2025 tax deductions.
Check with your local equipment dealer to determine your lease terms and explore the option of converting your rental or operating lease into a capital lease, which may allow you to take advantage of these deductions. You may be eligible for a credit toward the purchase price or other special discounts for a portion of the prior rent.
Financing, Cash Flow Considerations
Companies can now deduct a much larger portion of interest expense because the high depreciation on new equipment is no longer counted against them. The OBBBA moved the calculation for the 30 percent interest expense limit from earnings before interest and taxes (EBIT) to earnings before interest, taxes, depreciation and amortization (EBITDA).
What Is EBITDA Margin, Why Does It Matter?
EBITDA margin — or earnings before interest, taxes, depreciation and amortization — is a key indicator of a company's operating profitability. While depreciation itself doesn't affect EBITDA, the timing of major equipment purchases can influence the overall financial picture. Leveraging 100 percent bonus depreciation in 2025 can reduce taxable income and free up cash flow, improving a company's ability to reinvest or manage debt.
Because many companies finance trucks, cranes or other equipment with loans, they can now deduct a greater portion of that interest, reducing their tax bill and providing them with more cash to pay expenses, employees, or invest in additional equipment.
Best Practices for Businesses
As the year ends, it's a good time to think about purchasing assets to expand your business for next year. Here are some best practices to get you started:
• Always check with your accountant or trusted tax advisor before deciding about investing in equipment or other assets. Ensure you thoroughly understand the impact your purchase will have on your taxes and profitability.
• Don't make a purchase just to reduce your tax bill. Make sure you plan how to integrate the new equipment into your operations and know that you can support it financially.
• Combine Section 179 and bonus depreciation deductions. Apply Section 179 first up to its limit, then apply bonus depreciation to the remaining costs. This allows you to write off nearly the entire cost of the equipment in the first year, even if you're financing.
• If you have operating leases, talk to your dealer about converting them to capital leases so you can take advantage of the deductions available.
• Equipment purchases (or rental conversions) intended to be deducted in 2025 must be contracted and placed in service by Dec. 31, 2025. Missing that window (or having a contract signed too early) can downgrade a 100 percent bonus depreciation to 40 percent or prevent expensing altogether.
• Keep and maintain all documentation related to equipment purchases and financing.
(Disclaimer: U.S. tax law is complicated. There are many limits, exclusions and special rules. The information in this article is not and should not be construed as tax or legal advice. Each business situation is unique, and tax regulations are subject to frequent changes. We strongly recommend consulting your tax advisor to determine how these tax-saving opportunities apply to your specific situation.)
