He bought the new service van on January 6. He had needed it since October.
The old one limped through the busiest quarter he ever had. He kept meaning to get to the dealership, but December was too busy to sit there for an afternoon. So his best year closed with nothing new in service, and the deduction landed in the next year, a slower one, where it did less work.
Same van. Same price. Five weeks later.
Nobody told him the calendar was part of the purchase.
If you already need a truck, van, trailer or piece of equipment, the next ten weeks matter. Here is how Section 179 and bonus depreciation work for contractors in 2026, and the mistakes that cost the most.
The Rule That Decides the Year: Placed in Service
For depreciation, what counts is not when you ordered the van, paid the deposit or signed the paperwork. It is when the property is placed in service, which the IRS describes as ready and available for its specific use in your business.
For a calendar-year business, that generally means the truck is delivered and ready to work by December 31. A van still at the upfitter on New Year’s Eve, waiting on shelving and a ladder rack, may not count for this year. Neither does a deposit on a unit arriving in February.
That is the lesson of the January 6 van. The purchase was right. The timing moved the deduction.
Two Tools: Section 179 and Bonus Depreciation in 2026
Both let you deduct much more of an equipment purchase in the first year instead of spreading it over five or seven years. Both were changed by the One Big Beautiful Bill Act, signed in July 2025.
Section 179. For tax years beginning in 2026, you can elect to expense up to $2,560,000 of qualifying property. That limit shrinks dollar for dollar once you place more than $4,090,000 of qualifying property in service during the year. Two other limits matter more for most contractors:
- The property has to be used more than 50% for business.
- The Section 179 deduction can’t exceed your business taxable income for the year. Anything over that carries forward to future years.
Bonus depreciation. The 2025 law restored 100% bonus depreciation, permanently, for qualifying property acquired and placed in service after January 19, 2025. Before that law, bonus depreciation was phasing down each year. Bonus depreciation isn’t subject to the same business income limit as Section 179, and you can elect out of it by class of property if a smaller deduction this year makes more sense.
Tax professionals often use a mix of the two, depending on your income this year, what you expect next year and your state. That last part matters: many states don’t follow federal bonus depreciation, and some have limited the new Section 179 amounts, so the state deduction can be smaller.
If your business is an S corp or a partnership, the deduction flows through to your personal return along with the profit, which is one more reason the entity question in S corp vs LLC for contractors and the equipment question are worth looking at together.
The Section 179 Vehicle Deduction: The 6,000-Pound Line
For vehicles, the answer usually turns on one number on the door-jamb sticker: gross vehicle weight rating (GVWR).
- 6,000 pounds GVWR or less. Cars and lighter trucks and vans generally fall under the annual passenger automobile depreciation caps, which limit how much you can deduct each year no matter what you paid.
- Over 6,000 pounds GVWR. Heavier pickups and work vans generally aren’t subject to those passenger auto caps.
- Heavy SUVs (over 6,000 and up to 14,000 pounds). Section 179 on these is capped at $32,000 for 2026. The cap does not apply to vehicles with a cargo bed of at least six feet in interior length, vehicles with no seating behind the driver’s seat (a typical cargo van), or vehicles designed to seat more than nine passengers behind the driver.
Business use still matters. A heavy pickup that is also the family vehicle on weekends gets deducted only for the business share, and if business use drops to 50% or less in a later year, part of the Section 179 deduction can come back as income.
The Cash Trap: Don’t Buy Just for the Deduction
This is where good intentions go wrong every December.
Say you buy a $70,000 truck you don’t really need, because someone said it would “save you taxes” (example numbers). If the deduction saves you roughly 30% between federal, state and self-employment taxes, that is about $21,000 in tax. You spent $70,000 to save $21,000. You are $49,000 poorer, with a truck.
If you needed the truck anyway, buying it before December 31 instead of January 6 is smart timing. If you didn’t, the deduction is a discount, not a reason.
Financing adds a second layer. You can often take the full deduction in year one even if the truck is financed over five years. Then years two through five arrive, and you are making truck payments with no deduction left.
Three things take your cash without lowering your taxable profit:
- Loan principal. The truck payment leaves every month, but the principal is not an expense.
- Owner draws. Money you take home is not a cost of the business.
- Paying down the credit line. Cash gone, profit unchanged.
So the return shows a profit the bank account never saw. That gap is not an error. It is predictable, which means it can be planned, and it is a big part of why busy contractors end up short on cash.
Selling the Old Truck: Depreciation Recapture
You wrote off a truck three years ago. Selling it can bring part of that deduction back.
The deduction lowered your taxes in the year you bought it. On paper, that truck is now worth close to nothing. Sell it for real money, and the difference between the sale price and that low tax value generally shows up as ordinary income. This is called depreciation recapture.
Trade-ins don’t get you around it. Since 2018, like-kind exchange treatment applies only to real estate, so trading in a work truck or a piece of equipment is generally treated as a sale.
Which year the recapture lands in depends on when you sell and what else you buy. A December trade-in can mean a deduction on the new truck and recapture income on the old one in the same year. The truck decision and the tax decision were always the same decision.
A Year-End Equipment Checklist
Before you buy anything for the deduction, talk to your tax professional and walk through these:
- Do you need it? Would you buy it in January with no tax benefit? If not, stop here.
- Can it be delivered, set up and working by December 31? Ask the dealer and the upfitter for dates in writing.
- What is the GVWR, and what is the business use? Those decide which limits apply.
- How are you paying for it? Cash now, or payments that will continue after the deduction is used up?
- Are you selling or trading something? Estimate the recapture before you sign.
- Is this the right year for the deduction? If next year looks bigger, deducting more next year may be worth more. Your tax professional can model both, federal and state.
Equipment is one piece of the year-end picture. The rest, including the moves that have to happen before December 31, is in year-end tax planning for contractors. And if you’re not sure what the difference is between planning and filing, start with tax planning for contractors.
The Tax Year Closes on New Year’s Eve
The contractor who asks in January what he can still do about last year usually hears the same answer: most of the useful moves had a December 31 deadline. In January they are things he could have done.
The free 5-minute Contractor Growth Assessment scores your business on six areas and shows which year-end decisions are still open for you. Israel Diaz, an IRS Enrolled Agent (a federal credential earned by exam), uses it to see where your numbers stand before the calendar decides for you.
Take the free Contractor Growth Assessment →
This article is general information for tax year 2026, not tax advice for your specific situation. Depreciation rules depend on your facts, your entity and your state. Talk to your tax professional before buying equipment for a deduction.
