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Section 179 & Bonus Depreciation / Optimizing 2023 Tax Benefits of Year-End Equipment Investments

Nov. 1 2023 News By RTL Equipment

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As 2023 approaches its close, construction business owners have significant financial opportunities to consider. Section 179 and bonus depreciation are powerful tools for construction companies seeking to upgrade their equipment. These tools offer substantial Federal tax advantages, and may apply at the state level, but require prompt action, making it essential to understand how they can benefit your business.

Section 179 in a Nutshell

Section 179 enables businesses to deduct the entire purchase price of qualifying equipment, within certain limitations, during the tax year in which the equipment is placed into service. Instead of spreading deductions over several years, Section 179 allows businesses to reduce their taxable income significantly in the year of purchase and first use, providing a compelling financial incentive. Section 179 generally applies to both new and used equipment.

Key Provisions for 2023

To maximize the benefits of Section 179 before the year's end, here are the essential provisions:

  • Deduction Limit Increase: The deduction limit has been raised from $1,080,000 to $1,160,000 for the year 2023. This adjustment allows businesses to deduct up to $1,160,000 of the cost of qualifying equipment from their taxable income.
  • Phase-Out Threshold Increase: The phase-out threshold, which is the total amount of equipment purchased when the Section 179 deduction limit starts to decrease, has been raised from $2,700,000 to $2,890,000.
  • This means that once a business purchases more than $2,890,000 of equipment, the Section 179 deduction limit goes down, dollar-for-dollar, by the amount over $2,890,000. For example, if your company purchases $2,890,001 in equipment, then your total Section 179 deduction limit is $1,159,999. For businesses to benefit from Section 179, their equipment investments cannot exceed $4,050,000. Beyond this limit, the Section 179 deduction is phased out completely.

Bonus Depreciation in a Nutshell

Bonus depreciation is similar to Section 179 in that it allows businesses to deduct additional depreciation for qualifying equipment beyond normal allowances. While bonus depreciation availability, as a percentage of the value of the qualifying purchase, is scheduled to decrease in years to come, for 2023, 80% of the qualifying purchase can be deducted in the first year of use and ownership. As with Section 179, bonus depreciation applies to both new and used equipment. However, in contrast to Section 179, bonus depreciation is not limited to the annual taxable income of the business and can create a net operating loss which can be carried forward to future years.

A Strategic Approach to Maximize Benefits

To fully harness the benefits of Section 179 and bonus depreciation, consider these steps:

  • Identify Qualifying Equipment: Ensure that the equipment you plan to purchase meets the criteria. Typically, qualifying equipment includes tangible, depreciable property used for business purposes, such as construction machinery, vehicles, and technology.
  • Stay Within the Investment Limit: Ensure that your equipment investments remain below the $4,050,000 threshold to qualify for the full Section 179 deduction. If your investments exceed this amount, you can still benefit from other depreciation methods.
  • Consult a Financial Professional: To navigate the complexities of the Federal and state(s) tax codes and optimize your deductions, consider seeking guidance from a tax professional or financial advisor.
  • Plan Your Purchase: The deadline for making use of the Section 179 deduction and bonus depreciation is a critical consideration. Equipment must be purchased, financed, and placed into service by 11:59 pm on December 31st, 2023. Therefore, time is of the essence if you aim to leverage these tax advantages.
  • Maintain Accurate Records: Keep thorough and accurate records of equipment purchases, including invoices and receipts, to support your deductions.

RTL Equipment: Your Trusted Partner

Section 179 and bonus depreciation offer construction companies a unique opportunity to reduce their tax liability, improve cash flow, and invest in essential equipment. The increased deduction limits and bonus depreciation rate for 2023 create a compelling opportunity for businesses to act and capitalize on these tax incentives before the year concludes.

Don't miss out on these potential tax benefits in 2023. Plan your equipment purchases now and let RTL Equipment be your trusted partner in Iowa and Minnesota. Whether you're in need of cranes, excavators, loaders, aggregate equipment, or other heavy machinery, our two Iowa and two Minnesota locations are here to support your equipment needs.


RTL Equipment does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied upon for tax, legal or accounting advice.  You should consult your own tax, legal and accounting advisors before engaging in any transaction.