Introduction
For construction contractors, taxes are often your largest overhead expense. However, 2026 is shaping up to be one of the most tax-advantaged years in recent history for the trades.
Thanks to the One Big Beautiful Bill Act (OBBBA), several massive tax cuts that were scheduled to expire have been permanently restored. From massive deductions on heavy machinery to a permanent 20% “loyalty” discount on your business income, the 2026 tax code is designed to help builders reinvest in their fleets.
In this guide, we break down the exact limits for Section 179, the return of 100% Bonus Depreciation, and the essential checklist of deductions every contractor needs to stay profitable.
1. Section 179: The $2.56 Million Equipment Hack
Section 179 is the “Holy Grail” for contractors. It allows you to deduct the full purchase price of qualifying equipment in the year you buy it, rather than depreciating it over decades.
The 2026 Limits:
- Maximum Deduction: Increased to $2,560,000 (up from $2.5M in 2025).
- Phase-out Threshold: Starts at $4,090,000. If you spend more than this on equipment in 2026, your deduction begins to reduce dollar-for-dollar.
What Qualifies?
- Heavy machinery (Excavators, skid steers, forklifts).
- Work trucks and vans over 6,000 lbs (GVWR).
- Off-the-shelf software (Job-costing or CAD software).
- Interior improvements to non-residential buildings.
2. 100% Bonus Depreciation is Back (Permanently)
In previous years, Bonus Depreciation was “phasing down” (dropping to 40% or 20%). The OBBBA has officially restored 100% Bonus Depreciation permanently for assets with a useful life of 20 years or less.
Why this matters: If you exceed your $2.56M Section 179 limit, you can apply 100% Bonus Depreciation to the remaining balance. Unlike Section 179, Bonus Depreciation can be used even if your business is operating at a loss, potentially creating a “Net Operating Loss” to offset future taxes.
💡 Pro Tip: To qualify, the equipment must be “placed in service” (actually used on a job site) by December 31, 2026.
3. The Permanent 20% QBI Deduction
The Qualified Business Income (QBI) deduction allows many contractors to deduct up to 20% of their business income right off the top. This was originally set to expire, but the OBBBA has made it permanent.
2026 Income Thresholds:
- Full Deduction: Available for single filers with taxable income below $197,300 (or $394,600 for joint filers).
- The “Wages” Strategy: If your income is higher, you may need to increase W-2 wages or invest in more equipment (UBIA) to qualify for the full deduction.
4. Essential Contractor Deduction Checklist
Beyond heavy machinery, ensure you are tracking these “Ordinary and Necessary” expenses:
- Labor & Subcontractors: All payments to 1099 subs and W-2 employees, including payroll taxes and benefits.
- Vehicles: Use the Actual Expense Method (fuel, repairs, insurance) or the Standard Mileage Rate (estimated at 70 cents/mile for 2025/2026).
- Small Tools: Any tool expected to last less than a year (drill bits, saws, hand tools) is 100% deductible in the year of purchase.
- Safety Gear & Uniforms: Steel-toed boots, hard hats, branded high-vis vests, and safety glasses.
- Marketing: Facebook ads, yard signs, website SEO, and vehicle wraps.
- Software Subscriptions: Monthly fees for Jobber, Houzz Pro, or QuickBooks.
Conclusion: Protect Your Margins
The most successful contractors don’t just work harder; they manage their cash flow smarter. By leveraging Section 179 and Bonus Depreciation, you can turn a high-tax year into a high-growth year.
Your 2026 Action Plan:
- Audit your fleet. If you need new gear, buy it before year-end to capture the 100% write-off.
- Track every nail. Use job-costing software to ensure every expense is tied to a client invoice.
- Consult a Pro. Construction accounting is complex (Progress Billing, Retainage). Ensure your books are audit-ready.
👉 Compare the Best Construction Accounting Software (Houzz Pro vs. Jobber)
