Tax deductions can be subtracted from your taxable profit to decrease how much you owe in taxes. You may have options for writing off the purchase of heavy equipment for your business. For example, a standard deduction typically allows for a smaller deduction and is usually a percentage of the item's total price over an extended period.

A more popular heavy equipment tax deduction is Section 179, which comes from Section 179 in the IRS Tax Code. If you buy qualifying equipment, Section 179 allows you to deduct the total purchase price from your gross income from this tax year. This deduction is an incentive from the U.S. government to invest in equipment.

However, Section 179 tax deductions have limits, often changing year over year. In 2022, businesses were limited to a total of $2,700,000 in equipment purchases, and the total deductible amount is $1,080,000. Generally, you can write off the entire purchase this year if you only spend $1,050,000 on heavy equipment in 2022. If your company pays more than $2,700,000, the deduction phases out, and after you've spent $3,780,000, you won't receive a deduction on the equipment. For 2023, the limits are $1,160,000 total deduction with an investment limitation of $2,890,000. Remember to consult your tax professional to learn more about deductions you may qualify for.

Generally, Section 179 is ultimately a great incentive for small to medium-sized businesses. Most smaller companies may be able to spend within limits to write off their equipment purchase with their 2022 taxes. Section 179 is typically one of the first tax deductions businesses take — after that; they look to bonus depreciation. 

Bonus depreciation usually allows businesses to deduct a significant purchase value from tax obligations. This differs from a standard depreciation deduction, where companies may be qualified for deducing that same value much more slowly over several years.

Bonus depreciation is relatively new, as it was introduced in 2002 as a tool for growing the economy. Previously pegged at 50% of the asset's purchase value, the total deductible bonus depreciation amount was recently increased to 100%. The rule change also extended bonus depreciation to new and used assets with the increased popularity of owned used equipment.

It's important to note that bonus depreciation isn't permanently enshrined in tax law. Bonus depreciation is available for assets in service between September 28, 2017, and December 31, 2022. Please note that in 2023, bonus depreciation will decrease from 100% to 80%. Understanding exactly what this distinction means is vital for getting the most out of this tax deduction. Assets must be ready to be used by your business to qualify. However, they can be off the job site or at work within your office or other facilities. A piece of heavy equipment sitting in a garage or additional storage space will qualify if it's ready to go to work, even if it isn't used until the subsequent tax or calendar year. 

Heavy equipment is built to last, especially with the extensive Cat^® equipment product line. Most Cat equipment is built for multiple lives so that you can get the most from your investment. You may have options when your equipment reaches the end of its useful life and can still be put to work.

While you might consider selling your equipment, donating it could be an excellent option for your business as it could provide a tax break. If you have a piece of equipment that is still operational but no longer has a place at your company, it might make sense to donate it.

The Benefits of Donating Heavy Equipment 

While the specifics will vary in each instance, your donation may earn you a write-off that can help lessen the financial burden when taxes are due. Donating equipment can also save you the time and potential cost of disposing of heavy equipment.

Selling equipment might be possible and a better option for your business, but it can be time-consuming. Suppose your equipment is old and has obvious signs of wear and tear. In that case, it may offer little (if any) profit, especially after any potential fees and other charges associated with the sale.

While the specifics will vary in each instance, your donation may earn you a write-off that can help lessen the financial burden when taxes are due. Donating equipment can also save you the time and potential cost of disposing of heavy equipment.

Selling equipment might be possible and a better option for your business, but it can be time-consuming. Suppose your equipment is old and has obvious signs of wear and tear. In that case, it may offer little (if any) profit, especially after any potential fees and other charges associated with the sale.