Construction equipment gets handled one of three ways for tax purposes. Section 179 lets you deduct the full cost in the year of purchase, up to $1.22 million in 2024 with a phase-out starting at $3.05 million in total equipment purchases. Bonus depreciation is another immediate-deduction option, though it’s phased down to 60% in 2024 and continues dropping. MACRS depreciation spreads the cost over the asset’s useful life, which is typically five years for most construction equipment and seven years for office furniture and some specialty items.

Choosing the method matters more than most owners realize. Section 179 sounds great because it wipes out income immediately, but if you’re having a low-income year or you expect higher tax brackets later, spreading depreciation via MACRS can save more over time. Bonus depreciation doesn’t have the income limitation that Section 179 does, so it’s useful when you want to create or expand a net operating loss. A big equipment purchase in December changes your tax picture significantly, and the right method depends on your overall situation, not just the equipment itself.

California complicates this. The state doesn’t conform to federal bonus depreciation and has its own Section 179 limits that are far lower than the federal numbers. You end up with a federal depreciation schedule and a separate California schedule for the same asset. This is a common place where books get messy because the bookkeeping often tracks only one set of numbers and the difference surfaces at tax time.

Every piece of equipment needs its own line in a fixed asset register. Purchase date, cost, description, serial number, depreciation method, useful life, salvage value, and accumulated depreciation to date. When you sell or dispose of the asset, you need the register to calculate gain or loss. Lumping equipment together into one account makes this impossible and creates problems every year your accountant has to reconstruct what actually happened.

Equipment that works across multiple jobs should be allocated. A $180,000 excavator that’s on the Smith project for six weeks and the commercial site for ten weeks shouldn’t have its entire monthly depreciation hit overhead. Allocate based on hours of use or days on site so your job cost reports show true project profitability. Skipping allocation makes every job look more profitable than it is and hides the real cost of the heavy equipment fleet.

Repairs and improvements need to be classified correctly. A repair that keeps equipment running is expensed immediately. An improvement that extends useful life or adds capability gets capitalized and depreciated. Replacing a hydraulic pump is a repair. Adding a new attachment or rebuilding an engine to extend life is a capital improvement. Miscategorizing these items either overstates current expenses or understates deductions you should be taking.

Track disposals carefully. When you sell or trade in equipment, you have a gain or loss based on the sale price versus the remaining book value. This affects your tax return and needs to be handled in the year of sale, not left for cleanup later. Equipment trade-ins toward new purchases have their own rules that need to be applied correctly.

The most common mistake is treating depreciation as something only the tax preparer thinks about at year-end. Done well, depreciation policy is set in advance, recorded monthly in the books, and flows into job costing so you see real margins during the job, not six months after. If you’re running bookkeeping services in Pasadena for a construction business without a clean fixed asset register and proper allocation, you’re missing information that affects every bid you put together.