What Bonus Depreciation Changes Mean for Contractors in 2026

Recent federal tax changes are reshaping how construction firms approach equipment purchases and capital investment heading into 2026.

With the return of 100% bonus depreciation, contractors now have the opportunity to immediately expense the full cost of qualifying assets in the year they are placed in service. This marks a shift from the previously scheduled phase-down and creates a renewed incentive for firms to invest in equipment, fleet, and facility improvements.

What Changed

Under current guidance, businesses can deduct 100% of the cost of eligible property in the year it is placed into service, rather than depreciating it over multiple years. This applies to a range of assets commonly used by contractors, including equipment, machinery, and certain building improvements.

The change effectively accelerates tax benefits that would otherwise be spread out over time.

Why It Matters for Contractors

For sheet metal and HVAC contractors, this is primarily a cash flow and planning opportunity.

The ability to immediately expense large purchases can:

• Improve short-term liquidity
• Offset taxable income in strong revenue years
• Make capital investments more financially attractive

It may also influence:

• Equipment replacement timing
• Fleet upgrades
• Shop and fabrication investments
• Broader capital planning decisions

For firms that delayed purchases during the recent phase-down period, this change may prompt a re-evaluation of planned investments.

What to Watch

While the opportunity is significant, execution matters.

Contractors should keep in mind:

• Timing is critical: Assets must be placed “in service” within the tax year to qualify
• Documentation matters: Clear records and proper classification of assets are essential
• IRS scrutiny may increase: With ongoing resource constraints and evolving guidance, compliance and accuracy are important
• Strategic planning is key: Tools like cost segregation and coordination with Section 179 deductions may further impact outcomes

A Strategic Opportunity, Not Just a Tax Change

While 100% bonus depreciation creates a clear financial incentive, the real advantage comes from proactive planning.

Contractors who evaluate their capital needs early, align purchases with project pipelines, and coordinate with their financial advisors will be best positioned to take full advantage of the opportunity while managing risk.

Learn More

For additional industry context and perspectives, read coverage from Construction Dive:

• Bonus depreciation tax tips for construction firms
• Broader analysis of federal policy impacts on the construction industry

Disclaimer

SMCA encourages members to consult with their tax advisor to determine how these changes apply to their specific business and financial situation.