Year-End Equipment Purchases: What Minnesota Business Owners Should Know Before December 31
Every November, the same call comes in. A business owner has had a decent year, sees a big tax bill coming, and asks, “Should I just buy the truck?”
Sometimes yes. Sometimes that is an expensive way to save a little tax. Here is how we help clients at Bayerkohler, Ltd. think it through before the calendar runs out.
The Short Version
Equipment you buy and start using in 2026 may be deductible in 2026, sometimes all at once. That is the appeal, but a deduction only moves tax around. It does not erase it, and it never makes sense to spend a dollar to save thirty cents if the business did not need the equipment anyway.
Two Tools That Matter: Section 179 and Bonus Depreciation
Normally, when a business buys equipment, it deducts the cost over several years through depreciation. Two provisions let you speed that up.
Section 179 lets you deduct the cost of qualifying equipment in the year you place it in service, up to an annual limit. Qualifying property includes machinery, tools, office furniture, computers, and many work vehicles. For tax years beginning in 2026, the federal Section 179 limit is $2,560,000. That limit begins to phase out once total qualifying property placed in service during the year exceeds $4,090,000, and it is fully phased out at $6,650,000 of qualifying purchases.
Section 179 also cannot create a business loss. It is capped at your taxable income from active trades or businesses for the year, although unused amounts may generally be carried forward.
Bonus depreciation works differently. It is an additional first-year deduction on qualifying property, and recent federal law restored it to 100% for qualifying property acquired after January 19, 2025. Unlike Section 179, bonus depreciation is not limited by business income and can push a business into a loss, which can matter if you expect to carry that loss forward.
Bonus depreciation can apply to both new and used property, but used property has to meet specific rules. In general, it must be newly acquired by the taxpayer, and it generally cannot be property the taxpayer previously used or property acquired from a related party.
Many owners use Section 179 first, then let bonus depreciation pick up what is left. Which one you lean on depends on your income, your entity type, Minnesota treatment, vehicle limits, and your plans for the next few years.
“Placed in Service” Is the Phrase That Trips People Up
This is the most common mistake we see. Signing a purchase order or paying a deposit by December 31 is not enough. The equipment generally has to be delivered, installed, and ready to use in your business by year-end.
A press that arrives on January 6 belongs to 2027, no matter when you paid for it. If you are ordering something big, check lead times in October and November, not December.
When Buying Before Year-End Helps
A year-end purchase tends to make sense when:
- You were already going to buy it. Moving a planned purchase up a few weeks is a timing decision, not a spending decision.
- This year’s income is unusually high. A strong year, a one-time sale, or a client that paid early can push you into a higher bracket than normal.
- Your equipment is aging out. If a machine is near the end of its useful life, replacing it now may make sense operationally and may also provide a current-year tax benefit.
- You’re close to a bracket or threshold. A well-timed deduction can sometimes keep income below a line that triggers other costs.
When It Does Not Help
Just as often, we talk clients out of it. Be cautious when:
- Your income will be higher next year. Taking a big deduction in a low-income year can waste the timing benefit. Spreading depreciation into a higher-income year may save more.
- The purchase strains cash flow. A tax deduction does not pay a loan payment. Financing a $90,000 piece of equipment to save tax can leave you short on working capital in February.
- Your business income is too low to use the deduction. Section 179 is limited by active trade or business income, so a thin year may leave part of it unused.
- You do not need the equipment. The tax savings are only a fraction of the price.
Do Not Forget Minnesota
Federal rules are only half the picture. Minnesota generally conforms to current federal Section 179 rules for property placed in service in 2020 or later. That means the federal Section 179 deduction is often treated similarly for Minnesota purposes under current law.
Bonus depreciation is different. Minnesota does not conform to federal 100% bonus depreciation under IRC §168(k). In general, Minnesota requires an addback of 80% of the federal bonus depreciation deduction in the year claimed, with that amount recovered through 20% subtractions over each of the following five years.
In practice, that means a purchase that creates a large federal deduction may produce a smaller Minnesota deduction in the purchase year. It also means you may need to track Minnesota depreciation adjustments over later years. This is easy to overlook when you are making a purchase decision in December, and it can change the math.
Vehicles Need Extra Attention
Vehicles get special treatment, and the rules vary widely. Passenger automobiles, including many trucks and vans with a gross vehicle weight rating of 6,000 pounds or less, are subject to annual depreciation caps under IRC §280F. For passenger automobiles placed in service in 2026, the first-year cap is generally $12,300 if bonus depreciation does not apply, or $20,300 if bonus depreciation applies.
Heavier vehicles can be treated more favorably, but the details matter. Heavy SUVs with a gross vehicle weight rating over 6,000 pounds and not more than 14,000 pounds may qualify for Section 179, but the 2026 Section 179 deduction for those SUVs is limited to $32,000 per vehicle. Some non-SUV pickups, certain vans, and vehicles over 14,000 pounds may avoid that special SUV cap.
Business-use percentage also matters. Vehicles used 50% or less for business generally do not receive the same accelerated treatment, and personal use reduces the available deduction. If trucks, vans, or SUVs are part of your year-end plan, keep a mileage log and talk to us before you buy, not after.
A Quick Checklist Before You Buy
- Confirm the equipment will be delivered and in use by December 31.
- Estimate your 2026 taxable income so you know how much deduction you can actually use.
- Compare this year’s likely bracket with next year’s.
- Check your cash position, including any financing payments.
- Ask how Minnesota will treat the purchase, especially if bonus depreciation is involved.
- Keep invoices, delivery records, and proof of when the item went into service.
- For vehicles, document business use and confirm whether passenger auto caps, SUV limits, or other special rules apply.
Frequently Asked Questions
Can I deduct equipment I bought but haven’t started using?
Generally no. The property usually has to be placed in service, meaning ready and available for use in your business, by the end of the tax year.
Does used equipment qualify?
Often yes. Section 179 can apply to qualifying used property, and bonus depreciation can also apply to qualifying used property. For bonus depreciation, the property generally must be newly acquired by the taxpayer, cannot have been previously used by that taxpayer, and generally cannot be acquired from a related party.
Is Section 179 the same as bonus depreciation?
No. Section 179 is subject to annual dollar limits, phaseout rules, and a business income limitation. Bonus depreciation is not limited by business income and can create a loss. They can be used together, but the best approach depends on your facts.
Do I need to buy before December 31 to get a deduction at all?
No. If you wait, you simply begin depreciating the equipment in the year it is placed in service. You lose the timing benefit, not the deduction.
Will Minnesota give me the same deduction as the IRS?
Not always. Minnesota generally conforms to current Section 179 rules for property placed in service in 2020 or later, but it does not conform to federal bonus depreciation under IRC §168(k). A large federal bonus depreciation deduction may be much smaller for Minnesota purposes in the year of purchase.
Are vehicles treated the same as other equipment?
No. Vehicles have extra rules, including passenger auto depreciation caps, heavy SUV limits, business-use requirements, and substantiation rules. Before buying a vehicle for tax reasons, confirm how it will be classified and how much business use you can document.
Talk to Us Before You Sign
A good year-end purchase is one you would be glad you made even without the tax break. If you are weighing an equipment decision, we can run the numbers on both your federal and Minnesota returns and help you decide whether to buy now or wait.
The Bayerkohler, Ltd. team works with business owners. Reach out to schedule a year-end planning conversation, ideally before the holiday rush.