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How do I account for equipment depreciation in construction?

Equipment depreciation spreads the cost of trucks, excavators, trailers, and other assets over their useful life instead of deducting the full amount when purchased. This matches the expense to the years you actually use the equipment and gives a more accurate picture of profitability.

For tax purposes, most construction equipment uses MACRS (Modified Accelerated Cost Recovery System). The IRS assigns each asset a recovery period. Vehicles typically depreciate over 5 years while heavy equipment and machinery usually fall into 5 or 7 year categories depending on the type. Land improvements like paving depreciate over 15 years.

Section 179 lets you deduct the full cost of qualifying equipment in the year you buy it, up to annual limits. Bonus depreciation allows additional first-year deductions on top of regular depreciation. These options can significantly reduce your tax bill in years when you make large equipment purchases. Whether to use accelerated deductions or spread them out depends on your overall tax situation and expected income in future years.

In your accounting records, you’ll track three things for each asset. The original cost, accumulated depreciation, and net book value. Each month or year, you record a depreciation expense that increases accumulated depreciation and reduces the equipment’s book value on your balance sheet. Most accounting software handles this automatically once you set up the asset correctly.

For contractors, understanding equipment depreciation matters beyond basic bookkeeping. When you’re trying to figure out if a job actually made money, you need to account for the equipment costs involved. If your $80,000 excavator worked three months on a single project, some portion of that depreciation belongs to that job’s costs. Without allocating equipment to jobs, your job costing reports overstate profitability because they’re missing real costs.

Setting up fixed assets correctly from the start saves headaches later. Record the purchase date, cost basis, expected useful life, and depreciation method for each piece of equipment. Keep documentation for major purchases since you’ll need it if the IRS questions your deductions.

Most contractors don’t need to become depreciation experts. What matters is having your equipment tracked in your accounting system with the right method applied consistently. Professional bookkeeping services in American Fork familiar with construction can set this up and make sure depreciation flows into your financial statements correctly.

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More Questions

What is the best job costing software for small contractors?

For most small contractors, QuickBooks handles job costing well when configured correctly. The software matters less than proper setup and consistent use. Construction-specific platforms make sense when you need integrated project management.

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What tax deductions can small business owners take?

Most ordinary and necessary business expenses are deductible. This includes operating costs, vehicle expenses, equipment, professional services, insurance, and marketing. The key is tracking and documenting everything properly.

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What is labor burden and how do I account for it?

Labor burden is the true cost of an employee beyond their hourly wage. It includes payroll taxes, workers' comp, benefits, and paid time off. Accounting for it correctly means applying a burden rate when costing jobs so your bids reflect what labor actually costs you.

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Can QuickBooks track costs by project phase?

QuickBooks can track costs by project phase using sub-customers or sub-jobs to represent each phase. The setup requires intentional configuration and consistent coding of every expense, but most contractors can make it work effectively.

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Is there a construction accountant near American Fork?

Yes. TRUEquity Bookkeeping is based in American Fork and serves contractors throughout the Wasatch Front. The firm specializes in construction accounting and job costing for contractors and tradespeople.

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How do I scale my construction company finances?

Scaling construction finances means building systems that handle more projects without losing visibility into profitability. Job costing, cash flow management, and proper accounting infrastructure have to be in place before growth or you're just multiplying problems.

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Utah bookkeeping firm for contractors, trades, and small businesses. We provide bookkeeping, construction job costing, payroll, and QuickBooks support. Locally owned in American Fork, serving Provo to Salt Lake City and the entire Wasatch Front.

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