On July 4th, President Trump signed the One Big Beautiful Bill (OBBB) into law. This legislation includes several provisions aimed at permanently extending key elements of the 2017 Tax Cuts and Jobs Act. One of the restored provisions is 100% depreciation for qualifying property placed into service after January 19, 2025. A similar business deduction, Section179 expensing, received a boost of increased limits and thresholds.
Both Section 179 and Bonus Depreciation are tax incentives that allow businesses to deduct the cost of qualifying assets in the year they’re placed in service, rather than depreciating them over time. This can significantly reduce a business’s taxable income and boost cash flow. Under OBBB, they are designed to encourage small and mid-sized businesses, to invest in new equipment and assets, potentially boosting cash flow and economic activity. For you as a business owner, these changes renew and expand the opportunity to deduct the full cost of eligible investments.
What is Bonus Depreciation?
Bonus deprecation is a tax incentive for business owners to increase investment activity in qualifying property. It allows a company to accelerate deprecation of a qualifying asset, such as equipment, rather than write it off over the useful life of the asset. It is useful for reducing a company’s income tax and tax liability in the year it’s taken.
For example, a company purchases a piece of manufacturing equipment for $1 million and this piece of equipment has a useful life of 5 years.
- Regular depreciation: Using a straight-line method, you can depreciate the cost of the asset evenly over the period of useful life. In this example, divide $1,000,000 by 5 years and you can deduct $200,000 per year. This will reduce the company’s income by $200,000 for five years in a row.
- Bonus depreciation: You can deduct a more significant amount in the first year – now 100% so the entire cost of $1,000,000 will be deductible if purchased after January 19, 2025. If you deduct it all, there is less (now $0) cost to depreciate in later years.
Timing of the purchase matters for 2024-2025 filings because prior to OBBB, bonus depreciation phase down. The depreciation amounts are as follows: 100% in 2022 (100%); 80% in 2023; 60% in 2024; 40% January 1, 2025 – January 19, 2025; and now 100% again January 20, 2025 and beyond. Beyond that, a company should consider timing of a purchase if they want to use bonus depreciation. It more is useful to apply in a year when a company has significant income.
What is Qualifying Property for Bonus Depreciation?
Modified Accelerated Cost Recovery System (MACRS)
Qualified Improvement Property (QIP)
Computer Software
Short-Term Rentals
What is Section 179 Expensing?
Section 179 allows businesses to deduct the full purchase price of qualifying equipment and/or software in the year it’s placed in service, instead of depreciating it over time. Under the OBBB, the limit for Section 179 Expensing was increased to $2.5 million for property placed in service in taxable years beginning after December 31, 2024. Previously, this limit was $1.25 million for 2025. Here are the other changes to Section 179 Expensing under OBBB:
- Higher Phase-out Threshold: The deduction starts to phase out when qualifying purchases exceed $4 million in 2025. This is an increase from the previous threshold of $3.13 million.
- Inflation: Both the expense limit and the thresholds are indexed to be increased for inflation in 2026.
What is Qualifying Property for Section 179 Expensing?
Many of the same capital asset purchases like machinery and software are allowed under Section 179 as Bonus Depreciation. The OBBB also maintained a provision allowing Section 179 deductions for certain improvements to nonresidential real property, such as roofs, HVAC, fire alarm systems, and security systems. To be eligible, expenditures must be for new improvements that were placed in service after the building was first placed in service.
Key Features: Bonus Depreciation vs. Section 179 Expensing
Bonus Depreciation
The Bonus Depreciation has no overall dollar limit on the deduction.
You can create a net operating loss (NOL) that can be carried forward to offset future income.
If you use this, you have to use it for all assets within a specific asset class (e.g., all 5-year property).
Now applies to both new and used equipment (as long as it’s “new to you”), a change from previous years.
Some states, like Alabama, may decouple from federal bonus depreciation rules, requiring separate calculations for state tax purposes.
Section 179 Expensing
Spending above the threshold reduces the deduction dollar-for-dollar when exceeded.
You cannot use a Section 179 Expense to create a net loss for the business.
You get flexibility to choose which assets and how much of those assets to expense.
Some states, like Alabama, may decouple from federal bonus depreciation rules, requiring separate calculations for state tax purposes.
Using Bonus Depreciation and Section 179 Expensing under OBBB
A business owner can choose to use Bonus Depreciation and Section 179 Expensing together. Generally, you will use the Section 179 until you meet the threshold and then use Bonus Depreciation for any remaining assets.
100% Bonus Deprecation and Section 179 Expensing are not new, but with these changes made permanent, you have a lot more flexibility and should be strategic about timing of purchases. If you have a year with substantial income, you can take advantage of either(or both) of these for immediate tax savings, which reduces current year tax liability and can increase tax savings to give your company more money for reinvestment or debt reduction. Schedule a meeting with your accountant if you want to know specific details about how a purchase can affect your company.
Chris VanArsdale
Chris is a Manager in our tax department with over 10 years of experience. His specialties include international, trust and estate, and business tax filings.
