Bonus Depreciation and the One Big Beautiful Bill Act: What Businesses Need to Know

In 2025, a major shift in U.S. tax law reshaped how businesses recover the cost of capital investments. The One Big Beautiful Bill Act (OBBBA) brought back one of the most impactful tax provisions for business owners: bonus depreciation — and made it more robust and permanent than in recent years. For many taxpayers, this change provides powerful opportunities to accelerate deductions, improve cash flow, and make strategic capital decisions.

Here’s a practical breakdown of what these changes mean and how business owners and advisors should think about them.

What Is Bonus Depreciation?

Bonus depreciation allows a business to deduct a large portion — or even the entirety — of the cost of certain assets in the year they are placed in service, rather than spreading the deduction over many years. This “upfront” tax deduction can significantly reduce taxable income in the year of investment, which can be especially valuable for businesses with heavy capital expenditures.

Under the OBBBA, bonus depreciation has been permanently restored at 100%, reversing the phasedown that had been underway since 2023. This means qualified assets purchased and placed in service after January 19, 2025 can be fully expensed in the year they are placed into service.

What Property Qualifies?

Most tangible business assets with a recovery period of 20 years or less are eligible for bonus depreciation. Common examples include:

• Machinery and equipment

• Office furniture and fixtures

• Computers and technology

• Certain vehicles

• Qualified improvement property (interior improvements to nonresidential buildings)

Under the OBBBA, this full deduction also applies to both new and used property, as long as the property has not been previously used by the taxpayer and meets other eligibility rules.

It’s important to document both the acquisition date and the placed-in-service date because both are critical in determining eligibility — and assets acquired under a binding contract before January 20, 2025 may not qualify for the 100% deduction even if placed in service later.

Expanded Opportunities Under the OBBBA

1. Permanent 100% Bonus Depreciation Before the OBBBA, bonus depreciation was scheduled to phase down gradually through 2027 before disappearing entirely. The new law makes the 100% rate permanent for eligible property acquired and placed in service after January 19, 2025 — offering long-term certainty for tax planning and capital budgeting.

2. Optional Transitional Election If a taxpayer’s first tax year ending after January 19, 2025, includes property placed in service during that year, they may elect to use a 40% bonus depreciation rate instead of 100% (or 60% for certain long-production assets and aircraft). This can be useful when managing taxable income levels strategically across years.

3. Qualified Production Property (QPP) OBBBA also introduced a new category called Qualified Production Property, which includes certain nonresidential real property used in production or manufacturing activities. Subject to specific timing and usage requirements, this new category can also qualify for immediate expensing under the law.

Planning Considerations for Businesses

The return of full bonus depreciation has several important implications:

Cash Flow and Investment Planning Being able to deduct 100% of eligible asset costs immediately provides a meaningful cash-flow benefit. This can influence decisions about when to buy property, leasehold improvements, or equipment — especially as businesses plan future growth or modernization.

Election Strategy Not every business will want to use 100% bonus depreciation every year. Some taxpayers may choose the 40% transitional election or elect out of bonus depreciation entirely for specific asset classes if they expect higher taxable income in future years. This strategic flexibility can help smooth taxable income across planning horizons.

Binding Contract Timing Because the qualification hinges on acquisition and placed-in-service rules tied to specific dates, documenting purchase contracts and understanding when construction or delivery begins is essential to ensure eligibility for the 100% deduction.

Interaction With Other Limits Bonus depreciation works alongside other cost recovery provisions like Section 179 expensing. Under the OBBBA, Section 179 limits have increased as well — but Section 179 cannot create a net operating loss like bonus depreciation potentially can. Choosing between these strategies depends on current and forecasted income, the presence of excess business loss limitations, and long-term tax planning goals.

Bottom Line

The One Big Beautiful Bill Act’s restoration and expansion of bonus depreciation represents a substantial shift in federal tax policy. For businesses making capital investments, this change can deliver significant tax savings in the year assets are put into service — accelerating deductions and enhancing cash flow.

However, the rules are nuanced. Whether you’re a small business owner evaluating equipment purchases or a corporate tax planner modeling long-range capital budgets, a thoughtful strategy that considers timing, eligible property types, and election options will help maximize the benefit of these provisions.

If you want help analyzing how bonus depreciation under the OBBBA affects your specific situation — including election strategy and interaction with Section 179 — I can walk through detailed planning scenarios with you.