If you are purchasing a new building or renovating existing property (see * below) or your business is planning equipment purchases, software upgrades, or other major investments, this update could have a meaningful impact on your tax strategy.

100% Bonus Depreciation Is Back

Before OBBBA, bonus depreciation was phasing out and was set to drop to 40% in 2025. With the new law, 100% bonus depreciation is now permanently reinstated for qualified property acquired and placed in service after January 19, 2025. This includes most tangible personal property with a recovery period of 20 years or less, such as land improvements, machinery, computers, and furniture and equipment.

Businesses can now fully expense new and used assets in the year they are placed in service, rather than spreading deductions over several years.

Section 179 Expensing Increases

OBBBA also raises the Section 179 deduction limit to $2.5 million, with a new phaseout threshold of $4 million. This allows businesses, particularly small and midsize companies, to immediately expense qualifying property without relying solely on bonus depreciation. The benefit or advantage of Section 179 is that certain states do not allow bonus depreciation but generally states allow the expensing under Section 179.

New Incentive for Qualified Production Property

The law introduces a special depreciation allowance for "qualified production property" placed in service after the date of enactment and before 2031. This provision is particularly favorable for manufacturers and other capital-intensive industries investing in domestic production equipment, tools, and fixtures.

What to Do Next

With these changes now in effect, businesses should:

• Revisit their asset purchase plans for the remainder of 2025
• Work with their tax advisor to determine which assets qualify for bonus depreciation or Section 179
• * Consider a cost segregation study for the purchase of your new commercial or investment property in light of the reinstatement of 100% bonus depreciation
• Update their year-end tax planning strategies accordingly

FAQs: Depreciation Updates Under the One Big Beautiful Bill Act

1. What types of assets qualify for 100% bonus depreciation under OBBBA?
Most new and used tangible personal property with a recovery period of 20 years or less qualifies.

2. Can I claim both bonus depreciation and Section 179 for the same asset?
In some cases, yes. However, Section 179 is generally applied first. Your tax advisor can help you decide which approach offers the best benefit based on your asset types and business income.

3. How does the OBBBA impact real estate purchases or renovations?
While buildings themselves don’t qualify for bonus depreciation, a cost segregation study can identify components that do. This is especially useful for commercial or investment property owners.

4. Do these changes apply to state taxes too?
Not necessarily. Many states don’t conform to federal bonus depreciation rules, but they may allow Section 179 expensing.

These updates provide real opportunities to reduce your tax liability and improve cash flow. If you'd like help evaluating how the OBBBA changes impact your business, our team is here to help. Contact us to schedule a planning discussion before year-end.

For a full summary of business-related provisions in the new law, read our article: 2025 Big Beautiful Bill Signed Into Law: What Tax Changes Mean for Business Owners