By: Duwayne Sibley | 01/21/26
Key Takeaways
Prior to the OBBBA, bonus depreciation was a powerful but temporary incentive for businesses to accelerate deductions on capital investments. Under the Tax Cuts and Jobs Act (TCJA) of 2017, businesses could claim 100% bonus depreciation for qualified property placed in service between September 27, 2017, and December 31, 2022. This allowed immediate expensing of the full cost of eligible assets, including both new and used property, provided certain requirements were met.
However, the TCJA included a phase-down schedule for bonus depreciation after 2022:
This meant that, absent further legislation, the ability to fully expense capital investments would have disappeared by 2027, reverting businesses to traditional, slower depreciation schedules. The phase-down created uncertainty and encouraged businesses to accelerate purchases to maximize deductions before the benefit expired.
The OBBBA, signed into law on July 4, 2025, fundamentally changes the landscape for business investment by making 100% bonus depreciation permanent for most tangible property acquired after January 19, 2025.
Key features:
The OBBBA introduces a new, temporary 100% bonus depreciation provision for “qualified production property” (QPP) under Section 168(n):
Comparison Table: Before and After the One Big Beautiful Bill Act
| Feature | Before OBBBA (TCJA) | After OBBBA (2025 and beyond) |
| Bonus Depreciation Rate | 100% (Sept 18, 2017-2022), then phased down | 100% permanent for most property |
| Eligible Property | MACRS ≤20 years, new/used | MACRS ≤20 years, new/used |
| Qualified Improvement Property | Eligible | Eligible |
| Qualified Production Property | Not eligible | 100% expensing (temporary, 2025- 2028, Subject to 10-year recapture rule) |
| Section 179 Limit | $1,220,000 (2024) | $2.5M (2025, inflation-adjusted) |
| Section 179 Phase-out | $3,050,000 (2024) | $4,000,000 (2025, inflation-adjusted) |
| Used Property | Eligible since 9/18/2017 | Eligible |
| Non-Residential Real Property (39-year property) | Not eligible | QPP eligible (if used in production) |
Practical Impact on Businesses
Small businesses can now immediately deduct the full cost of most equipment, machinery, and certain improvements, up to the Section 179 deduction limit ($2.5 million for 2025, inflation-adjusted). For investments above this threshold, 100% bonus depreciation applies, allowing for full expensing of additional qualifying assets. This can dramatically improve cash flow, reduce taxable income, and free up capital for reinvestment or debt reduction.
For larger companies, the permanent 100% bonus depreciation is a game-changer. There is no dollar cap or income limitation, so businesses can fully expense large-scale capital investments in the year placed in service. This is especially valuable for manufacturers, logistics companies, and capital-intensive industries. The new QPP provision further allows full expensing of qualifying production facilities, which were previously subject to 39-year straight-line depreciation.
Immediate expensing reduces taxable income, resulting in lower current-year tax liability and improved after-tax cash flow. This can enhance return on investment (ROI) for capital projects, support faster project payback, and provide a competitive edge in capital planning. For businesses using other Tax Credits & Incentives, the ability to pair bonus depreciation with those credits can further optimize the overall tax position.
The OBBBA’s changes encourage businesses to revisit capital expenditure plans, accelerate purchases, and consider cost segregation studies to maximize the amount of property eligible for 100% bonus depreciation. For mixed-use buildings, careful allocation of costs between qualifying and non-qualifying areas is essential.
While both bonus depreciation and Section 179 allow for immediate expensing of capital assets, they differ in important ways:
| Feature | Section 179 Deduction | Bonus Depreciation (OBBBA) |
| Deduction Limit | $2.5M (2025, inflation-adjusted) | No dollar limit |
| Phase-out Threshold | $4M (2025, inflation-adjusted) | No phase-out |
| Eligible Property | Tangible personal property, certain real property improvements | Most tangible property ≤20-year MACRS, new or used, QPP (if eligible) |
| Business Income Limit | Cannot exceed taxable business income | No income limitation |
| New vs. Used | New or used | New or used |
| Election | Must elect on tax return | Automatic unless elect out |
Example Scenario: A manufacturer purchases $3 million in new equipment and $5 million to expand production facility in 2025.
To qualify for 100% bonus depreciation, property must be acquired (or physical construction begun) after January 19, 2025. For new construction, the “when physical construction began” date is generally when more than 10% of total expected costs are incurred (excluding land and preliminary activities). Property acquired under a binding contract before this date is subject to the old phase-down rates.
Taxpayers may elect out of bonus depreciation for any class of property, which may be advantageous for managing taxable income, preserving net operating losses, or coordinating with other tax planning strategies. The OBBBA also allows a transitional election for 40% bonus depreciation in the first year after enactment.
Not all states automatically conform to the new federal rules. Some states have rolling conformity, while others require legislative action to update their tax codes. Businesses should review state law to determine whether the new 100% bonus depreciation and Section 179 limits apply at the state level.
What types of property qualify for 100% bonus depreciation under the OBBBA?
Most tangible property with a MACRS recovery period of 20 years or less qualifies, including machinery, equipment, furniture, fixtures, land improvements, and qualified improvement property. The new law also allows 100% expensing for certain nonresidential real property used in qualified production activities (QPP) if specific requirements are met.
Can businesses still use Section 179 along with bonus depreciation?
Yes. Section 179 expensing is applied first, up to the annual limit and subject to income and phase-out thresholds. Any remaining basis in eligible property can then be expensed using 100% bonus depreciation, maximizing immediate deductions.
How does bonus depreciation apply to used property?
Used property is eligible for 100% bonus depreciation as long as it was not previously used by the taxpayer and meets the acquisition requirements. The property must be acquired after January 19, 2025, and not acquired from a related party.
Conclusion
The new OBBBA represents a major shift in U.S. tax policy, making 100% bonus depreciation a permanent fixture for most business assets and introducing new opportunities for immediate expensing of production facilities. By understanding the new rules, documenting acquisitions, and coordinating with broader tax strategies, businesses can maximize the benefits of these changes and enhance their competitive position. For the latest One Big Beautiful Bill Act update and OBBBA bill status, consult with your tax advisor and monitor IRS guidance to ensure compliance and optimal tax outcomes.
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