You’ve got capital to deploy before year-end, but the tax rules just shifted under your feet. The One Big Beautiful Bill Act, signed into law on July 4, 2025, permanently restores 100% bonus depreciation and significantly expands Section 179 expensing. That’s good news, but only if you understand how and when to apply each rule.
These provisions improve the ability for businesses, especially at the small and mid-sized level, to recover the cost of capital investments more quickly. As these changes take effect in 2025, taxpayers should begin preparing now to take full advantage of these enhanced benefits.
At DHJJ, we’ve helped hundreds of businesses align their capital investments with evolving tax strategies, especially when legislation shifts unexpectedly. This article will break down the two revised depreciation incentives, highlight key planning considerations, and help you avoid the common pitfalls we’re already seeing with these new rules.
What is Bonus Depreciation?
Bonus depreciation, governed by IRC §168(k), allows businesses to deduct a portion (or all) of the cost of qualifying assets in the year they are placed in service. This is distinct from regular depreciation, where deductions are spread out over several years, known as the “life” of the asset.
Under the Tax Cuts and Jobs Act (TCJA), 100% bonus depreciation was temporarily allowed for qualified property acquired and placed in service after September 27, 2017, and before January 1, 2023. However, that percentage began phasing down in 2023 to 80%, with a plan to reduce to 60% in 2024, 40 % in 2025, 20% in 2026, and eventually eliminated in 2027.
OBBBA: Permanent 100% Bonus Depreciation
The OBBBA reverses the phase-down from the TCJA and reinstates the 100% bonus depreciation permanently for qualified property acquired and placed in service after January 19, 2025.
Key items from the OBBBA:
- Applied to both new and used assets, provided the taxpayer has not previously used the asset and it was acquired in an arm’s-length transaction.
- Eligible property includes:
- Tangible personal property with a recovery period of 20 years or less (e.g., machinery, equipment, furniture, computers),
- Computer software,
- Certain improvements to nonresidential real estate (e.g., qualified improvement property (QIP)).
- Businesses can elect out of bonus depreciation on a class-by-class basis.
- For the first year ending after January 19, 2025, taxpayers may elect 40% bonus depreciation instead of 100%, providing some flexibility for income management.
IMPORTANT: To qualify for 100% bonus depreciation, property must be acquired after January 19, 2025. Property acquired under a binding written contract dated before this cutoff is not eligible for the new rule and remains subject to the previous phase-out schedule.
What is Section 179 Expensing?
Section 179 expensing allows businesses to deduct the full purchase price of qualifying property and software purchased or financed during the tax year, rather than capitalizing the expenses and depreciating them over several years.
This deduction is favorable for small to mid-sized businesses because it is limited based on the total amount of property placed in service and the taxable income of the business.
2024 Rules (Pre-OBBBA):
- Maximum Deduction: $1.22 million
- Phase-Out Threshold: $3.05 million (deduction reduced dollar-to-dollar above this amount)
- Deduction limited to the business’ taxable income (carryovers allowed to future years)
OBBBA: Expanded Section 179 Expensing
The OBBBA enhances section 179 expensing beginning in tax years starting after December 31, 2024.
2025 Rules (OBBBA):
- Maximum Deduction: $2.5 million
- Phase-Out Threshold: $4 million
- Inflation Indexing begins in 2026
The OBBBA has more than doubled the maximum deduction amount and increased the usefulness of section 179 for mid-sized businesses who heavily invest in capital equipment or building improvements.
Eligible property includes:
- Tangible personal property used in business,
- Computer software,
- Qualified improvements to non-residential buildings, including:
- Roofs,
- HVAC systems,
- Fire protection and alarm systems,
- Security systems.
Since improvements are not always eligible for bonus depreciation, section 179 expensing becomes a valuable tool for businesses investing in equipment, technology, and real estate.
How Does Bonus Depreciation and Section 179 Work Together?
Both provisions allow for the immediate deduction of capital investments, but they both operate under different rules and limitations.
| Bonus Depreciation | Section 179 | |
| Deduction Limit | No Dollar Limit | $2.5 million (2025) |
| Phase-Out | None | Starting at $4 million |
| Income Limitation | No | Yes (cannot exceed taxable income) |
| Property Eligibility | Tangible Property with 20-year life or less | Broad (includes some real property) |
| Elective Use | Automatic, unless opted out | Yes (choose assets) |
| New or Used | Both | Both |
In terms of tax strategy, it’s advantageous to apply Section 179 first, focusing on assets that may not qualify for bonus depreciation or where selective expensing is useful. Afterwards, apply bonus depreciation to remaining qualified assets for full expensing. This combined approach maximizes current-year deductions while preserving flexibility.
Planning Consideration for 2025 and Beyond
- Taxpayer Classification: Estates, trusts, and certain noncorporate lessors are not eligible to claim a Section 179 deduction on their tax return so passthrough entities should take into account their owners’ classification when electing Section 179.
- State Conformity: Section 179 is widely adopted at the state level, but many states do not conform to federal bonus depreciation rules. Taxpayers need to plan around differing state depreciation treatments, especially if operating in multiple states. Section 179 may be preferable in states that require a depreciation addition modification for tax purposes.
- Income Management: Section 179 is limited by taxable income, making it a strategic tool for managing profitability. Bonus depreciation, not subject to that limit, can be more advantageous for large purchases or in years with a lower income.
- Elective Out Options: Taxpayers can elect out of bonus depreciation or elect a reduced percentage (such as 40%) in the first year to align deductions with future income expectations. This may be useful with cyclical profits or planned NOL strategies.
Final Thoughts: How to Maximize 2025 Depreciation Tax Breaks
The OBBBA brought a significant shift as to how businesses can expense capital investments, offering certainty and generous deductions for years to come. With the permanent return of 100% bonus depreciation and the major expansion to Section 179 expensing, businesses now have incentives to invest in equipment, technology, and real estate developments.
If you were struggling to balance investment goals with tax planning, these changes bring new opportunities, but also new complexity.
Now is the time to work closely with your tax advisor to evaluate your upcoming purchases, review state-specific rules, and build a proactive acquisition strategy that aligns with your long-term financial goals. These changes not only reduce the potential tax liability but also free up cash flow, making them a vital component of long-term business growth and planning.
At DHJJ, we partner with businesses to navigate tax law changes with clarity and confidence, helping you turn policy shifts into real financial advantage.
