By Grady McMichen, J.D. · July 29, 2025
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, permanently restores 100% bonus depreciation for qualifying property. Business owners who spent the past two years working under reduced deduction rates now have access to one of the most powerful tools for accelerating capital investment tax savings. Unlike the original Tax Cuts and Jobs Act provision, this restoration carries no sunset date.
Bonus depreciation 2025 changes go well beyond restoring the full first-year write-off. The OBBBA also raises Section 179 expensing limits to $2,500,000, introduces a new 100% expensing provision for qualified production property, and establishes transition rules that determine which depreciation rate applies to assets purchased during the phase-down period. Understanding how each of these provisions works, and how they interact, is critical for making informed capital expenditure decisions in 2025 and beyond. Our tax advisory services team works with clients on exactly these decisions.
What changed under the OBBBA
100% bonus depreciation had been phasing down under the Tax Cuts and Jobs Act schedule since 2023. The rate dropped to 80% that year, fell to 60% in 2024, and was on track to continue declining until it reached zero. The OBBBA reverses that trajectory permanently.
Under the new law, taxpayers may claim 100% first-year bonus depreciation on qualified property that is both acquired and placed in service after January 19, 2025. This is a critical distinction from the TCJA’s original bonus depreciation provision, which included a built-in phase-down schedule. The OBBBA eliminates that uncertainty entirely: there is no sunset, no scheduled rate reduction, and no expiration date. Businesses can plan capital investments with long-term confidence that the full first-year deduction will remain available. The IRS outlines the underlying first-year depreciation framework in its Additional First Year Depreciation Deduction guidance.
For companies that delayed equipment purchases or building improvements during the phase-down period, the permanent restoration creates an immediate opportunity to accelerate deductions on planned acquisitions. For those that purchased assets during 2023 or 2024 at the reduced rates, the transition rules (discussed below) determine whether any retroactive benefit is available.
What property qualifies for 100 bonus depreciation
The types of property eligible for the full 100% bonus depreciation deduction remain broadly consistent with prior rules. Qualifying assets include MACRS property with a recovery period of 20 years or less, a category that covers machinery, equipment, furniture, vehicles, and similar tangible business assets. Qualified improvement property, meaning interior improvements to nonresidential buildings (excluding enlargements, elevators, escalators, and structural framework changes), also qualifies. The statutory definition of eligible property is set out at 26 U.S.C. 168(k).
Computer software, both off-the-shelf and certain internally developed software, is eligible, as are qualified film, television, and live theatrical productions. Both new and used property can qualify, which is an important distinction from other depreciation incentives like Section 179, where used property eligibility is more limited.
Used property must meet several additional requirements to qualify for bonus depreciation. The taxpayer must not have previously used the property, with a five-year lookback period enforcing this rule. The property must be acquired by purchase rather than from a related party or through certain tax-free transactions. And the cost basis must not be determined by reference to the adjusted basis in the hands of the seller.
These requirements matter most in the context of business acquisitions, equipment trade-ins, and related-party transfers. Any transaction where the buyer has a prior relationship with the asset or the seller should be reviewed carefully to confirm bonus depreciation eligibility.
Transition rules and acquisition date mechanics
The effective date rules under the OBBBA require careful attention, because the applicable bonus depreciation rate depends on when property was both acquired and placed in service. Getting this wrong can mean claiming the wrong deduction amount on a tax return.
Property placed in service after January 19, 2025, and acquired after that same date, qualifies for the full 100% bonus depreciation. Property placed in service between January 1 and January 19, 2025, receives the prior phase-down rate of 40%, regardless of when it was acquired.
The most important nuance involves binding contracts. If a taxpayer entered into a written binding contract to acquire property before January 20, 2025, but did not place the property in service until after that date, the phase-down rates apply rather than the restored 100% rate. The acquisition date is determined by the contract date rather than the delivery date. This means 40% applies in 2025 and 20% in 2026 for contract-bound acquisitions.
The OBBBA also includes an election provision that can work to a taxpayer’s advantage. For the first tax year ending after January 19, 2025, taxpayers may elect to apply a 40% bonus depreciation rate (or 60% for certain long production period property) instead of the full 100%. This election may benefit businesses that want to preserve deductions for future years, manage net operating loss carryforward timing, or coordinate depreciation with tax credit utilization strategies.
Section 179 vs bonus depreciation: expanded limits for 2025
The OBBBA significantly expands the Section 179 immediate expensing election, giving businesses a second powerful tool for accelerating capital investment deductions. Understanding how Section 179 compares to bonus depreciation, and when to use each, is essential for tax planning.
Key changes to Section 179, effective for property placed in service after December 31, 2024, include an annual deduction limit raised from $1,000,000 to $2,500,000 and a phaseout threshold raised from $2,500,000 to $4,000,000. The deduction begins to phase out dollar-for-dollar once total qualifying property placed in service exceeds the threshold. Both limits will be indexed for inflation going forward, providing automatic annual adjustments.
The expanded Section 179 limits carry a strategic advantage that goes beyond the raw numbers. Many states that do not conform to federal bonus depreciation rules do allow Section 179 deductions. For businesses operating in those states, maximizing Section 179 expensing rather than relying solely on bonus depreciation can produce better after-tax results when federal and state impacts are considered together.
There is another practical difference. Section 179 deductions cannot create or increase a net operating loss, while bonus depreciation can. This makes bonus depreciation the more flexible option for businesses expecting a loss year, but Section 179 the safer choice when state conformity or NOL management is a priority. The optimal strategy often involves using both provisions together, applying Section 179 up to the state-beneficial limit and bonus depreciation for the remainder.
New qualified production property expensing under Section 168(n)
One of the most significant additions in the OBBBA is a new provision that creates 100% expensing for Qualified Production Property (QPP). This targets nonresidential real property used as an integral part of qualified production activities, a category of assets that historically could not benefit from bonus depreciation because real property was excluded.
Eligible production activities include manufacturing of tangible personal property, agricultural and chemical production processes, and refining of tangible property. To qualify, the property must meet several requirements: construction must begin after January 19, 2025, and before January 1, 2029; the property must be placed in service before January 1, 2031; original use must begin with the taxpayer (used property does not qualify); and the property must be used as an integral part of qualifying production activities.
Portions of a facility used for offices, administrative functions, lodging, parking structures, sales, research and development, or software engineering are excluded from QPP treatment. This means a mixed-use manufacturing facility would need a cost allocation study to determine which portions qualify.
A 10-year recapture rule applies. If the property ceases to be used for qualifying production activities within 10 years of being placed in service, the taxpayer must recapture a portion of the deduction. This recapture mechanism is important to factor into long-term facility planning, particularly for businesses considering future changes in their production operations.
For manufacturers and capital-intensive industries, the QPP provision represents a meaningful opportunity to accelerate the tax benefit of constructing or expanding production facilities, an asset class where depreciation periods have traditionally stretched across 39 years. Businesses in our manufacturing and construction practice areas should evaluate this provision closely against their facility plans.
How to plan your capital expenditures now
With 100% bonus depreciation permanently restored and Section 179 limits substantially increased, businesses should take a fresh look at their capital expenditure and tax planning strategies. Several specific actions can help you take full advantage of the bonus depreciation 2025 rules and related provisions.
First, review your capital expenditure plans for 2025 and beyond. Identify assets that may qualify for 100% bonus depreciation or the expanded Section 179 deduction, and evaluate whether accelerating planned purchases could produce meaningful tax savings. Equipment, vehicles, technology, and qualified improvement property are all candidates.
Second, model the tax impact of different depreciation elections. In some cases, electing a reduced bonus rate or using Section 179 instead of bonus depreciation may produce a better overall outcome, particularly when factoring in net operating loss utilization, alternative minimum tax exposure, and credit strategies. The interaction between these provisions creates planning opportunities that a one-size-fits-all approach will miss.
Third, consider a cost segregation study for commercial property purchases. Cost segregation reclassifies components of a building into shorter recovery period categories that qualify for bonus depreciation, significantly accelerating deductions on real estate acquisitions. With 100% bonus depreciation restored permanently, the value of cost segregation studies has increased substantially.
Fourth, evaluate your state tax position. Many states do not conform to federal bonus depreciation, and the rules vary significantly by state. Understanding where your operations generate state tax liability and whether those states allow Section 179 is essential for maximizing your combined federal and state tax position.
Finally, coordinate all of these decisions with your broader tax planning strategy. Bonus depreciation and Section 179 elections interact with NOL carryforward planning, tax credit utilization, estimated tax payments, and entity structure considerations. These decisions should not be made in isolation from your overall financial goals.
Long-term planning with permanent depreciation rules
The permanent restoration of 100% bonus depreciation removes a significant source of uncertainty from business capital planning. For the past two years, businesses had to weigh the declining bonus rates against the possibility that Congress might restore the full deduction, making it difficult to commit to large capital expenditures with confidence. That uncertainty is now resolved.
Combined with expanded Section 179 limits and the new QPP expensing provision, the OBBBA gives businesses a strong set of tools for managing the tax impact of capital investments through bonus depreciation 2025 and into 2026 and beyond. The key is acting on these provisions with a clear understanding of the rules, the transition mechanics, and how they fit within your overall tax strategy.
For questions about how these changes affect your business, contact your Pease Bell tax advisor or review our full range of accounting services.
Frequently asked questions
Is 100% bonus depreciation permanent now?
Yes. The OBBBA permanently restores 100% bonus depreciation for qualifying property acquired and placed in service after January 19, 2025. Unlike the original TCJA provision, there is no sunset date or phase-down schedule. Businesses can plan long-term capital investments knowing the full first-year deduction will remain available.
What qualifies for bonus depreciation in 2025?
Qualifying property includes MACRS assets with a recovery period of 20 years or less (machinery, equipment, furniture, vehicles), qualified improvement property, computer software, and certain film and theatrical productions. Both new and used property can qualify, though used property must meet additional ownership and purchase requirements.
What is the difference between Section 179 and bonus depreciation?
Both allow first-year deductions for qualifying assets, but they differ in key ways. Section 179 has an annual deduction cap ($2,500,000 under the new law) and cannot create a net operating loss. Bonus depreciation has no annual dollar limit and can generate or increase an NOL. Section 179 also has broader state conformity, making it the better choice in states that do not follow federal bonus depreciation rules.
How do the OBBBA transition rules work for bonus depreciation?
The applicable rate depends on both acquisition date and placed-in-service date. Property acquired and placed in service after January 19, 2025, gets 100%. Property under a binding contract signed before January 20, 2025, receives the prior phase-down rates (40% in 2025, 20% in 2026) even if placed in service later. Property placed in service between January 1 and 19, 2025, receives 40% regardless of acquisition date.
What are the new Section 179 limits for 2025?
The OBBBA raised the annual Section 179 deduction limit from $1,000,000 to $2,500,000 and increased the phaseout threshold from $2,500,000 to $4,000,000. Both limits are now indexed for inflation, so they will adjust automatically each year. These changes apply to property placed in service after December 31, 2024.
What is the qualified production property expensing provision?
Section 168(n) of the OBBBA creates a new 100% expensing deduction for nonresidential real property used in manufacturing, agricultural production, and refining activities. Construction must begin after January 19, 2025, and before January 1, 2029, with the property placed in service by January 1, 2031. A 10-year recapture rule applies if the property stops being used for qualifying production activities.
