The One Big Beautiful Bill Act: Bonus Depreciation is Back
Published on by Emma Knaley in Advisory, Tax Services
The current bonus depreciation rule came into play under the Tax Cuts and Jobs Act (TCJA) in 2017. Under TCJA, qualified property placed in service between 2017 and 2022 can be fully deductible. After 2022, this deduction has gradually been phased down to 80% in 2023, 60% in 2024, and would have been 40% in 2025.
With the passing of the One Big Beautiful Bill Act (OBBBA), 100% expensing of qualified property is back and permanent, meaning there will be no phase-down in future years.
What’s considered qualified property for bonus depreciation?
Under bonus depreciation rules put in place by the TCJA and made permanent under OBBBA, here’s what’s considered qualified property:
- Tangible property subject to Modified Accelerated Cost Recovery System (MACRS) (IRC Section 168) with a useful life of 20 years or less
- Computer software
- Qualified improvement property on the interior of a nonresidential building that does not enlarge or change the internal structural framework of the building
Potential additional tax benefits from a cost segregation study
If you’re undergoing major asset acquisitions or improvements to your business, a cost segregation study is a great way to identify and allocate costs to assets that are eligible for bonus depreciation – thus allowing you to maximize your depreciation deduction. If this sounds like a potential fit for you, contact us for a free consultation with our cost segregation team.
What if I don’t want to use bonus depreciation? Are there options?
In some situations, you don’t want or need to use bonus depreciation – that could include avoiding a Net Operating Loss, trying to smooth out income for future years, or avoiding any depreciation recapture if you plan to sell an asset. There are a few options for not taking the 100% bonus depreciation for 2025:
- Transitional Election for 2025: For most qualifying property, taxpayers may elect to apply the reduced bonus percentage of 40% in 2025.
- Electing Out Entirely: Taxpayers may choose to elect out of Bonus Depreciation for any class of property placed in service during the year. This election is irrevocable and applies to the entire class, not a per-asset decision.
Potential great tax savings
The OBBBA’s change to revert to 100% expensing of qualified property can be a great tax savings opportunity for your business. Please reach out to our tax advisors to discuss your plans or any questions you might have regarding bonus depreciation in 2025 – as always, we’re here to help.
You might also be interested in our other coverage of the OBBBA’s impact – qualified business income (QBI), Research and Development (R&D) expenditure relief, interest limitation changes, and detailed overviews of the impact on businesses and individuals. Our coverage keeps coming, so subscribe now to ensure you’re always in the loop with our latest insights.
