Business owners who buy equipment, vehicles, software or other depreciable property now have a permanent path to deduct the full cost in the first year. As tax advisers began unpacking the July reconciliation law in early August 2025, the two provisions drawing the most attention were the permanent return of 100% bonus depreciation and a Section 179 expensing limit that jumps to $2.5 million.
What changed
Under the 2017 tax law, bonus depreciation had been stepping down each year. Property placed in service in 2025 would have qualified for only 40% bonus depreciation, falling to 20% in 2026 and zero after that. The new law ends that schedule for property acquired after January 19, 2025, allowing a full 100% first-year deduction with no sunset, according to a Grant Thornton analysis. Property acquired before January 20 stays on the old phase-down.
Eligible property is generally tangible property with a recovery period of 20 years or less, and used property can qualify. Taxpayers may also elect to apply the lower transition rates, 40% or, for certain long-production-period property and aircraft, 60%, in their first tax year ending after January 19, 2025. The election to opt out by property class each year remains available.
Section 179, which lets smaller businesses expense qualifying purchases up to a dollar cap, rises from $1 million to $2.5 million for tax years beginning after 2024. The deduction starts to shrink once total qualifying property placed in service during the year exceeds $4 million, up from $2.5 million. Both figures will be indexed for inflation for tax years beginning after 2025.
The law also adds a new category, qualified production property under Section 168(n), which allows 100% expensing of certain nonresidential buildings used in manufacturing and production. Construction must begin after January 19, 2025, and before January 1, 2029, and the property must be placed in service before January 1, 2031. Office, administrative, research, software development and sales space is excluded, and a 10-year recapture rule applies if the building stops being used for a qualifying purpose, as Potomac Law Group outlines.
Who is affected
The changes matter most to owners of pass-through businesses, S corporations and partnerships, whose deductions flow to their individual returns and can offset income taxed at top individual rates. Physicians buying imaging equipment, contractors adding fleets, restaurant owners renovating kitchens and real estate investors with cost-segregation studies all generate property that may qualify. Manufacturers planning new plants gain an entirely new lever through the production-property rule.
The after-tax math
Example: a business owner places $3 million of qualifying equipment in service in late 2025. Assume, for illustration only, a 35% combined marginal rate on the owner's pass-through income.
| Scenario | First-year deduction | Illustrative first-year tax savings |
|---|---|---|
| Old law, 40% bonus | $1.2 million, plus regular depreciation on the rest | About $420,000 before regular depreciation |
| New law, 100% bonus | $3 million | About $1.05 million |
The total deduction over the life of the asset is the same in both cases. What changes is timing: pulling deductions forward keeps more cash in the business in year one, which can fund growth or reduce borrowing. The trade-off is that future years carry smaller depreciation deductions, and a sale of the asset can trigger depreciation recapture taxed as ordinary income.
Section 179 and bonus depreciation work differently at the edges. Section 179 is capped and limited by business income, while bonus depreciation has no dollar cap and can create or increase a loss. For a business buying $2 million of equipment, either route may fully expense the purchase; above the $4 million threshold, the Section 179 benefit begins to erode and bonus depreciation typically carries more of the load.
Moves to discuss with your advisor
- Acquisition dates. Because eligibility turns on when property was acquired, purchase contracts signed before January 20, 2025, deserve a close look.
- Full expensing versus spreading deductions. Owners expecting higher income or higher rates later sometimes prefer the 40% transition election or opting out, keeping deductions for future years.
- State conformity. Many states do not follow federal bonus depreciation, which can create separate state depreciation schedules.
- Cost segregation. Building owners often review whether components of real property can be reclassified into shorter recovery periods that qualify.
- Loss limits. Large write-offs can run into excess business loss and at-risk rules at the individual level, which is worth modeling with a CPA before year-end.
What to watch
The IRS is expected to issue guidance on the acquisition-date rules, the transition elections and the production-property definition. Owners weighing a large purchase near year-end will also want to watch how their states respond, since conformity decisions will determine whether the federal benefit is matched on state returns.
Sources
- First reported OBBBA offers new, expanded ways to accelerate depreciation — Grant Thornton
- What Businesses Should Know About the New 100% Bonus Depreciation Rules & the Manufacturing Facility Deduction — Potomac Law Group
After TAX is an independent publication. Articles are general information, not tax, legal or investment advice. Consult a licensed professional about your situation.
