One of the most significant provisions of the Tax Cuts and Jobs Act (TCJA) was 100% bonus depreciation for qualified property acquired and placed into service after Sept. 27, 2017. Under TCJA, the bonus depreciation percentage dropped by 20% each year starting in 2023 and was scheduled to completely phase out by 2026. With the enactment of the One, Big, Beautiful Bill (OBBB) on July 4, 2025, bonus depreciation permanently returns to 100%. Essentially, any qualifying property acquired and placed into service after Jan. 19, 2025, will be eligible for this significant increase in deductibility. This can be very advantageous for those making large capital investments now and into the future.
Bonus depreciation based on asset placed in service date
- 2022 = 100%
- 2023 = 80%
- 2024 = 60%
- 2025 = 100% if acquired after Jan. 19, 2025; 40% if acquired on or before Jan. 19, 2025
Meeting eligibility criteria
Qualified property eligible for bonus depreciation includes depreciable assets with a recovery period of 20 years or less, such as vehicles, furniture, manufacturing equipment, and heavy machinery. The list also includes computer software, water utility property, and qualified film, television, or live theatrical productions. After some initial uncertainty caused by legislative language in the TCJA, “qualified improvement property” is also included as “qualified property” for purposes of bonus depreciation, meaning that many interior upgrades to commercial buildings are eligible for accelerated cost recovery.
The key to eligibility for OBBB 100% bonus depreciation is that the assets are both acquired and placed in service after Jan. 19, 2025. The acquisition requirement is particularly important for situations where the property was previously purchased but not yet installed. The OBBB clarifies that an acquisition date is no later than the date on which a written, binding contract for the acquisition is executed. An acquisition of qualified property that occurred prior to Jan. 20, 2025, will be disqualified from 100% bonus, even when placed in service later in 2025. Those assets will instead only get 40% bonus depreciation. Taxpayers with asset installation projects that straddled 2024 and 2025 should carefully evaluate when such assets were both acquired and “ready and available for use” in order to support a 100% bonus depreciation treatment.
New special depreciation for qualified production property
The OBBB also created a new 100% deduction for qualified production property (QPP) which, when combined with 100% bonus depreciation for equipment, heavily incentivizes the construction of manufacturing and production facilities in the United States. QPP is any nonresidential real property located in the United States that’s integral to the taxpayer’s manufacturing of tangible personal property. QPP must be either:
- New property for which construction begins after Jan. 19, 2025, but before Jan. 1, 2029, and placed in service before Jan. 1, 2031.
- Used property not previously used in a manufacturing activity by anybody in the period of Jan. 1, 2021, through May 12, 2025, and acquired after Jan. 19, 2025. Used QPP must be placed in service before Jan. 1, 2031.
In effect, determining that property meets the definition of QPP likely means that the entire investment in the facility would be 100% deductible in the year placed in service, other than the investment in land.
Cost segregation and bonus depreciation
One way to increase the value of bonus depreciation is to use a cost segregation study to accurately categorize components of buildings into asset classes, including QPP, that have recovery periods of 20 years or less, making them eligible for the appropriate bonus depreciation percentage available in the year placed in service. These studies are performed by teams of accountants, engineers, and building construction professionals who identify and assign costs to building elements that are “dedicated, decorative, or removable” and, therefore, eligible for cost recovery over shorter asset lives than that of real property.
Section 179 small business expensing
Some small businesses may be able to take advantage of other initial-year expensing using Internal Revenue Code Section 179 rules. OBBB increased 179 expensing to $2.5 million with a phase out starting at $4 million. However, those rules can be less attractive than the bonus depreciation allowances, due to limitations in place to claim deductions under this provision. Under Section 179, businesses are subject to total purchase rules and total deduction rules every year, which place limits on the amount of first-year depreciation when compared with the bonus depreciation rules.
Despite the limitations, the expanded Section 179 expensing has a wider effective date. Namely, such deductions are available with respect to property placed in service in tax years beginning after Dec. 31, 2024. The “acquired after” language applicable to 100% bonus depreciation is notably absent from Section 179. In any event, it’s important to apply a depreciation strategy that optimizes deductions between bonus depreciation and Section 179 when eligibility for both is possible.
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