Bonus depreciation lets businesses deduct the full cost of qualifying assets immediately in the year they are placed in service, instead of spreading deductions over several years. This can reduce taxable income faster and improve cash flow beneficial for managing capital investments.
What You Need to Know About Bonus Depreciation in the One Big Beautiful Bill Act (OBBBA)
The OBBBA brings back 100% bonus depreciation for most qualifying property bought after January 19, 2025. This means you can deduct the full cost of tangible property with a useful life of 20 years or less right away.
It’s important to know that if you signed a binding contract to buy property before January 20, 2025, the property will count as acquired on that earlier date. That might mean it doesn’t qualify for the 100% bonus depreciation.
Qualifying Property Includes:
- Furniture, fixtures, and equipment
- Certain improvements to commercial buildings, such as leasehold improvements
New Temporary Bonus for Qualified Production Property
The law also offers a new bonus for certain types of building property called qualified production property. Normally, these buildings don’t qualify because they have a 39-year life. But now, if they meet all the conditions below, you can expense them fully:
- The property is used as an integral part of a qualified production activity
- The property is placed in service within the United States or its possessions
- The taxpayer is the first to use the property
- Construction begins after January 19, 2025, and before January 1, 2029
- The taxpayer elects to apply this bonus
- The property is placed in service before January 1, 2031
Land and standard buildings continue to be not qualified for bonus depreciation.
Section 179
Section 179 lets you immediately deduct smaller purchases up to $2.5 million. This starts to phase out if you buy more than $4 million worth of property in a year. However, Section 179 excludes more categories of assets than bonus depreciation. Furthermore, Section 179 depreciation can’t be used to create or increase a net operating loss.
In Summary
Using a strategic combination of Section 179 and bonus depreciation can speed up your tax deductions, help your cash flow, and support your business growth. These decisions are best made with an understanding of your business’s forecasted profitability and planned capital expenditure in order to minimize your taxable income over the long term.
At Duner and Foote, we are here to help you maximize your tax savings. Contact us today to schedule a consultation.