For three years, business owners watched their most powerful tax deduction shrink. The TCJA's 100% bonus depreciation — which let you write off the entire cost of equipment, vehicles, and improvements in year one — was phasing down: 80% in 2023, 60% in 2024, 40% in 2025. At that rate, it would have hit zero by 2027.
The One Big Beautiful Bill Act reversed that entirely. 100% bonus depreciation is permanently restored for qualifying property acquired after January 19, 2025. If you buy it, you can deduct all of it — year one.
What Changed Under the OBBBA
The restoration isn't just a reset. There are new rules and new categories that make this even more valuable than the original TCJA version:
- 100% first-year deduction on all qualifying property placed in service after January 19, 2025
- Permanent provision — no more phase-down schedule, no sunset date
- New category: qualified production property (temporary provision for manufacturing equipment)
- Specified plants for farming now included — orchards, vineyards, and nursery stock qualify
- Not retroactive — property acquired before January 20, 2025 still uses the old phase-down rates
Critical date: January 19, 2025. If you had a binding contract for equipment before January 20, 2025, you're stuck with the old phase-down rules (40% for 2025). The 100% rate only applies to property acquired after that date — or property where no binding contract existed before it.
The Dollar Difference: A Real Example
A general contractor buys a $400,000 excavator in March 2025. Here's what happens under each scenario:
Under the old 40% rate, the contractor deducts $160,000 in year one and depreciates the remaining $240,000 over the next several years. Under the restored 100% rate, the full $400,000 is deducted immediately.
At a 32% combined federal and state tax rate, that $240,000 difference translates to roughly $76,800 in additional tax savings in year one. The total tax benefit is the same over time — but having it now means better cash flow, more purchasing power, and a lower effective cost for the equipment.
What Property Qualifies
Bonus depreciation applies to a broad range of business assets:
- Equipment and machinery — construction equipment, manufacturing tools, restaurant equipment, salon chairs, medical devices
- Business vehicles over 6,000 lbs GVWR (see our Section 179 vehicle guide for specifics)
- Qualified improvement property (QIP) — interior renovations to commercial buildings
- Computer systems and software
- Office furniture and fixtures
- Certain used property — the asset must be new to you, but it doesn't have to be brand-new
Property must have a recovery period of 20 years or less under MACRS, or be qualified improvement property. Land, buildings themselves (the structure), and certain utility property don't qualify — but a cost segregation study can reclassify building components into shorter-lived categories that do.
Bonus Depreciation vs. Section 179: Use Both
With the Section 179 limit now at $2.5 million, business owners sometimes ask: "Do I even need bonus depreciation?" The answer is yes — they serve different purposes and stack together:
| Feature | Section 179 | Bonus Depreciation |
|---|---|---|
| Annual limit | $2.5M (phases out at $4M) | No limit |
| Used property | Yes | Yes (new to you) |
| Creates a loss? | No — limited to taxable income | Yes — can create or increase NOL |
| Real property | Limited categories | QIP qualifies |
The key difference: Section 179 cannot create a net operating loss, but bonus depreciation can. If you're making a massive equipment purchase that exceeds your current-year income, bonus depreciation lets you bank that excess deduction as an NOL to offset future (or prior) income.
Planning a major equipment purchase? The timing and structure of your acquisition can mean six-figure differences in year-one tax savings. Let's map out the optimal approach before you sign.
Book a Free Review →The Binding Contract Trap
This is the detail that's going to catch some business owners off guard. If you signed a binding contract to purchase equipment before January 20, 2025, you don't get the 100% rate — even if the equipment isn't delivered until 2026.
What counts as a binding contract? A signed purchase agreement with a specific price, a non-refundable deposit, or any agreement where both parties have enforceable obligations. A casual quote, a letter of intent, or a refundable deposit generally does not count.
If you're in the gray zone — you started negotiations before January 20 but didn't finalize until after — document the timeline carefully. The IRS will look at when the contract became binding, not when you first expressed interest.
Qualified Production Property: The New Category
The OBBBA created a temporary new category called qualified production property. This covers tangible personal property used in manufacturing, production, or extraction within the United States. While most manufacturing equipment already qualified for bonus depreciation, this new category may capture some assets that previously fell outside the standard MACRS recovery period rules.
If you're a manufacturer, talk to your tax advisor about whether any of your assets — particularly specialized production equipment or custom machinery — benefit from this new classification.
Strategic Timing for Maximum Impact
With 100% bonus depreciation now permanent, the urgency to "buy before year-end" is reduced — but timing still matters:
- High-income years: Accelerating equipment purchases into a year with unusually high income maximizes the tax rate at which you take the deduction
- Financing: You can finance the purchase and still take 100% bonus depreciation — you deduct the full cost even if you're paying it off over 5 years
- Cost segregation pairing: If you're also doing a buildout or renovation, combining bonus depreciation with a cost segregation study multiplies the first-year write-off
This is the most favorable equipment write-off environment in years. The combination of restored 100% bonus depreciation and the doubled Section 179 limit means businesses can immediately expense more capital investment than at any point in tax code history. The question isn't whether to take advantage — it's how to structure it for maximum benefit.