The One Big Beautiful Bill Act (OBBBA) brings a host of impactful tax changes, and one of the most significant for businesses is the enhancement of bonus depreciation. This provision is designed to provide immediate tax relief and incentivize investment in new assets.
What is Bonus Depreciation?
Bonus depreciation allows businesses to deduct a substantial portion of an eligible asset’s cost in the first year the asset is placed in service. Instead of spreading deductions over the asset’s useful life, bonus depreciation accelerates the tax benefit, thereby improving cash flow and reducing taxable income upfront. There are some caveats, but generally, assets with a useful life of 20 years or less qualify. This includes machinery, computers, vehicles, and office furniture. For example, an office desk (7-year life) qualifies, while a non-residential building (39-year life) does not.
What Changed Under the OBBBA?
Previously, under old tax law, the ability to fully expense (100 percent) an asset using bonus depreciation expired after 2022. Bonus depreciation was scheduled to phase out, dropping by 20 percent each year from 2023 through 2027. For 2025, the phaseout meant only 40 percent of an asset’s cost could be expensed upfront.
The OBBBA dramatically changes this landscape. For assets placed in service after Jan. 19, 2025, businesses can once again claim 100 percent bonus depreciation. This means the entire cost can be deducted in the first year. However, assets placed in service between January 1, 2025, and Jan. 19, 2025, remain subject to the old 40 percent phaseout rate for 2025. This creates a clear incentive to time asset purchases accordingly.
How Will This Affect Your Business?
The return of 100 percent bonus depreciation is a powerful tax-saving tool. Businesses can immediately expense the full cost of qualifying assets, reducing taxable income and freeing up cash for additional investments or operational needs. Unlike Section 179 expensing, which is limited and cannot create a net operating loss, bonus depreciation deductions can be used to generate or increase a loss, providing even greater flexibility for tax planning.
For example, if your business acquires office furniture for $5,000 and placed it in service on Jan. 30, 2025, you may now deduct the entire $5,000 in 2025 under the new law. Under the old rules, only $2,000 (40 percent) would have been deductible upfront, with the remainder spread over several years.
Contact Zinner & Co.
The OBBBA’s bonus depreciation provisions offer substantial benefits for businesses planning to invest in new assets. Careful timing and strategic planning will help maximize your deductions and optimize your tax position.
Reach out to your Zinner & Co. Tax Team representative if you have any questions or to further discuss how the bonus depreciation can help maximize tax savings for your business.
