You’ve probably run across the terms depreciation or bonus depreciation or section 179 if you’ve ever bought an asset — like land or equipment — for your business. The rules around depreciation have fluctuated a lot in recent years, including after the passage of the One Big Beautiful Bill.
So, let’s talk about where things are at right now. (We also have a podcast about depreciation and bonus depreciation if you prefer to listen, rather than read.)
What is depreciation?
When you purchase an asset, you don’t usually deduct the full cost of it all at once. Instead, you spread that deduction over the item’s “useful life.”
For example, let’s say you buy a $10,000 piece of equipment, and it depreciates over five years. You might decide to deduct $2,000 per year over the course of those five years. That’s what’s called straight-line depreciation. That approach usually lines up the expense with the income the equipment helps you generate.
Different assets have different timelines. For example, a commercial building gets depreciated over 39 years, while many vehicles depreciate over five. That doesn’t mean your work truck becomes worthless after six years. It just means you have used up the deduction.
What’s bonus depreciation?
Bonus depreciation is accelerated depreciation. It lets you take a bigger deduction in the year you acquire an eligible asset. That way, you don’t have to wait several years to claim the full deduction.
Bonus depreciation has bounced around over the years. Before the OBBB, it had been stepping down and would have landed at 40% for many purchases for the 2025 tax year.
What the OBBB changed
The bill restored a permanent 100% additional first-year depreciation deduction for qualified property acquired after Jan. 19, 2025.
It looks something like this:
- If you bought qualifying property between Jan. 1-19, 2025, you may be limited to 40% bonus depreciation under the step-down rules.
- If you bought qualifying property on Jan. 20, 2025 or later, you may be able to deduct 100% in the year you acquired it.
Bonus depreciation vs. Section 179
Bonus depreciation is often described as a “percentage-based accelerated deduction in the acquisition year.”
While Section 179 can let you choose how much to deduct in year one, up to the purchase price (assuming you meet all the rules and limits).
So, back to our previous example: If you bought that $10,000 piece of equipment and wanted to take $3,000 in the first year, Section 179 can allow that kind of control.
The OBBB figures in here, too. The bill increased the Section 179 expensing limit to $2,500,000, with a $4,000,000 phaseout threshold.
Is bonus deprecation always the way to go?
Not necessarily. IRS guidance says taxpayers can elect to deduct 40% (or 60% for certain longer-production property) for the 2025 tax year instead of 100% for qualified property placed in service during the first tax year after Jan. 19, 2025, and the OBBB made 100% bonus permanent.
Also, it’s important to remember you might not need a big deduction right away. If you take 100% automatically, you can create losses you can’t use, or you can waste lower tax brackets.
Timing still matters
Deciding when it’s the right time to buy an asset for your business still makes a lot of difference. That’s why it never hurts to have a conversation with your CPA about how a purchase can affect your tax bill.
Let us know if you have questions about depreciation or bonus depreciation.